Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, AND GLOBAL COMMUNICATIONS

US Internet Policy, Part 3: The FCC and Consolidation of Broadband

Posted on | February 5, 2021 | No Comments

In this post, I look at the transition of Internet data communications from a competitive market structure to a few Internet Service Providers (ISPs). As digital technology allowed cable and telecommunications companies (telcos) to transition from traditional telephony to packet-switched Internet Protocol (IP) services, deregulation allowed them to dominate broadband services. It also allowed them to not only move data, but diverge from the traditional “common carriage” communications policy that separated the transfer of data from providing content like entertainment and news.

In Part I of this series, I looked at the emergence of the ISPs and the regulatory framework in the USA that classified them as “enhanced services.” This designation was based on the Federal Communications Commission’s (FCC) Second Computer Inquiry in 1981 that exempted online services from a number of requirements that had been imposed on telephone networks. Part II discussed the transition from dial-up modems in the early days of data communications to high-speed Digital Subscriber Lines (DSL). These “broadband” connections accelerated the business and consumer adoption of the Internet in the late 1990s. In Part 4, I will address issues of net neutrality facing the Biden administration in an era of “smart” or “edge technologies” that includes the Internet of Things (IoT) and “connected” cars.

Despite the design and the efforts of the Clinton-Gore administration to create a competitive environment, the Internet came to be increasingly controlled by a small number of ISPs. It is important to understand the policy environment and administrative actions that changed the Internet into the oligopolistic market structure that dominates broadband today. Policy changes allowed telcos to transition from the neutral transmitters of communication to the communicators themselves.

Broadband services in the USA is dominated by large integrated service providers such as AT&T, Comcast, Sprint, and Verizon. These companies have pursued “triple play” service bundles, combining high-speed Internet, cable TV, and IP phone services. Some also provide mobile services. These companies have been merging with content providers to distribute entertainment, education, and news, as well as move all the other Internet traffic. AT&T merged with Time-Warner, giving them access to Warner Bros., HBO, and Turner/CNN. Comcast has completed its merger with NBC, and Verizon bought AOL and Yahoo! Unfortunately, these deals have failed to return the huge rewards they were aiming for and deterred sufficient broadband rollout.

The highly competitive Internet services provider environment during the 1990s was significantly compromised by the Bush administration’s Federal Communications Commission (FCC). Their decisions favored cable companies and telcos and led to a consolidation of control over the Internet. The FCC’s actions raised concerns that powerful ISPs could influence the flow of data through the Internet and discriminate against some content providers or users to the detriment of consumers.

In 2002, the FCC ruled that “cable modem service” was an information service, and not a telecommunications service. Cable companies like Charter, Xfinity, Cox, and Time-Warner became unregulated broadband providers and were exempted from the common-carrier regulations and network access requirements imposed on the telcos. The Supreme Court decision in National Cable and Telecommunications Association vs. Brand X Internet Services meant that cable modem services would become Title I “information services” despite major criticism by Justice Scalia who argued that cable TV clearly offered both content services and telecommunications services. The Justice had no hesitation in calling it “bad law.”[2]

Then in 2005, another FCC decision effectively made telcos unregulated ISPs. FCC WC Docket 02-33 allowed their DSL broadband services to also become unregulated “information services.” This effectively allowed a few telcos such as Verizon and BellSouth to take over what had previously been a competitive ISP industry. The ruling allowed them to offer broadband fiber and DSL Internet access transmission while presenting challenges to previous requirements such as allowing other ISPs “access to facilities” and interconnection. Smaller ISPs had been allowed to physically connect to the “common carrier” telco facilities so that their customers could access the larger Internet.

Internet innovation came from other sources and distracted the public from broadband carrier issues. Facebook and Flickr were launched in 2004. Twitter, Microsoft’s Xbox Live, and online music streaming Spotify went online in 2006. Google bought Android in 2006 and YouTube the next year. Netflix started its streaming service in 2007, and the first iPhone was also released that year.

The success of these innovations did not escape the telcos’ view, who wanted a piece of the action. They wanted to move beyond being just carriers of information to providers of entertainment and informative content. This was evidenced by Verizon’s introduction of FIOS (Fiber Optic Service) TV service in 2005 and AT&T’s U-verse in 2006. ISPs looked to dominate home broadband service by bundling TV, Internet, and telephone voice service over their high-speed IP networks.

In 2003, Columbia Law professor Tim Wu coined the term ‘net neutrality’ to stress the importance of allowing the free flow of data for the Internet’s future. It is based on the notion of “common carriage,” a legal framework developed to ensure that railroads would serve all businesses and municipalities. It basically means that the network should stay neutral and let the bits flow interrupted from device to device at the highest speeds available. This is how the Internet was designed, but the networks have been around since the telegraph and telephone and have developed their own legal and technical ways to survive.

The Internet’s political and social impact was becoming more apparent with the presidential campaign of Barack Obama in 2008. It was recognized by the Pew Research Center that some 74% of Internet users interacted with election information. A significant number of citizens received their news online, communicated with others about elections, and received information from campaigns via email or other online sources.

In 2010, the Obama administration began to write new rules dealing with Internet providers that would require ISPs to treat all traffic equally. In what were called the “Open Internet” rules, the new administration began to design a framework to restrict telecom providers from blocking or slowing down specific Internet services.

In the next post, I will look at the development of net neutrality rules under the Obama administration. Later, the Trump administration renewed attempts to rid the ISP’s from net neutrality interference by returning to Title I. A major question for the Biden administration is the possible return to Title II rules and strengthened rules on net neutrality.

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AnthonybwAnthony J. Pennings, PhD is Professor at the Department of Technology and Society, State University of New York, Korea. Originally from New York, he started his academic career Victoria University in Wellington, New Zealand before returning to New York to teach at Marist College and spending most of his career at New York University. He has also spent time at the East-West Center in Honolulu, Hawaii. When not in the Republic of Korea, he lives in Austin, Texas.

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    Professor at State University of New York (SUNY) Korea since 2016. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, digital economics, and strategic communications.

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