What was changed by the telecommunications act of 1996

Blumberg et al. FCC, No. Supreme Court. See NCTA v. Brand X Internet Services, U. Optional Login Have an account? Sign in Email. Forgot password? Proceed as Guest Continue. This is the case for wireline or wireless networks.

Moreover, market convergence is not simply the ability to bundle voice, data, and video services into a single product offering. Rather, it is a technological spillover from digital technology that reduces entry costs so that firms that already have single - use networks providing voice, data, or video services can now use those networks with relatively inexpensive upgrades to offer multiple services over a single platform.

In this situation, in which underlying costs are likely to limit the number of network providers, public policy can nonetheless foster competition by removing impediments to single-use networks expanding into other markets. At the same time, policy makers should remain vigilant that the few network providers not constrain the ability of independent applications providers that do not have their own broadband networks to compete in those applications markets.

In the new environment, there will be three broad categories of competition and innovation issues, tied together by one common issue. These three categories are:. The common issue: how many broadband networks will there be and how will that affect competition among network providers and competition between those network providers and the independent applications providers? Despite all the technological and market changes that have occurred and continue to take place, competition issues in the telecommunications sector will continue to focus on the physical transport link into both business and residential customers' premises.

The new network architectures may allow many applications to ride on a single physical transmission layer, but access to that layer and competition among the small number of physical network providers remain the primary competition issues. Integrated network providers and independent applications providers come from very different traditions. The network providers the local exchange carriers, cable companies, and wireless carriers come from the tradition of employing a vertically integrated business model, providing, as a single product offering, the network connection and a specific service or suite of services.

They are used to developing and deploying their networks in the context of a business plan that jointly maximizes profits from the physical network and the services they provide over that network. Their network rollout and applications product rollout are coordinated.

Network architecture is driven, at least in part, by the services they intend to offer. Underlying this approach is the assumption that investment can best be supported and innovation can best be achieved by giving the vertically integrated network provider free rein over network architecture, control of network intelligence, and discretion over the extent to which it gives competing applications providers access to its network. In sharp contrast, many of the independent applications providers and their customers come from the Internet tradition of "network neutrality," that is, an Internet that does not favor one application or one applications provider over others.

In practice, even the Internet does not adhere to pure network neutrality; for example, the Internet protocol works well for data applications, which are insensitive to "latency" delay , and less well for voice and video applications that are sensitive to latency, because it lacks a universal quality of service guarantee.

But since until the Internet was supported by government funding, rather than market funding, this approach has not focused in the past on the task of raising sufficient capital to build out physical networks. The vertically integrated network providers and the independent applications providers are not inherently at odds with one another, however; they share many goals.

The Internet environment is characterized by "indirect network externalities," in which independent actions taken by hardware and software providers benefit one another. The greater the investment in physical network to improve connection speed and quality of service, the greater the opportunities for software providers to develop new, potentially profitable applications. At the same time, the greater the number of software applications available, the greater the end-user demand for broadband connections.

A network provider will have an incentive not to restrict applications providers' access to its physical network to the extent that could reduce demand for connections to that network though that effect could be limited if end users have no alternative broadband networks available to turn to. At the same time, vertically integrated network providers might face a counter-incentive to restrict or delay network access to applications providers; an example is if the vertically integrated companies are developing applications that would compete with independent providers' applications and would like to exploit "first-in" advantages.

They also will have the incentive to deploy a network architecture most consistent with their own plans for applications, which may not coincide with the needs of the independent applications providers or with the desire of end users to use their broadband network for applications telecommuting, home networking, or other purposes that might undermine the ability of the network provider to price discriminate or in other ways jointly maximize the profits from its network and own suite of applications.

For example, some critics have claimed that the RBOCs resisted deploying DSL technology in their networks for more than a decade because of concern that offering a high-speed DSL service would cannibalize the revenues and profits that were being generated by their T-1 large capacity dedicated pipe service.

According to these critics, despite the fact that the relatively inexpensive DSL technology had been available for a long time, the RBOCs began deploying DSL only once there was significant risk of ceding the mass market high-speed connection market to cable modems. In a market characterized by economic interdependence between a platform and applications made for that platform, sometimes an arm's-length relationship between the platform provider and the applications providers will be less efficient than a closer vertical relationship.

Academic economists have employed the concept of internalizing complementary efficiencies "ICE" to explain vertical competitive effects—why sometimes the platform provider chooses an open architecture and modular design to interact with the full universe of applications providers and sometimes chooses to interact only with its own vertically integrated applications subsidiaries or affiliates.

But economic theory further explains that platform providers will not always make the optimal choice. There are a number of circumstances when the platform provider's choice might not be efficient or benefit consumers. In a market characterized by high sunk up-front fixed costs and very low variable usage costs once the up-front costs have been sunk, which is descriptive both of the physical broadband network and the software applications provided over that network, it often is efficient for a firm to employ price discrimination to recover its fixed costs.

That is, it may be most efficient to segment customers according to the intensity of their demand for the broadband connection or application , charging a higher price for the customers with higher intensity of demand.

In the case of the broadband connection, that intensity might be measured in terms of the amount of bandwidth demanded. As will be discussed below, such price discrimination based on bandwidth usage need not infringe on network neutrality need not favor some applications over others so long as the market segmentation is based on the amount of bandwidth used rather than on the specific application and so long as customers who want to use the network for a bandwidth-intensive application are able to pay more for that additional bandwidth, rather than being prohibited from using the network to access bandwidth-intensive applications.

In , Professor Tim Wu performed a survey of broadband usage restrictions and network designs for the 10 largest cable operators and six major DSL operators. Cable operators tended to impose far more restrictions on usage than DSL operators. It was not clear how actively network providers had attempted to enforce those restrictions in their contracts with subscribers, though there was anecdotal evidence of some enforcement.

Nor was it clear whether such restrictions would continue when wireless technology was able to provide greater competition to wireline and cable network providers. In some ways, there appear to be fewer usage restrictions today than there were in It is noteworthy, however, that the cable networks imposed more usage restrictions than did the DSL network. There are two possible explanations for this: 1 cable was the largest broadband platform provider and could offer greater bandwidth and these "first-in" and technology advantages might have allowed it to set strategic usage restrictions that other platforms could only set at their peril, and 2 since cable's broadband architecture requires customers to share bandwidth, there was greater need for cable to manage the bandwidth usage of its customers.

Yet, cable operators have not barred streaming video, despite its potential for competing with cable television. It does not appear that these restrictions will go entirely away anytime soon. Vendors are actively marketing equipment designed to facilitate applications-based screening and control for broadcast networks, such as products intended to address peer-to-peer traffic and unauthorized Wi-Fi connections and control over network utilization. Access and usage restrictions may be justified if they are needed to protect the integrity of the network or to operate the network efficiently for example, bandwidth management needed to maintain quality of service.

But there may be situations where the network provider has chosen an overly restrictive solution that will discourage applications innovation and competition. For example, if a network provider must manage bandwidth usage in order to maintain quality of service for video and voice services, it would be more efficient for the provider to do so by setting rates that rise as bandwidth usage increases rather than by prohibiting all bandwidth-intensive applications. The former represents an application of price discrimination that most economists recognize as efficient; the latter may be unnecessarily restrictive.

Professor Wu concluded that, on the whole, the evidence from his survey suggested that the operators were often pursuing legitimate goals, such as price discrimination and bandwidth management. The problem was they often used methods, like bans on certain forms of applications, that are likely to unnecessarily distort the market and future applications development.

The use of restrictions on classes of application to pursue bandwidth management and price discrimination may be inefficient and may unnecessarily harm consumers; the objectives may be attainable through less restrictive means. But after the FCC decision, Verizon replaced that access offering with an offering that only allowed access at the Layer 3 or network level, which in essence is a complete package that the ISP can only resell, without offering additional services.

A Verizon representative conceded the change in service offering, but claimed that "No customers have been cut off and no Internet sites are being blocked, and the customers of these ISPs will have full Internet access under the new service arrangement. More recently, the three largest RBOCs have announced their intentions to take advantage of new technology that allows them to distinguish among the digitized packets on their high-speed networks to charge those providers of applications who want to be able to guarantee their customers an assured quality of service—for example, for voice or video service—a premium for such assured high quality delivery.

That customer might blame its broadband network provider or the applications provider for the degraded service quality even if the problem resided in the Internet. But today an RBOC can distinguish the packets destined for that provider's end-user customers and, by connecting the provider directly to its proprietary IP networks, can guarantee the quality of service of the provider's offerings.

The RBOCs argue that such guaranteed quality of service is of value to the applications provider as well as to the end user, and therefore they should be able to charge the provider a premium for such assured quality. Independent applications providers have criticized these proposed quality of service charges, arguing that the RBOCs could impose high quality of services charges on them that they do not impose on their own applications.

They also have voiced concern that the RBOCs could use the new packet identification equipment to provide better service to their own end-user customers than to competitors' end-user customers, and could strategically deploy network capacity sufficient to meet the quality of service needs of their own applications offerings but not sufficient to meet the needs of their competitors' offerings. There are four general approaches to the regulation of broadband network providers vis-a-vis independent applications providers:.

There have been a plethora of proposals for such regulation, with the proposals sometimes incorporating elements from more than one of these approaches. Ex ante rules and ex post adjudication both typically focus on anti-competitive discrimination that harms consumers, but in distinct ways. Ex ante rules have been characterized as "positive" anti-discrimination rules in that they create affirmative legal duties that are intended to remedy either past discrimination or the likelihood of future discrimination, 56 prohibiting certain activities before the fact.

By contrast, ex post adjudication typically seeks to punish identified episodes of discrimination on a case-by-case basis, after the fact. Positive schemes impose more up-front costs, by restricting certain behaviors, some of which might have proven beneficial to consumers.

But, depending on the cost to consumers in terms of denied access to potentially highly valued applications of allowing discrimination to occur and then adjudicating after the fact, the ultimate cost of ex ante rules might prove lower than ex post adjudication. Although there is not a single agreed-upon definition of open access, it generally refers to a structural requirement that would prevent a broadband network provider from bundling broadband service with Internet access from its own in-house Internet service provider and would require the network provider to make its broadband transmission capability available to independent ISPs on a nondiscriminatory basis.

Proponents of open access argue that if a broadband network provider, such as a cable operator, is allowed to bundle ISP services with its broadband connection at a single price, and not offer the broadband connection separately, it would be in a position to foreclose competition among Internet applications. If the customer has no choice but to accept from the broadband provider a single bundle that includes both the broadband connection and ISP service, then an independent ISP would always be at a price disadvantage and could only compete by offering unique capabilities that are sufficient to overcome that price disadvantage.

This is likely to limit an independent ISP's customer base to those customers with unique needs that are not met by the mass market broadband provider. Proponents of open access claim that allowing network providers to restrict independent ISPs' access will 1 eliminate, or at least reduce, ISP competition; 2 allow legacy monopoly networks to improperly affect the architecture of the Internet in an effort to protect their own business plans; 3 discourage innovators from investing in a market in which a dominant player has the power to behave strategically against them; and 4 make government intervention to control certain forms of speech easier and therefore more likely.

Open access has been criticized on several fronts. First, broadband network providers and a number of academics 58 claim that, due to indirect network externalities and internalizing network efficiencies, network providers do not have the incentive to restrict independent applications providers access to their networks, or would do so only where it was efficient. They further argue that even if one group of network providers—for example, the cable companies—were to restrict access, wireline broadband providers and other competitors are unlikely to follow suit, so independent ISPs would have access to customers.

Some critics claim that open access would retard deployment of broadband networks by reducing the ability of network providers to exploit vertical integration efficiencies and also by reducing the revenues network providers could generate from their applications, thereby making some network investments unprofitable.

They also suggest that the close coordination between a network provider and as applications provider needed for optimal joint development of network and applications is sometimes only possible through vertical integration. For example, Professor James Speta argues that "Vertical integration of access providers may be necessary. Especially in initial periods of deployment, broadband access providers must ensure a supply of complementary information services Also, to the extent open access regulation prevents broadband operators from architectural cooperation with independent ISPs for the purpose of providing quality of service "QOS" dependent applications, it could harm network neutrality.

By threatening the vertical relationship required for certain application types, it could maintain IP's discrimination in favor of data applications. In response to these criticisms of open access, its proponents have pointed out a fundamental contradiction among the criticisms.

On the other hand, critics argue that restricted access is needed to ensure that the network providers generate enough revenues to recoup their investment in the network. The basic principle behind a network non-discrimination regime is to give users the right, by rule, to use non-harmful attachments or applications, and to give equipment and applications innovators the corresponding right, also by rule, to supply them.

It therefore applies both to end users and to independent applications providers. Proponents claim that such a regime avoids some of the costs of structural regulation by allowing for efficient vertical integration so long as the rights granted to the users of the network are not compromised. Proponents contend that the ability of a network provider to discriminate is greater with a digital broadband network than with an analog narrowband network offering dial-up service.

Analog network operators cannot easily distinguish between types of digitized packets of information going across their lines. But digital network operators can distinguish among the packets on their high-speed networks.

Typically proponents of non-discrimination rules are proponents of network neutrality—not favoring one application or applications providers over another.

Proponents claim that a network that is as neutral as possible, with such neutrality ensured by explicit non-discrimination rules, provides entrepreneurs predictability in that all applications are treated alike. This, they argue, will foster investment in broadband applications by eliminating the unpredictability created by potential future restrictions on network usage.

Neutrality provides applications designers and consumers alike with a baseline on which they can rely. Proponents allege the recent restrictions that cable operators placed on virtual private networks is indicative of the tendency of some network providers to restrict new and innovative applications they see as either unimportant or a competitive threat.

Such usage restrictions, they claim, particularly harm those small and startup developers that are most likely to push the envelope of what is possible using the Internet's architecture. Proponents also claim that the most promising path of development will be difficult to predict in advance; neutral network development is likely to yield better results than planned innovation directed by a single prospect holder.

Any single entity will suffer from cognitive biases such as a predisposition to continue with current ways of doing business. These proponents conclude that restrictions on usage, however well-intended, tend to favor certain applications over others. A regulatory framework that requires network providers to justify deviations from neutrality would prevent both unthinking and ill-intentioned distortions of the market for new applications.

The proponents of non-discrimination rules argue that the restrictions that some network providers have imposed on home networking, online gaming, and VPNs not only directly harm consumers and applications providers today, but also have a chilling effect on innovators and venture capitalists considering future applications development and deployment. They argue that the possibility of discrimination in the future dampens the incentives to invest today.

Two very different proposals for ex ante rules merit discussion; one would enact a "pure" ex ante regime, the other would enact a hybrid regime that constructs ex ante rules only where antitrust enforcement might not be sufficient.

Professor Wu has proposed what he calls a neutrality regime that would set ex ante non-discrimination access rules that would apply to the "inter-network" portion of a broadband network provider's network that is, the portion that it collectively manages with other network providers , but not to the local portion of the network that is under the provider's sole control.

Each broadband network provider is a member of two networks: the local network that provides the last-mile of transport to its end-user customers and which it owns and manages by itself, and the inter-network, which it collectively manages with other service providers. If a broadband network provider imposes local network restrictions, usually those restrictions will only affect its local network. Such restrictions are likely to be necessary for good network management. In contrast, restrictions at the inter-network layer or applications layer will affect the entire network, inter-network as well as local network, and can cause externality problems.

The ex ante neutrality regime is based on a non-discrimination rule that distinguishes between discrimination at the local network level acceptable and at the inter-network level unacceptable ; the rule would make operational the network neutrality principle at the inter-network level. Its general principle is: absent evidence of harm to the local network or the interests of other users, broadband network providers should not discriminate in how they treat traffic on their broadband network on the basis of inter-network criteria.

Thus, for example, under the ex ante neutrality regime, a broadband network provider concerned about managing bandwidth would be prohibited from blocking traffic from game sites based on either application information or the IP address of the application provider. But it would be allowed to invest in policing bandwidth usage; users interested in a better gaming experience would need to buy more bandwidth, not get permission to use a given application.

As another example, in the FCC entered into a consent decree with Madison River Communications, a rural telephone company, which had been blocking ports used for VoIP applications, thereby affecting their customers' ability to use VoIP through VoIP service providers.

Since Professor Wu would not regulate customer access to the local network portion of the broadband network, he would allow cable operators to tie cable modem service broadband access to ISP service an application and, similarly, would allow ILECs to tie DSL service broadband access to voice service an application.

But because he would prohibit discriminatory access to the inter-network, Professor Wu would prohibit a cable operator from refusing to allow a customer to use its cable modem to obtain ISP service from another ISP and would prohibit an ILEC from refusing to allow a customer to use its DSL service to obtain voice service from another voice provider.

Ex ante non-discrimination rules have been subject to criticism from parties that argue that such rules would intrude too much into the business plans of broadband network providers.

These critics argue that non-discrimination rules impinge on the ability of broadcast network providers to fully exploit efficiencies from vertical integration or to use price discrimination or other pricing strategies to maximize return on investment.

Professor Wu responds that his proposal, which limits the non-discrimination prohibition to the inter-network portion, minimizes that effect by allowing the network provider to take advantage of those economies of scope and vertical integration advantages such as offering service level guarantees not provided on a shared network that come with building one's own physical network—so long as no restrictions such as prohibiting access to certain IP addresses are placed on use of the shared portion of the Internet network.

On the other hand, some parties have been concerned that by allowing the broadband network providers unlimited control over the local portion of their networks, those providers still could distort applications markets to their advantage, though it might be more difficult or more expensive to do so.

Another criticism of ex ante non-discrimination rules is that they inherently lead to delays, litigation, and other regulatory costs, as parties fight over interpretation of the rules.

The complexity of communications networks, it is argued, renders it difficult, if not impossible, to construct clear ex ante rules. House of Representatives on July 18, February 8, This link is provided for informational purposes only, and should not be taken as an endorsement by the FCC of their content.

Wisconsin Department of Public Instruction links to information related to the Act. February 8, Resources Elsewhere on the Internet This link is provided for informational purposes only, and should not be taken as an endorsement by the FCC of their content.

Wireline Competition. Thursday, June 20, To learn more or opt-out, read our Cookie Policy. Two decades is a long time in the world of technology, and telecom is vastly different today than it was then.

The Telecommunications Act of turns 21 this year — today, in fact. Signed into law by President Bill Clinton on Feb. Its main thrust was to move away from the regulation of monopolies and toward the encouragement of competition within the telephone industry.

The Act had little to say either about the internet or wireless phones. Of course, two decades is a long time in the world of technology, and telecom is vastly different today than it was then.

In , just 16 percent of Americans had mobile phones, which only supported voice communications, with simple text messaging just beginning to appear.

Additionally, less than one-fifth of U. It was not until that the number of homes with broadband exceeded the number of homes with narrowband connections. Finally, the internet itself was very different in Amazon. Larry Page and Sergey Brin were still graduate students at Stanford working on a project that would become Google. Mark Zuckerberg was 12 years old and in junior high school. Concepts such as cloud computing, self-driving cars or the Internet of Things existed only in the realm of science fiction.

The big shift from to has been the convergence of once-separate media into one overarching digital medium known as the internet: Voice, music, news, photos, video — each of which was a separate medium and a separate industry — have converged as they all have become essentially bits in a single broadband bitstream. And old distinctions, like that between wired and wireless access, have become less meaningful as mobile networks move toward wider availability and higher performance.