Telecom Law Deregulates, Regulates

On February 8, 1996, the U.S. government enacted a new telecommunications law. On the good side, the law extensively deregulates significant aspects of the telecommunications industry, from cable to local phone service. On the bad side, the law increases regulation of content (censorship) in telecommunications including the Internet.

The law is the first major overhaul of U.S. telecommunications policy since 1934. Since 1984, local and long distance telephone service has been under control of the consent decree signed at the breakup of the AT&T monopoly. The new law replaces the consent decree, and amends the 1934 law.

Positive aspects of the law include:

Local phone companies will be allowed to offer long distance service.

The seven RBOCs (Regional Bell Operating Companies, or Baby Bells) plan to enter the long-distance market in the next few years.

Local phone service will no longer be a monopoly.

Pricing will simplify.

With repeal of current rules, flat rate per minute long distance calls may become common.

New areas of competition make "bundles" possible.

With fewer restrictions, many companies will compete to be a single source of telecommunications services by offering bundles including local phone, long distance, cellular, entertainment and Internet services.

Broadcasting will have fewer restrictions.

Broadcasters have been restricted in their market reach by various arbitrary numbers, like no more than twelve television stations reaching 25% of the country. The new law's arbitrary limits are fewer and higher, allowing companies to own any number of TV stations, but no more than 35% reach.

Cable price regulation will be ameliorated.

After 1999, cable service beyond the "basic tier" will not be price regulated.

The above changes will likely result in a wave of mergers, split-ups, acquisitions and divestitures as the market realigns itself to natural boundaries.

Competition will likely result in a lowering of prices, although increased demand for telecommunications services tends to counteract this effect. In the short term, local phone rates may rise, as they have been previously subsidized by long-distance access charges, and competitors will need time to install completely separate networks.

Negative aspects of the new law include:

Big Brother in your TV set.

The new law mandates that all new television sets include the "V-chip," a computer chip that will block out "violent" programming as determined by an industry board operating under a government chilling effect.

Big Brother on the Internet.

The unconstitutional Exon amendment censoring the Internet was included in the final law.

Source: February 2, 1996, Wall Street Journal article, "Telecom vote signals competitive free-for-all."