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.