Think About That for a Minute

Common Carrier Confusion There’s a great deal of discussion these days about what the cable industry should or should not be allowed to do. The various debates go by names like “net neutrality,” “a la carte,” “program access,” “open access” and the like. They all have the same root: that cable should be regulated as a “common carrier.” That it is a “public utility.” These are not new arguments. In the early 1970s when the first federal rules for cable television were crafted, the Office of Telecommunications Policy (the “OTP”) which was then part of the White House and would later be moved to the Department of Commerce and become the National Telecommunication and Information Administration (NTIA), floated a proposed set of federal cable rules that would have automatically made cable a common carrier as soon as it attained 50 percent penetration. The OTP plan was not adopted, and it would not have worked. We would not have the vibrant, highly competitive cable infrastructure today—the only real facilities-based competition to far larger and well entrenched telcos—had cable been saddled with common carrier regulation. Why? Because rapidly changing technology and very expensive, risky infrastructure builds are not amenable to static, government-controlled price structures, regulations, bureaucracy and delay. In order to take the level of risk involved in building cable systems, in order to attract the investment capital to build the infrastructure, the product and the programming (which did not exist at the time), potential profit margins had to be higher than any rate-of-return government regulated monopoly could be afforded. It would not be politically viable to have a truly capital-competitive rate. And rapidly changing technology and marketers could not have responded if they were saddled with a requirement for prior government approval. Remember that while the telephone industry was developed in a common carrier mode, it was also guaranteed a monopoly, and it was given an assured rate of return because of that. You couldn’t do that with cable, even at the start, because there was already a thriving video delivery business called broadcasting that was already totally subsidized by the government! So “common carrier” and “public utility” had little meaning in the context of video delivery since the pre-existing competitor was already discriminating as to what programs it would carry and how it would make its revenue, through unregulated advertising dollars. Things are even more complicated today. Cable delivers broadband as well as video, and telephone too. But there are already other competitors in all areas. Differentiation is going to come both because of price and service. Neither are amenable to common carrier regulation. Let’s take an example. If “broadband” services are commoditized by regulating them as common carrier services (an extreme form of “net neutrality”) then what is the incentive to continue to build out the infrastructure and constantly improve the service? If no new revenue sources can be developed, then why would private capital continue to flow into the maw of capital expenditures? It wouldn’t. And we have already seen that in the example of municipal cable system and WiFi efforts. Not enough capital is left for maintenance and expansion. The systems become moribund. Using different terms for the debate does not change the underlying issue: can “common carrier” regulation support constant infrastructure redevelopment and innovation? I don’t think so. We have a vibrant, competitive telecommunications infrastructure today precisely because it is not weighed down by common carrier regulation. Let’s keep it that way.