Telecommunications Act of 1996 (Part 2)

(Table of Contents--Part 1)

Common Cause has published a research report on the consequences of the Telecommunications Act of 1996 ("Unintended Consequences and Lessons Learned," PDF, by Celia Viggo Wexler), that I just now discovered. Hence, part 2. Common Cause is a very important organization that warns citizens about the hidden agenda of special interest groups in sweeping legislation. Here is its assessment;

Over 10 years, the legislation was supposed to save consumers $550 billion, including $333 billion in lower long-distance rates, $32 billion in lower local phone rates, and $78 billion in lower cable bills. But cable rates have surged by about 50 percent, and local phone rates went up more than 20 percent. Industries supporting the new legislation predicted it would add 1.5 million jobs and boost the economy by $2 trillion. By 2003, however, telecommunications’ companies’ market value had fallen by about $2 trillion, and they had shed half a million jobs.

And study after study has documented that profit-driven media conglomerates are investing less in news and information, and that local news in particular is failing to provide viewers with the information they need to participate in their democracy. Why did this happen? In some cases, industries agreed to the terms of the Act and then went to court to block them. By leaving regulatory discretion to the Federal Communications Commission, the Act gave the FCC the power to issue rules that often sabotaged the intent of Congress. Control of the House passed from Democrats to Republicans, more sympathetic to corporate arguments for deregulation.

And while corporate special interests all had a seat at the table when this bill was being negotiated, the public did not. Nor were average citizens even aware of this legislation’s great impact on how they got their entertainment and information, and whether it would foster or discourage diversity of viewpoints and a marketplace of ideas, crucial to democratic discourse.

Wexler points out that, prior to 1996, there was a 40-station limit on how many radio stations one firm could own. Within a few years, a new media giant arose as a result of the total domination of local radio stations: Clear Channel Communications, owner of 1200 radio stations and 40 TV stations.¹ Viacom/CBS, Disney, News Corp., and General Electric now (along with CCC) dominate TV broadcasting.² Wexler also alludes to consolidation in the telephony business, which is now dominated by 2 non-cellular phone companies and 3 cellular companies.³ Cross-media mergers, such as holding companies owning both newspapers and TV stations in the same regional markets, were abolished by the 1996 act; this has led to a veritable information matrix, in which media firms use one outlet to promote products in another outlet.

Claims made by the industry that consolidation would lead to increased profitability, leading to increased growth and jobs, was patently absurd. At the back of this claim was the notion that different mass communications and entertainment media would challenge each other's market, so that, for example, wireless broadband would force cable/DSL providers to innovate. The frenzy of change in the market would stimulate technology improvements and transform the industry. Not only did Congress profess to believe this, they readily trumpeted the industry's claims that it was on the brink of happening (so antitrust legislation was obsolete), and yet not happening fast enough (so America was losing an opportunity to develop its technological lead).

That competition did not occur was demonstrated by the fact that rates increased while services were curtailed. In many areas, such as where I live, it was a carefully cultivated myth that DSL competed with cable for broadband customers. Only one is usually available, and cable TV customers experience the same mythical competition with satellite. The restructured industry did so not to implement new technologies and services, but to withdraw them and gut local content from TV stations. Firms like Sinclair Broadcasting actually acquired 65 stations, only to turn them into latchkey stations that shut out the market to other entrants.

Finally, the US Congress abdicated its responsibility when it gave away the digital broadcasting spectrum to broadcasters, a $70 billion reward, in exchange for accelerated development of HDTV. Instead, broadcasters used it as a cheap high throughput for still-more generic "content." Decades of FCC mandates on public service were abolished, leaving television broadcasters with zero responsibility to the public and zero accountability to the state.

In telephony, the scheme of allowing the Baby Bells to offer long distance anywhere, while baring them from doing so in their own zones so long as their own local markets were open to competition. In fact, the Baby Bells rapidly merged into two national companies, while using the courts to block entrants into their own local markets.

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Conclusion: the 1996 Act was passed in a spirit of allowing technology firms free reign to compete and innovate. This ignored a century of antitrust legislation and court activity, and even the fundamental logic of market economics: that you cannot have competition without competitors. You cannot create jobs by allowing firms monopoly power, because they will consolidate operations and curtail customer service, while suppressing demand with increased prices. You cannot defend the commons by bestowing it upon the baron.

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1 Clear Channel Communications: the fact that CCC owns 1200 radio stations massively understates their influence over the radio market. In addition to owning 19% of all radio stations in the USA, CCC owns Katz Media, which sells advertising on another 2,000 other radio stations (another 32% of the national market) and 360 TV stations. I cannot overstate the importance of ad spot sales to a radio stations. Additionally, CCC owns Clear Channel Outdoor Holdings, with 870,000 "display properties" worldwide. CCC wears its ideological heart on its sleeve: during the 2002-2003 build-up and launch of the Iraq invasion, CCC secretly financed pro-war (or, if you like, anti-liberal) rallies and then covered them on its media empire. CCC, which effectively owns the entire broadcasting infrastructure for country western formats, punished the Dixie Chicks for criticizing George W. Bush by banning their music. So did Cumulus Media, which owns or operates another 301 radio stations (5% of the national total); Cumulus also sponsored Dixie Chick CD-bashing rallies.

2 There are a total of 1366 commercial television stations in the USA (FCC). CBS owns 39 TV, 185 radio; News Corp. (owns Fox) owns 60 TV; GE (owns NBC) owns 28 TV stations; Disney (owns ABC) owns 10 stations. Clear Channel Communications owns 40 TV stations and 19% of the entire US radio stations by number; its closest competitor, Cumulus, owns 400 radio stations (CorpWatch). This sums to 177, but affiliate agreements cover the vast majority of the rest. For example, about 215 TV stations in the USA are affiliated with CBS news. Changing their format is very costly.

3 Verizon controls 27% of local phone services/24% of long distance; AT&T (SBC & Bell South) control 34%/40% [*]. Verizon controls 30% of wireless revenue, Cingular 28%, and Sprint/Nextel 17%. My sources on the changes, Oligopoly Watch, notes that the situation changes monthly. Most likely one of these three will presently acquire Alltel.