LegiStorm

Summary:

In 1996, Congress enacted comprehensive reform of the nation's statutory and regulatory framework for telecommunications by passing the Telecommunications Act, which substantially amended the 1934 Communications Act. The general objective of the 1996 Act was to open up markets to competition by removing unnecessary regulatory barriers to entry. At that time, the industry was characterized by service-specific networks that did not compete with one another: circuit-switched networks provided telephone service and coaxial cable networks provided cable service. The act created distinct regulatory regimes for these service-specific telephone networks and cable networks that included provisions intended to foster competition from new entrants that used network architectures and technologies similar to those of the incumbents. This "intramodal" competition has proved very limited. But the deployment of digital technologies in these previously distinct networks has led to market convergence and "intermodal" competition, as telephone, cable, and even wireless networks increasingly are able to offer voice, data, and video services over a single broadband platform. However, because of the distinct regulatory regimes in the act, services that are provided by different network technologies, but compete with one another, often receive different regulatory treatment. Also, the act created a classification, "information services," that was not subject to either telephone or cable regulation. Today, some voice and video services that are provided using Internet protocol technology may be classified as information services and therefore not subject to traditional voice or video regulation. There is consensus that the current statutory framework is not effective in the current market environment, but not on how to modify it. The debate focuses on how to foster investment, innovation, and competition in both the physical broadband network and in the applications that ride over that network while also meeting the many non-economic objectives of U.S. telecommunications policy: universal service, homeland security, public safety, diversity of voices, localism, consumer protection, etc. Given the underlying cost structure of broadband networks—huge sunk up-front fixed costs—the marketplace will likely support only a limited number of such networks. Today, the market is largely a duopoly: the telephone company network and the cable company network. The physical network providers argue that they will be discouraged from undertaking costly and risky build-outs if their networks are subject to open access and/or non-discrimination requirements. On the other hand, independent applications providers argue that in order for them to best meet the needs of end users and offer innovative services they must have nondiscriminatory access to the physical network. There is much debate over the advantages and disadvantages of structural regulation (such as open access), ex ante non-discrimination rules (such as mandatory network neutrality requirements), ex post adjudication of abuses of market power on a case-by-case basis, and reliance on non-mandatory principles. There is general agreement that there would be great consumer benefits from entry by a wireless broadband network to compete with the telephone and cable networks. There also is debate about how to modify the universal service program and intercarrier compensation rules in light of the major market changes. This report will be updated as warranted.