HolidayBuyer's Guide

Happy 10th and bon voyage, Telecom Act

FreedomWorks CEO Matt Kibbe says the 1996 act once served its purpose. But technology has left legislation in the dust.

This week marks the 10-year anniversary of the Telecommunications Act of 1996, which sought to create an open and competitive market. That competition is emerging, but not in ways the regulators anticipated.

As demand for voice, data and video transmission has converged into a single demand for information transmission, the market has moved toward broadband technology capable of providing rapid transmission of any data.

Consumers care less about how data is transmitted than about how much data is transmitted. The Telecommunications Act of 1996 cares more about how the data is transmitted. It must be reformed so the competitive market the act initially sought can be unleashed.

Ten years in regulatory time is a blink of the eye--and that's exactly why the rules are in need or major reform.

That 10-year-old technology regulations are horribly outdated will surprise no one familiar with the pace at which technological change comes at us today. In cybertime, scientists and entrepreneurs are repeatedly proving Moore's law to be true, which predicts that the rate of technological development will double every 18 months, making 10 years a technological eternity. However, 10 years in regulatory time is a blink of the eye--and that's exactly why the rules are in need of major reform.

To see why, consider how technology has changed over the last 10 years.

The Internet underwent a radical transformation as dial-up died, Wi-Fi was born, and broadband blossomed. Phone companies now offer cable TV service, while cable companies offer telephone service over the Internet. Customers are abandoning landlines as wireless companies look to score a "triple play" of video, voice and data capabilities. The iPod, TiVo and BlackBerry are tossed around with colloquial ease.

Ten years ago, the telecommunications market was 90 percent voice, 5 percent wireless and 5 percent data. Today it is 40 percent voice, 30 percent wireless and 30 percent data. In 1996, 37 million Americans were online; this year, more than 200 million Americans are using the Internet.

It is often said that the Internet changed everything. Yet over the last 10 years, almost everything about the Internet itself changed.

As these companies move to provide triple-play services of voice, video and data, the Telecom Act's artificial distinctions no longer apply.

But little has changed with the Telecom Act. A look at the terms used in the legislation reveal its obsolescence. For example, the Telecom Act mentioned the Internet only 11 times. Broadband and high-speed were mentioned once, and DSL (digital subscriber line) wasn't cited at all. The Telecom Act suffered from the fatal hubris that afflicts most government regulations: It falsely assumed it could anticipate and react to the evolution of technology.

Take the story of high-speed Internet as an example. Anyone who has shopped for this service knows the two main options are DSL from a phone company or cable from a cable company. They offer the same service, but they're treated differently by the law. The Telecom Act pigeonholes cable, telephone and other communication services into their own "silos." Each silo is regulated and taxed by different rules and bureaucracies. When the Telecom Act was written, cable and phone lines provided distinctly different services, video and voice, respectively.

But today, as these companies move to provide triple-play services of voice, video and data, the Telecom Act's artificial distinctions no longer apply. When competitors in the same market receive differential treatment from the government, consumers suffer.

Video programming, or what many people call "cable TV," provides a clear example of this. Due to advances in technology, a phone company can compete with cable by transmitting video programs through its fiber-optic lines. But to do so, it must first acquire a video franchise, or license, from every town or city that it plans to serve.

This is no easy task. For one thing, franchises don't come cheap. Local bureaucrats ask companies to cough up as much as 5 percent of their annual gross revenue, which of course raises the cost to consumers. The process is also time-consuming. To receive a franchise, a company must endure endless rounds of hearings, studies, audits and negotiations. At these negotiations, the politicians extort a host of so-called public services, including some completely irrelevant to telecommunications, like maintaining flower beds in front of government buildings. It takes months or even years before a competitor can get the rights to serve one city. All told, it could take anywhere from five to 10 years to be allowed to offer service to an entire state. Because of these restrictions, new innovators are blocked from entering the market and consumers suffer.

These laws originally stemmed from what was seen as cable television's natural monopoly on the market. But as new competitors moved in, the justification of controlling the monopoly faded away. Though these laws no longer make sense, they persist. Local franchise restrictions are but one of many examples of how the shortsighted government regulation of technology hampers progress.

As Europe and Japan surpass America in Internet deployment, Congress must enact sensible telecom reforms that eliminate artificial distinctions and myopic red tape in favor of rules that allow the market to work in cybertime. Sens. Jim DeMint and John Ensign have introduced bills that work toward this end. Among other things, the bills eliminate all local franchises on video programming. They acknowledge that the current rules are outdated and that 10 years from now, half-hearted deregulation will only have held the country further back.

So happy birthday, Telecom Act. But we'd rather say, "Bon voyage."

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