Will Phone Regulations Outlive the Wireline Telephone?

To pay for the Spanish-American War, the United States imposed a tax on telephone services. The idea was to raise revenue for the war, but the tax stayed in existence for 108 years until most of it was killed — not by legislation — but by the circuit courts of appeal.  The tale is a cautionary lesson of the unintended consequences of government action; oftentimes government actions outlive their stated mission, and yet continue for nigh-perpetuity.  After all, as Ronald Reagan joked, the closest thing on Earth to eternal life is a government bureaucracy.

The case can be made that Federal regulation of what are called “incumbent local exchange carriers” or ILECs is past the point of usefulness. Readers might better know ILECs as your local landline provider–provided that readers are not among the 31.6 percent of American households that have ditched landlines entirely and 16.4% that use their wireless services instead of their wireline service.  U.S. Telecom estimates that fewer than half of all households are primarily provided by an ILEC. 

The last major reform of our country’s telephone service regulation came in 1996 via the Telecommunications Act.  That law permitted competitors to challenge dominant ILECs.

However, Congress was living in a world in 1996, when landlines were ubiquitous. The idea that the landline, the staple of telephone service since 1876, would be rapidly replaced by consumers switching to wireless phone carriers never occurred to Congress. Essentially, changes in technology have rendered the old regime of regulation superfluous.  Today, incumbent telephone lines and calls are half of what they were just a decade ago, and there are three times as many wireless phones than wireline phones.  Now broadband services are bypassing the old circuit-switched network with Internet-based voiced services, including free calling services by Microsoft’s Skype and Google Voice.  


The voice telephone market is simply far less concentrated now than it was in the 1970’s–the height of the Federal government’s antitrust action against AT&T.  Today, thanks to intermodal competition from wireless, broadband and other communications platforms like email, texting, game consoles and IM, there is simply no danger that consumers will be gouged by Big Bell.  If ILEC carriers were to increase their telephone prices above market rates, the erosion of landline services would simply accelerate.

Back when telephone service was only really offered by landlines, regulatory safeguards may have been necessary. Today, those regulations misdirect investments into copper networks, hamper innovation and preserve a network that consumers have increasingly chosen to shun.  It is no longer clear how consumers are benefited by these outdated regulations.  As consumer drop traditional wireline services, it’s time for the regulations to end.     

Zac Morgan currently attending George Mason University School of Law and is a writer for the American Consumer Institute.

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2 thoughts on “Will Phone Regulations Outlive the Wireline Telephone?

  1. If anyone believes competition obviates the need for regulation, I invite you to google “rural call termination”. Long distance has been competitive for 30 years, but competition hasn’t prevented certain bad actors from entering and abusing the market.

    1. TXPATRIOT,
      Actually, the problems you cite are the result of regulation that requires long distance carriers to recover hidden regulatory fees, called access charges. These charges were an outgrowth of the breakup of AT&T and have not gone away.

      These access charge regulations require that some telephone companies cross-subsidize other companies, which encourages some companies to create schemes to capture these revenues. These regulations also could mean that a 35-mile call can result in higher “access charges” than a 2,000-mile call. Moreover, access charges can be several times higher depending on the direction of long distance call, even though the exact same facilities may be used. It is all regulations doing this. Also, access charges differ if they are made from a wired phone, wireless phone or IP. These are terrible regulations that cause market distortions and inhibit investment (and competition) in rural areas.

      To read about the regulation of access charges (a fee that is hidden in long distance rates) click here –

      To read about the abuse (that you correctly refer to) click here.

      Thanks for your comments.

      Steve

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