In 1918, the entire telephone system was nationalized for security reasons and the federal government compensated the company with an annual rate of return exceeding 10%. After control of the company was returned to AT&T in 1919, the federal government still controlled rates and it continued to provide a handsome return to the company. In 1934, the FCC established rules for the company, but largely protected the monopoly. Radio could have provided competition, but the FCC’s frequency allocation and the idea of a natural monopoly was firmly entrenched by that time. AT&T was forced to break up the monopoly in 1984, and the current AT&T (formerly Southwestern Bell) now competes directly with the cable industry.
As I looked at this history, I noticed that many commentators have remarked on the government’s social policy of universal coverage and others have talked about rate regulation. That the government collected large taxes from consumers to support this system goes almost unnoticed, as does the short-sighted result of choking innovation. The telephone remained little-changed until the mid-1990s when the cable industry began looking at digital technology and entered the market. Many people today do not remember the charges on a phone bill before cable brought innovation and competition to a stale industry. Cable innovation broke down the barriers and challenged the status quo.
Growing up in the 1960s, I remember seeing a demonstration of a video-phone. While it was possible to do, it was not possible to deliver in a world where there was no incentive. The mid-1990s was the beginning of the third generation of cable led by some amazing innovations, such as the cable modem, that finally turned my childhood dream into reality. A hundred years after the Kingsbury Commitment, I am able to “Skype” my grandchildren in Tacoma on my broadband connection provided by Comcast. The cable industry remains one of the best examples of the American free enterprise system, and we should not forget that the consumer is the ultimate beneficiary.
(Larry Satkowiak is president and CEO of The Cable Center, the nonprofit educational arm of the cable industry. The Center preserves cable’s enduring contributions to society, strengthens relationships between cable and academia and unites the industry around the advancement of exceptional customer service. www.cablecenter.org)