The irony of regulatory reform : the deregulation of American telecommunications

420 Pages·1989·65.434 MB·English

by  Robert Britt Horwitz

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THE DEREGULAT10N OF
AMERICAN TELECOMMUNiCAT10NS
ROBERT BRITtt HORWITZ
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THE IRONW
OF
REGULATORY REFORM
The Deregulation of American TelocoIIlmunications
ROBERT BRITT HORWITZ
New York Oxlbrd
OXFORD UNIVERSITY PRESS
1989
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Oxford University Press
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Copyttht ③ 1989 by Oxford Un市 釘JりPrcss,Inc
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Llbrary of Congress Cataloging― in‐Publlcation Data
Hclwitz,Robcrt BH“
The lrony of regulatory refonn:thc deregulatbn of Ameican
telecommunicatons/Robert BH“ Horwitz
p cm Bおliography:P Includes indcx
ISBN O-19-505445-8
1SBN O-19-506999-4(pbk)
l Tclccommunたation―Unitcd States一Dcrcgulatbn
2 Tcleconlmunication policy― United Statcs I ■tle
HE7781 H67 1988 384'041-―dc19 88-5962
987654321
Pnntcd in the United States of Amcnca
For my father and to the memory of my mother
Preface
Deregulation was one of the political buzzwords of the early 1980s. The Reagan
Administration came to power on a platform dedicated to reducing the size of
government and removing government from the economy. Rhetorically defended as
"getting the government off the backs of the people," deregulation promised to
dismantle onerous regulatory controls and restore to businessmen the freedom of
action they had lost to government bureaucrats. Unleashed entrepreneurialism
would lower inflation, raise productivity, and reverse the sagging fortunes of Amer-
ican industry in the increasingly competitive world economy. And proponents de-
clared deregulation morally right because it constituted a rollback of the arbitrary
power of the state in favor of individual initiative and liberty.
But the actual politics of deregulation had already tumed out to be far more
complex than this rhetoric suggested, and their course was replete with paradoxes.
Whereas the prime targets of the Reagan Administration were the regulatory agen-
cies dealing with social issues, like the Environmental Protection Agency and
Occupational Safety and Health Administration, deregulation affected primarily
agencies that had rationalized economic activities in industries such as transporta-
tion and telecommunications. The latter were agencies spawned or expanded by the
New Deal: the Federal Communications Commission, the Civil Aeronautics Board,
the Interstate Commerce Commission. Ironically, notwithstanding general business
hostility toward much regulation, only those industries whose principal players
generally desired continued regulatory oversight got deregulation. Moreover, the
dismantling of economic regulation had already been initiated before Reagan came
to power.
This book explores the deregulation phenomenon through the concrete prism of
the history of the regulation and deregulation of American telecommunications.
Telecommunications is a particularly interesting industry to study, not only because
of its tremendous technological transformation during the past two decades and the
fact that it constitutes the modern public sphere, but also because of its basic role in
anchoring the so-called "post-industrial" society. Indeed, one of the reasons put
forward for the deregulation of telecommunications was that this key industry had to
"
be unshackled so that the United States could properly enter the "information age.
Regulation was not always held in contempt. After all, the system of regulation
viii
PREFACE
was largely responsible for the stabilization, growth, and universalization of tele-
phone and broadcast industries in the United States. Traditional economic regula-
tion functioned, in today's argot, as a successful "industrial policy." This is not to
say, of course, that regulation was without its problems. The regulation of telecom-
munications by the Federal Communications Commission often functioned as a
form of protection, if not cartel management, for the established players of the
telecommunication industry. The difficulty in assessing regulation rests in the diffi-
culty of trying to identify the public interest in an intricate system of private
enterprise and state controls. It is the task of this book to unveil the complex mosaic
of forces-regulatory, economic, political, legal, and technological-that under-
mined the traditional regulation of telecommunications and eventuated in deregula-
tion and the break-up of AT&T.
I would like to acknowledge the assistance of the many people whose help made this
book possible. Egon Bittner, George Ross, and Yale Braunstein provided much
help in the early phases of the study. Joel Greifinger, Carmen Sirianni, Chandra
Mukerji, and Peter Irons read parts of the ever-changing manuscript along the way
and provided much-needed suggestions and criticisms. The late readings provided
by Daniel Hallin, Barbara Tomlinson, and George Lipsitz helped me finalize
changes at a time when I was desperate to finish. The close and critical readings the
entire manuscript received from Brian Winston and Dan Schiller were invaluable. I
had the benefit of research and bibliographic assistance from A. Margot Gordon,
Dennis Costa, and Wai-Teng Leong. I would also like to thank the reference
librarians at UCSD's Central Library, including Elliot Kanter, Paul Zarins, Sharon
Anderson, and Larry Cruse.
Special thanks go to the following friends: Michael Schudson, who commented
on more drafts of chapters than he probably would have liked; Priscilla Long, whose
close copyedit ofthe near-final version was as wonderful and generous a gesture as
it was helpful; Lew Friedland, without whose counsel, discussion, and criticism the
manuscript would have suffered incalculably; and Libby Brydolf, who suffered with
me through the many drafts and agonies with equanimity, close reading, and wise
suggestions.
Lα Jο′J♭ R.B.H.
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Contents
Chapter 1 0 Telecorllmunications and lheir Deregulation:An
lntroduction・ 3
Chapter 2 0 Theo五es of Regulation 0 22
Chapter 3 0 The`lGateway of Comlnerce'':A Theory of Regulation 0 46
Chapter 4・ The Evolution of the Ame五can Telecommunications System
and the O五gins of Communication Regulation 0 90
Chapter 5 0 ``One Policy,One System,and Universal SeⅣ ice''・ 126
Chapter 6 0 ``Congress lntended to Leave Competition in the Business of
Broadcasting Where lt Found lt'' 0 154
Chapter 7・ The Road to Regulatory Refo■ 1110 196
Chapter 8・ The Deregulation of Telecommunications e 221
Chapter 9 ・ Conclusion:Froln】Deregulation to Reregulation? ・ 264
Notes・ 285
Bibliography 0 373
1ndex 0 399
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CHAPTER
1
● ● ●
Telecommunications and Their
Deregulation: An Introduction
The telecommunications revolution, we are told, has arrived. Telecommunications
used to mean the telephone, a mature, rather dull, and highly regulated industry
dominated by the staid Bell System. For most of us, the technology of the telephone
was so good and reliable, and its uses so set and inflexible, that it was functionally
forgotten. For corporate users, telecommunications represented just another mun-
dane cost of doing business. Telecommunications also encompassed broadcasting, a
more glitzy endeavor than telephone to be sure, but one primarily characterized by a
remarkable stability of three commercial television networks that aired mostly im-
itative and inoffensive entertainment programs, along with one poorly funded pub-
lic network.
Today the very term telecommunications may be too confining. The once sta-
ble, noncompetitive businesses of telephone service and equipment manufacturing
have become dynamic and highly competitive. Telephone technology has merged
with that of the computer to vastly enhance the capabilities of both. The resulting
fusion, sometimes labeled "information technology," has become a vibrant, bur-
geoning industry, reconfiguring business practices and permitting corporations to
slash operating costs and automate the workplace. Some government policy-makers
have pronounced information technology the United States' most important indus-
try. Likewise, broadcasting has been so transformed by satellites, the abundance of
cable television, and videotape technology, that the traditionally limited television
system seems nearly a thing of the past. There are now sports channels, news