The FTC & net neutrality

(Series on Communications Law, USA)

I was alerted by a series of posts that alleged that the Federal Trade Commission (FTC) had abandoned net neutrality. This is not exactly accurate, and I'd like to start over and explain to readers (in brief) the meaning and status of net neutrality. Top FTC officials are hostile to the concept of net neutrality, since the FTC regards its primary mission to devise and promote legal standards that favor export revenue. Should Internet neutrality be enshrined into law, the FTC believes it will be undermining the telecommunications sector's ability to capture rents from its infrastructure. This issue has come up during a period where the FTC is entirely beholden to the telecoms, and it has continuously advertised its position that it believes what is good for AT&T is not only good for America, but the epiphany of justice as well.

However, as an arbiter, the FTC needs to validate its position in trade law; it may not rule by whim. Hence, it has published endless "studies," which amount to editorials that might have been written by attorneys for the major telecom firms. It is Congress that must decide.

The Internet uses a system of packet switching to transmit very large amounts of digital information over existing telephone, coaxial cable, and DSL lines. In the past, when people used telephone lines solely to communicate orally, the effect was analogous to a train, which occupied the track (so to speak) for the entire duration of the phone conversation. If we pretend that all roads consist of one lane, and that they are interchangeable with railroads (so that, for example, it were possible for trains to use—and tie up—the highway for half an hour at a stretch), then the analogy is nearly perfect. Only one train headed for one destination may occupy one track at a given time. This is compatible with the immense loads that trains—or telephone conversations—carry. A 100-car train may carry about ten thousand tons of freight; a telephone conversation, a continuous stream of rich audio data. In contrast, digital transmissions need only communicate a finite string of bits. This is equivalent to thousands of little Vespas buzzing onto and off of the highway. Even when an internet connection is active, its connection to the server can be analogized to an intermittent traffic of a few hundred scooters. Naturally, other scooters can fit in between them with ease. During the course of an internet session of (say) two hours, the volume of data transmitted may well be equivalent to a telephone conversation of one or two minutes. That means that several scores of internet connections may have the same telephone load as a single telephone call.

Of course, the TCP/IP protocol makes this possible by arranging the data into packets of fixed duration, which then flow through like cars through a busy city center. The Internet Protocol acts like a system of traffic codes and signals that coordinate the packets so that they flow smoothly. The interesting thing about this is that, with improvements in data compression technologies, it is (ironically) possible to use the Internet to transmit audio files as bit packets, more efficiently than as analogue streams—the thing that telephone lines were created to do. Another point to bear in mind is that the Internet and the IP protocol have evolved over time so that most traffic now occurs over broadband connections, in which data is transmitted hundreds of times more rapidly. The physical constraints of 1990's-era telephone lines have been superseded by ethernet and coaxial cable, but this merely means that the load of potential data that can be transmitted has physically increased, without a drastic shift in the prevailing rules.

Now, in the past the IP system has been utterly, relentlessly neutral. The analogy to cars moving through a vastly busier traffic network, with vastly increased capacity, still holds. Stoplights don't award faster access to the cars of wiser and busier people, at the expense of cruisers and idle wastrels. In fact, the physics of vehicular traffic is somewhat different from that of internet connections; so in my TRON-like universe, packets marked "Priority A" are awarded with closer spacing (and hence, greater volume) than packets marked "Priority B."

The vast majority of internet connections are provided by telephone companies, which created the system of "pipes" based on the presumed mixture of conventional telephone calls and broadband internet connections. The premium on telephone service is so huge that it makes telephone monopolies immensely profitable; from a financial/business perspective, internet service is just a way of getting additional revenue at little marginal cost. The problem is that services such as voice-over-internet protocol (VoIP) would mean that the main revenue stream for telephone companies would be cut off. Instead, people would use the phone company for internet connections, if that. A huge number of Usonians already get their phone service through their wireless service anyway. With technologies like Bluetooth and Wi-Fi, a Skype subscriber can actually use her cell phone at work or at home, and get VoIP service as if she were communicating through a headset plugged into her computer. That would effectively cut out the PCS companies as well as the landline telephone companies.

One way of getting their money back is for telephone companies to use a strategy known in basic economics as "discriminatory pricing." This means that people using the Internet more heavily (as, for example, those who get movies or VoIP through it) would pay a premium, but get better service. Better service, in this case, would mean VoIP packets would get a higher priority.

It's interesting to note that a mass migration of telephony and television services to IP channels of delivery would lead to a new business model under which broadcasters networks, cable TV providers, and telephone companies would all become virtually indistinguishable businesses, all providing a mixture of IP-related services. In the same way that all financial services in the United States were allowed to merge into nationwide supermarkets of finance, it seems likely that all entertainment and communications services in the country would become a single amorphous sector of the economy. And just as supporters of the financial supermarket concept argued that there would be increased competition among financial service providers, so members of the telephone companies are arguing that they face increased competition from VoIP (which is usually delivered over phone company lines). In order to support innovation in Internet multimedia, some form of discriminatory pricing will be required.

Where this is alarming is when the ISP's and search engines collude to apply a discriminatory pricing model to websites. We're already accustomed to search results offering the lowest prices on "The Damned of the Earth."* In the future, search engines like Google or Yahoo! would have to tweak their search algorithms to reflect the new primacy given to bandwidth-intensive services, like... CNN, Fox News, and so on. In effect, the Internet would become extremely skewed towards commercial media, and net-based activism would be vastly more difficult.

However, at this time, I am not aware of there having been any recent developments on potential legislation.

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SEE ALSO: Video on net neutrality (RSNL&A)

*Not a reliable result; The Damned of the Earth is a notorious book by Frantz Fanon, and also a line from the French version of "The Internationale." I recall conducting a search in the hopes of finding the text online, and instead was offered "The lowest prices on..." OK, I thought it was really funny.

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SOURCES & ADDITIONAL READING: "We Still Need Net Neutrality Legislation," David DeJean (4 July '07); "FTC Net Neutrality Report Tortures Logic," Net Neutrality, Policy Blog; "FTC abandons net neutrality," Vnunet.com; "Navigating Between Dystopian Worlds on Network Neutrality" (PDF), speech by FTC Commissioner Jon Leibowitz (Feb 2007) & "FTC Chairman Addresses Issue of 'Net Neutrality'," FTC (Aug 2006); Oligopoly Watch, "Oligopoly and network neutrality" (21 Jan 2006);

Telecommunications Act of 2006 (Part 2)

(Table of Contents--Part 1)

Net Neutrality

Net neutrality is the concept under which internet service providers (ISP's) are treated legally like common carriers. As a "common carrier," they are legally required to provide access to all; they may not exclude anyone. In contrast, ISP's want to be accorded "free speech rights" that allow them to exclude digital signals to which they object.

The real motivation for challenging network neutrality is as follows: digital packets of data are transmitted on a "first-come first serve" basis; the internet is allegedly biased against large packets, as on voice or video. Hence, the legal principle of network neutrality was challenged on the grounds that, in the technical sense it was applied, it wasn't really neutral--it made voice-over-internet protocol (VoIP) and IPTV costlier than they out to have been. So the FCC rephrased its regulatory principles to declare that customers were entitled to the lawful Internet content of their choice.

So ISP's have lobbied for a two-tiered system of charging for internet transmission to alleviate congestion and finance infrastructure; the goal would be to reconfigure packet switching so that voice and video packets would reliably move through the system on time, i.e., allowing real-time transmission of data. This would alter the internet from a "dumb" network, in which data flows according to the relentless application of simple rules, to an "intelligent" network, like telephones, in which traffic is controlled and managed through human selection. It would increase the applications available online, and increase the opportunity for price discrimination by ISP's (thereby allowing customers desiring premium services to pay more for them).

However, there has been considerable speculation about how ISP's might abuse the power of discrimination--or an alternative definition of net neutrality. Finally, price discrimination would tend to replicate the economics of other kinds of broadcast networks. The ability of blogs to act as a countervailing voice online would be jeopardized as multi-tiered internet delivery systems essentially reduced the blog to an online personal file storage system, accessible only to the editor and her associates.

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SOURCE:
Wikipedia: Network Neutrality

Telecommunications Act of 2006 (Part 1)

(Table of Contents)

When legislators announce the need for revising regulatory legislation, it's vital to understand what they believe is wrong with the old legislation. For the last 28 years such legislation has been reliably geared towards making it easier for firms to maintain a profitable relationship with customers, while removing obligations to the community. Public statements made by legislators have emphasized that media firms such as Time Warner, NBC Universal, and Viacom/CBS* have been pointlessly thwarted in their endeavor to aquire control of other media channels.

It's an astonishing thing to say, but the National Association of Broadcasters (NAB) claims that the 1996 Act did not go far enough in deregulating the industry. The basis is not, after all, so surprising: there are rival media formats (radio versus newspaper) and the newspapers enjoy an immunity from antitrust legislation that is quite extreme. The name of this legal concept is "regulatory parity," and it insists that existing regulations discriminate against various types of media. In fact, the notion that press, broadcast radio and TV, telephony, broadband, and cable TV are all so similar they are entitled to identical regulation, is a product of academic abstraction.

The simple underlying premise behind regulatory parity is that because telephone, cable and broadcast companies are competing to provide consumers communication products they should be treated equally. Why should broadcasters suffer the burdens of license obligations? The cable companies don’t have this problem. Why should cable companies suffer the burdens of local franchise commitments? The broadcasters don’t have to report to local communities. Why should telephone companies have to share their infrastructure with competitors? The cable companies don’t have to. And, of course, what the industry means by regulatory parity is getting rid of rules they don’t like.

Any serious examination of the laws applied to telephone companies, broadcasters and cable companies will reveal a complex set of rules arising from very different political and legal histories, different economic structures, different engineering challenges, and different jurisdictional relationships. As Sherille Ismail demonstrated in his article "Mapping Regulatory Treatment of Similar Services," Katz is not comparing apples and apples; there are so many important differences between broadcast, telephone, and cable companies that the simple notion of similarity quickly falls apart. Intelligent policymaking does not mean ignoring real distinctions and treating everything that seems similar as though it were the same.

The alleged danger posed, according to Katz, is that failure to achieve regulatory parity will result in regulation determining consumption patterns. The problem with Katz's reasoning is that he is arbitrarily applying an academic category--"media"--to what is, in reality, very different enterprises. The real goal of regulatory parity is to provide a legal foundation for challenging any regulation whatsoever.

Ironically, while media firms would avail themselves of a bizarre legal-cum-economic doctrine to win final and complete release from regulation, consumers would face profound restrictions on the technology available to them; satellite radio sets would have to be modified to prevent users from recording songs off the radio.

(part 2)

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*Time Warner: formerly AOL Time Warner; merger in 2001 was a financial and technical debacle, resulting in one-year loss of $99 billion (2002-CNET).
NBC Universal: General Electric owns 80% of NBC Universal; Vivendi owns the rest.
Viacom/CBS: Viacom is the film-production and cable side of the old Viacom (before the late 2005 split); CBS Corporation owns the CBS and UPN broadcasting networks. Both Viacom and CBS are controlled by the National Amusements chain of movie theaters. I would argue that, following the business philosophy espoused by the financial press since around the 1970's, the breakup of Viacom into two firms controlled by the same holding company has enhanced the efficiency of both as dominating mindshare.

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Sources for this post:
Wikipedia, "Telecommunications Act of 2005" [sic].

"The People's Guide" (download PDF), Center for Media and Democracy; via "Making Sense of the Telecommunications Act of 2006 -- Introducing "The People's Guide" (for You & Me)," saschameinrath.com

As of posting, this bill had not yet become law. Here was the draft (via Wiki). In Nov. '05, US Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee, issued a statement outlining the motives of the overhaul.

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.

Telecommunications Act of 1996 (Part 1)

(Table of Contents)

For many years, radio and television were governed by the Communications Act of 1934. During this time, repeated modifications and legal judgments altered the effect and purpose of the legislation. For example, in the early years of its operation, the FCC (a product of the act) was preoccupied with regulating the content, including the political content, of broadcast licensees. By 1996, the staff of the FCC devoted to content matters was as large as it had been in 1934, yet there were fifty times as many licensees.

For a discussion of the Telecommunications Act of 1996 (TCA-96), it is useful to look at the philosophy of the drafters. From the point of view of an admirer,

Economides: The 1996 Act envisions a network of interconnected networks that are composed of complementary components and generally provide both competing and complementary services. The 1996 Act uses both structural and behavioral instruments to accomplish its goals. The Act attempts to reduce regulatory barriers to entry and competition. It outlaws artificial barriers to entry in local exchange markets, in its attempt to accomplish the maximum possible competition. Moreover, it mandates interconnection of telecommunications networks, unbundling, non-discrimination, and cost-based pricing of leased parts of the network, so that competitors can enter easily and compete component by component as well as service by service.

The 1996 Act imposes conditions to ensure that de facto monopoly power is not exported to vertically-related (complementary) markets. Thus, the Act requires that competition be established in local markets before the incumbent local exchange carriers are allowed in long distance service.

The Act preserves subsidized local service to achieve "Universal Service," that is, the provision of basic local service to the widest possible number of customers. However, the Act imposes the requirement that subsidization is transparent and that subsidies are raised in a competitively neutral manner. Thus, the Act leads the way to the elimination of subsidization of Universal Service through the traditional method of high access charges

This was the technology of regulation side of the legislation; content regulation was mostly covered under the Communications Decency Act (CDA), Title V of TCA-96. The CDA regulated internet content, which was problematic since the actual subject of the regulation in this case would be internet service providers (ISPs) or web hosting services. The former are exempt from liability for indecent/obscene content from 3rd parties (e.g., if I post something vile at my other blog, and your child accesses it through AOL, AOL is not liable). Oddly, efforts to prosecute spammers (including obscene spammers) and phishers have not been consequential although most spam originates from a small number of US-located servers. This seems like it would be an uncontroversial use of FCC resources. The CDA did allow ISPs complete permission to block sites they deemed risky; an ISP with a strong political motives could presumably have chosen to block domains associated with views the proprietor found objectionable. I am not aware of legal challenges to this. As for the rest of the CDA, indecency provisions have been struck down. Action against non-internet communications providers have been comparatively rare, despite the increasing tendency for prurient advertising.

According to Economides, the TCA-96 responded successfully to a new dimension of the TCIT industry, that of greatly enhanced competition. For example, the networks now were against the ropes in their competition with cable; cable also competed with local carriers and wireless for broadband internet. The main industry opposition to the TCA would have been the incumbent local exchange carrier (ILEC), or service connecting the telephone user to the global network of telephony. This sector was exposed to new and direct competition from longer-distance providers.

Among the most decisive changes wrought by the TCA-1996 was a lifting of prohobitions on further consolidation of media firms, another concession to the putative reality of increased competition of media.

(part 2)

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phishing: a scam that involves sending gigantic numbers of email to people purporting to be from some financial services firm and requesting they respond with financial information such as their account user name and password. Only a small percentage of those who receive such messages will even open them, let alone take the bait, but the amount lost to fraud is large (About $1 billion annually; Wiki). Not related to the 1980's band Phish.

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Sources for this post:
Wikipedia, "Telecommunications Act of 1996"

"The Telecommunications Act of 1996 and its Impact," Nicholas Economides, September 1998

Oligopoly Watch, "Oligopoly brief: Clear Channel," July 12, 2003; "Industry brief: US phone industry (Part I)," December 13, 2003; "Phone concentration," August 03, 2004

Text of Law (1996)

Communications Act of 1934

(Table of Contents)

The Communications Act was passed in 1934 to replace the Radio Act of 1927. As a result of it, the Federal Communications Commission replaced the FRC. As suggested by the new name, the FCC differed from the FRC in that the new entity regulated both radio and wire communications. This Act was naturally going to reflect the general tone of New Deal legislation; however, its progressive measures were fairly subtle. One was section 315 ("The Fairness Doctrine"), which was usually interpreted as compelling broadcasters to offer "equal time" to political candidates when differing points of view were broadcast. The Fairness Doctrine was an early casualty of the Reagan Administration, officially on the grounds that it actually promoted mediocrity and conformity. Another was a prohibition of commissioners from being executives of telecommunications firms.

The 1934 Act was mainly a product of prolonged use and ammendment. It was, for example, modified in 1959 to exempt news broadcasters from the "Equal Time" doctrine. In 1943 it acted to reduce network consolidation, creating ABC from part of NBC. In 1970, Congress passed the Prime Time Access Rule (PTAR), which required networks to grant half an hour each night to local broadcasters. Local broacasters merely used this widfall to broadcast reruns and game shows.

In regulating the telephone industry the FCC was far weaker. According the thesis of regulatory capture,* one would expect it to gradually fall under the control of the radio and television lobby because of the relatively large number of firms in that industry c. 1934; in contrast, telephones were already a monopoly in 1934, and the FCC played a very weak role. It issued an 8,000 page study of the industry establishing that tariffs were too high, but failed even slight efforts to break up the vertical integration of the enterprise until the 1980's. As everyone knows, a mere quarter century later the monopoly is now a duopoly of SBC and Comcast (with Sprint a runner up in wireless). This would reflect the concept that the FCC's capture by the telephone industry was not an obstacle because the telephone industry had a single interest: to avoid regulation.

Several factors stimulated the end of the "1934 regime" in telecommunications: the near-extirpation of the old structure of the industry, with clear divisions between mass communications and telephony now gone. Another was the de facto merger of information technology (IT) with telecom (TC), creating a new and now-prestigious TCIT sector. Another, evidently, was that the process of regulatory capture had so totally run its course that Congress was now infected.

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* Regulatory capture: firms tend to win control over the government bodies intended to regulate them. Hence, the FCC will gradually become a handmaid of the media monopolies. Possibly proposed by Adam Smith, and later, by historian Gabriel Kolko. A really good summary of the matter is found at Writer of Fortune:

"Regulatory capture" is the name Kolko and others applied to a particular phenomenon: when regulators serve the interests of those they're allegedly regulating in the general public interest. It was known before Kolko's work, but regarded as a dysfunctional aberration that sound policy reliably enforced could take care of. Kolko put the heyday of Progressive regulation under close scrutiny and argued that in fact regulatory capture wasn't just common, it was the norm. He found no important exception to it emerging, and usually emerging very early on in the history of a regulatory agency. As the phrase "triumph of conservatism" suggests, Kolko argued that whatever liberal reformers may have intended and whatever the public may have believed, business interests took control of the actual regulatory process early on and made it work for them.

The basic mechanics of regulatory capture are straightforward. You give more attention to a particular law or agency if you feel that you have something at stake - you're more likely to know about the laws and policies that affect your work, your hobbies, and issues of particular concern to you. And if you're someone important in a business that's about to come under regulation, you have a lot at stake.

Regulators may start off hostile to their subjects, and in some cases this is very much deserved. Libertarians may grouse about, for instance, government imposition of standards for food safety, but even setting Progressive rhetoric aside, the Pure Food and Drug Act came into being in response to real concerns that business was not addressing. Whether it might have addressed them in time is another matter, and one has to be fairly detached to say that people should have waited patiently in the face of diseased meat, food contaminated by offal, bugs, and anything else that fell into the vats, and so on. And freshly regulated businesses often start off hostile to their regulators - also often with good reason, since a lot of regulators start off with a "damn them all, and hang them high" attitude.

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Sources for this post: Wikipedia: "Communications Act of 1934"

"The Communications Act of 1934 was a Mistake," unsigned, The Ethical Spectacle

"The Public Interest Standard: the Elusive Search for the Holy Grail" Erwin G. Krasnow, 1997

"Radio and Television"; "The Telephone Industry"; Prof. Marc A. Triebwasser, 1998; Internet & Multimedia Studies, Central Connecticut University, New Britain, CT

Courts of Specialized Jurisdiction

Text of the Act (1934)

Radio Act of 1927

(Table of Contents)

Prior to 1927, radio communications were regulated by spotty and ineffectual legislation, mainly by the Department of Commerce. Legislation of the day made it virtually impossible to deny a broadcasting license, which led to competing radio stations effectively jamming each other's broadcasts. Hence, a primary purpose of the Act was to regulate transmission frequencies, power, and purity (fidelity) of the broadcasts.

According to one analyst (Goodman, 1999), one of the important motives of the Act was to modulate the flow of ideas on the radio. The language of the bill protects free speech, but this meant only that indirect methods would be needed to resist the menace posed by political radicalism. At the time, the Progressive Movement was fading into a narrowly populist, bureaucratizing force in American life. Its factions had become split, with White Protestants determined to restrict the political options of the comparatively new population of Southern/Central European Catholics and Jews. From the other side of the [old] political divide were industry advocates, who wished to use the regulation to build up a lucrative cluster of firms with the financial incentives to invest in new technology. Attempting to bridge this gap was then Secretary of Commerce Herbert Hoover, who was (by the standards of the time) fairly close to the later Progressives in spirit.*

The legal strategy employed by Hoover and the authors of the 1927 Act was to declare that radio was a peculiar variety of public utility insofar as it entered the domain of the household and hence imposed on the listener. The right of the listener to be protected from obscenity was then taken to extend not only to profane speech, but speech that challenged racial segregation. The Blease Amendment, which proposed to ban mention of evolution on the radio, was mercifully rejected; but Sen. Clarence Dill (D-WA) and Rep. Wallace White (R-ME), the experts responsible for crafting the bill and guiding it through Congress, reassured Congress by bluntly explaining that radio was not to be a forum for public debate. Communication via radio was to be declared a privilege, requiring access to public property (the air waves); hence, broadcasters obtained the right to access to the airwaves by sustaining the public interest. In testimony before Congress, White (the legal expert in the bill's drafting) assured Sen. Mayfield that the language of the bill would allow the exclusion of "fringe candidates" from "legal qualification" for participation in national debates. This was intended to prevent individuals from using radio as the foundation of a political power base.**

SCOTUS had already ruled that federal regulators had the power to restrict free speech if it violated the national interest:

Congress' limited concept of free speech was consistent with a decade of U.S. Supreme Court rulings, including opinions written by Justices Oliver Wendell Holmes and Louis Brandeis, two Progressives on the Court. Beginning with Schenck v. United States (39 S.Ct. 247) and Frohwerk v. United States (39 S.Ct. 249) and then in Debs v. United States (249 Federal 211) and Abrams v. U.S. (40 S.Ct. 17), the Supreme Court in 1919 upheld the constitutionality of the Espionage Act as a tool to quiet discontent against the U.S. effort in World War I. Such speech was illegal because its intent was to obstruct the draft and the war effort, Holmes argued in Schenck, Frohwerk, and Debs. The decision in Frohwerk shows the limits that the Supreme Court was willing to place on free speech, even if the danger created by free speech was only possibly a threat to the U.S. Holmes agreed the German-language newspaper that Jacob Frohwerk wrote for had made no special effort to reach draftees. He noted its circulation was so small that the paper had no means to obstruct recruiting. Holmes warned, however, that the paper represented a little breath that could "kindle a flame" in the "tinder box" of the German community, and, therefore, Frohwerk's writings were a threat to national security.

Speech believed to imply an incitement to revolutionary action was also regarded as overstepping the First Amendment guarantee. The conception that radical speech was an actionable violation of "the public interest, convenience, and necessity," was based on Progressive Movement conceptions of the latter:

Godfrey looked in his dissertation at Progressive influence on the Radio Act. He makes particular note of the Progressive roots of Sen, Clarence Dill, one of the architects of the Radio Act, and his identification with Progressive senators James Watson, William Borah, Robert La Follette, Hiram Johnson, and Burton Wheeler. According to Godfrey, one of the areas of Progressive influence was in the selection of the language "public interest, convenience, and necessity." These words were a way of balancing industrial control of radio against the potential for government censorship. To Godfrey, "The founders of the legislation sought to provide a degree of regulation that would preserve industrial freedom and the public interest."

Additionally, the independent commission (one sixth of the membership of which was appointed each year) was a format associated with Populist/Reformist legislation of the time. It was reflected, for example, in the design of the Federal Reserve Board.

Krasnow (1997) suggests that the main effect of the 1927 Act was felt in implementation. The FRC ruled that station programming was a crucial factor in establishing whether the station served "the public interest, convenience, or necessity."

In 1930, the FRC denied renewal of the license of KFKB, Milford, Kansas, on the ground that the station was being controlled and used by Dr. John Brinkley, the "goat-gland doctor," to further his personal interest. The "Medical Question Box," a program aired in three half-hour segments daily, featured Dr. Brinkley answering questions from listeners on health and medicine. In response to listener questions, Dr. Brinkley usually recommended several of his own prescriptions from his own pharmaceutical supply house. The FRC held that Brinkley's practice of diagnosing patients who he had not seen contravened the public health and safety and therefore, the public interest. It also found that he operated KFKB solely for his own private interests.

It's difficult to find fault with this decision. However, a disturbing aspect was the FRC's statement in its ruling that rejecting a renewal after the fact, i.e., because of the appellant's conduct before renewal, was prima facie not censorship.

The FRC also denied the application for renewal of license of KDEF, Los Angeles. That a station was used primarily to broadcast sermons by Trinity Methodist Church's pastor Reverend Bob ("Fighting Bob") Shuler, who attacked Jews, the Roman Catholic Church, law enforcement officials in Los Angeles, and many others. Shuler based his appeal on constitutional grounds, namely, that the FRC decision violated his First Amendment to free speech and his Fifth Amendment right to due process of law.

One of the issues before the Court of Appeals was whether the FRC's refusal to renew Shuler's license was a prior restraint under the then recently decided case of Near v. Minnesota, 283 U.S. 697 (1931), or just a post-publication punishment. The Court of Appeals concluded that while a citizen has in the first instance the right to utter or publish his sentiments, it is "upon condition that he is responsible for any abuse of the right."

Hence, SCOTUS confirmed the principle of the FRC to use its discretion in regard to programming.

Content-related issues dominated the regulatory action of the FCC; many educational broadcasters were forced off the air or compelled to shift to such low powers and schedules as to make them useless for adult education. This would appear to have reflected the franchise interests of the "successful elements of the industry" that Pres. Coolidge had advised Hoover to turn to for advise on how to regulate communiations.

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NOTES:
* Readers unfamiliar with American politics need to understand that, beginning in the late 19th century, a conflict raged among Progressives, social democrats, and the hard left (Communists and Anarchists). The Progressives favored clean government and small enterprise; they usually tended to oppose social welfare legislation. Progressive initiatives sought to make capitalism work by preventing the growth of monopoly and by facilitating efficient public services. The Progressives eventually merged with the Republican and Democratic Parties (primarily the latter). The social democrats (a generic term of political art) included Eugene Debs' Socialist Party; years later, it would include the political wing of the AFL-CIO and Max Shachtman's SWP. The hard left favored a revolutionary overthrow of capitalism, and included the Communist and Anarchist Parties; a part of the hard left was the Industrial Workers of the World (IWW), whose members' lives were ruined by severe persecution, including lynchings and deportations.

The socialist-communist split in Western Europe and North America was supposed to have been bridged in the mid-1960's with the "New Left" seeking to create a united front against US foreign policy and racism. This was not terribly successful in North America; the hard left has, if anything, become mainly obsessed with its loathing of the social democratic tendencies of American politics (AKA "liberals"), while liberals sometimes attempt to throw the hard left to the wolves. An example of this would be the eagerness of the AFL-CIO's efforts to purge Communists from its ranks, or collude with the US State Department in purging Communists from non-US labor unions that it advised.

**In defense of White, et al., it must be noted that in Germany a virulent demagogue named Adolf Hitler had done precisely that. For contemporary attitudes about the demagogic powers of the airwaves, I recommend the George Cukor movie Keeper of the Flame, staring Spencer Tracy and Katherine Hepburn (1942).

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Sources for this post: Wikipedia: "Federal Radio Commission"

Text of the Radio Act of 1927 (PDF), Mark Goodman, Media History Monographs, 1999

"The Radio Act of 1927 as a Product of Progressivism"

"The Public Interest Standard: the Elusive Search for the Holy Grail" Erwin G. Krasnow, 1997

Communications Law: USA

List of Entries

1. Radio Act of 1927


2. Communications Act of 1934


3. Telecommunications Act of 1996 (Part 1)


4. Telecommunications Act of 1996 (Part 2)


5. Telecommunications Act of 2006 (Part 1)


6. Telecommunications Act of 2006 (Part 2)