Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age

by Susan P. Crawford J. D.

  40. Carl Helmetag, Jr., “Railroad Mergers: The Accommodation of the Interstate Commerce Act and Antitrust Policies,” Virginia Law Review 54, no. 8 (December 1968): 1493–94; A. J. County, “Consolidation of Railroads into Systems: A Review of Some of the Financial Considerations and Processes That Consolidation Under the Transportation Act Imposes.” American Economic Review 14, no. 1, Supplement, Papers and Proceedings of the Thirty-sixth Annual Meeting of the American Economic Association (1924): 73–74.

  41. Helmetag, “Railroad Mergers,” 1495; Transportation Act, ch. 722, 54 Stat. 898 (1940); http://www.bnsf.com/about-bnsf/our-railroad/company-history/pdf/hist_overview.pdf.

  42. Morris, Theodore Rex, 316.

  43. Ernest Hamlin Abbott, “Introduction,” in Theodore Roosevelt, The New Nationalism (New York: Outlook Company, 1910),vii–xxi.

  44. Theodore Roosevelt, “Fourth Annual Message” (speech to Congress, December 6, 1904), available at http://www.presidency.ucsb.edu/ws/?pid=29545.

  45. Modern Business: A Series of Texts Prepared as Part of the Modern Business Course and Service of the Alexander Hamilton Institute, vol. 14 (New York: Alexander Hamilton Institute, 1917), 237–43.

  46. Samuel Huntington, “The Marasmus of the ICC: The Commission, the Railroads, and the Public Interest,” Yale Law Journal 61, no. 5 (1952), 467–509.

  47. Interstate Commerce Commission Termination Act, 49 U.S.C. §§ 101–6, 201–5 (1995). Railroad mergers and acquisitions are exempt from antitrust law and are reviewed by the Surface Transportation Board. The National Rural Electrical Cooperative Association claims that “the railroads’ antitrust exemptions are antiquated, have no public policy justification and allow anticompetitive conduct. The resulting lack of competition, together with the Surface Transportation Board's past ineffectiveness, has allowed freight railroads to reap huge profits from electric cooperatives and other industries with no marketplace consequences or legal accountability for their unreliable service and exorbitant rates and fees” (NRECA Fast Facts, May 2012, http://www.nreca.coop/press/fastfacts/Documents/FastFactsRailCompetition.pdf).

  48. Kimberly A. Zarkin and Michael J. Zarkin, The Federal Communications Commission: Front Line in the Culture and Regulation Wars (Westport, Conn.: Greenwood, 2006), 5.

  49. Interstate Commerce Act of 1887, ch. 104, 24 Stat. 379 (1887) (current version at 49 U.S.C. §§ 501–7, 522, 523, 525, 526, 20102, 20502–5, 20902, 21302, 21304, 31501–4 [1994]). In Munn v. Illinois, 94 U.S. 113 (1876), the Supreme Court upheld Illinois state laws establishing minimum railroad rates and preventing rate discrimination, stating that private property “affected with the public interest … must submit to being controlled by the public for the common good.”

  50. Phil Nichols, “Redefining ‘Common Carrier’: The FCC's Attempt at Deregulation by Redefinition,” Duke Law Journal 1987, no. 3 (June, 1987), 508–11.

  51. Alfred Dupont Chandler and James W. Cortada, A Nation Transformed by Information: How Information Has Shaped the United States from Colonial Times to the Present (Oxford: Oxford University Press, 2003), 94.

  52. Leonard Reich, “Industrial Research and the Pursuit of Corporate Security: The Early Years of Bell Labs,” Business History Review 54, no. 4 (Winter 1980), 511; David Gabel, “Competition in a Network Industry: The Telephone Industry, 1854–1910,” Journal of Economic History 54, no. 3 (September 1994): 543, 558; John Brooks, Telephone: The First Hundred Years (New York: Harper and Row, 1976), 122, 134.

  53. Tomas Nonnenmacher, “History of the U.S. Telegraph Industry,” EH.net, February 1, 2010, http://eh.net/encyclopedia/article/nonnenmacher.industry.telegraphic.us; John Brooks, Telephone: The First Hundred Years (New York: Harper and Row, 1976), 134.

  54. Nonnenmacher, “Telegraph Industry,” 248; “Loses on Its Messages: The Postal Accuses the Western Union of Discriminatory Methods,” New York Times, February 7, 1911. As reported in the Times: “For messages thus transferred the Postal is obliged to pay the Western Union full rates and a further charge is exacted for additional words which indicate the transfer point and the date. By this arrangement the Postal loses about 10 cents on each message transferred.”

  On November 14, 1911, the New York Public Service Commission prohibited Western Union from imposing these additional charges (“Postal Telegraph Co.,” Wall Street Journal, November 14, 1911). On February 9, 1912, Postal again complained that Western Union was charging for additional words (“Postal Again Complains,” New York Times, February 10, 1912; “Postal Versus Western Union,” Wall Street Journal, February 12, 1912). On January 16, 1914, the New York Supreme Court affirmed the New York Public Service Commission's decision to forbid Western Union from charging for additional words for telegraphs forwarded for Postal (“Western Union-Postal Telegraph,” Wall Street Journal, January 16, 1914).

  55. “Theft of Messages Charged by Postal,” New York Times, April 1, 1912.

  56. Gerald W. Brock, The Telecommunications Industry: The Dynamics of Market Structure (Cambridge: Harvard University Press, 1981), 155; Brooks, Telephone, 136.

  Chapter 2. Regulatory Pendulum

  Epigraph. Paul Starr, The Creation of the Media: Political Origins of Modern Communications (New York: Basic Books, 2004), 193.

  1. Patrick R. Parsons, Blue Skies: A History of Cable Television (Philadelphia: Temple University Press, 2008), 121.

  2. Ibid., 122.

  3. Ibid., 122–25.

  4. Ibid., 104. In a 1986 oral history, Smith noted that in 1949, when he first learned about cable, he thought it might be a common-carriage service. “It occurred to me that it might be considered to be a wire communications service for hire and, therefore, possibly a common carrier service subject to the jurisdiction of the FCC.” After all, as he put it, “the subscriber paid the system owner to receive signals intended for reception and use by the public and to communicate the signals to the subscriber's television receiver. There were certainly other theories which could be argued but at the time I was a common carrier lawyer.” He then drafted a report for the FCC noting that the Commission could classify cable this way. But after he left the FCC, Smith changed his mind: “Later, after I had left the FCC and was in private practice the existence of that report came to light while I was representing the National Community Antenna Association in hearings before the Senate Interstate and Foreign Commerce Committee where I was arguing that community antenna services were not common carriers or any form of public utility. When teased about this apparent turn around by Kenneth Cox, who was special counsel to the Senate Committee, I told him that when I wrote the report I thought I was right, but that this time I knew I was right” (Ed Parsons, interview with E. Stratford Smith, March 31, 1986, the Cable Center, Barco Library, Hauser Oral and Video History Collection, available at http://www.cablecenter.org/content.cfm?id=667).

  5. Parsons, Blue Skies, 195.

  6. Ibid., 171, 173–90, 196–206.

  7. United States v. Southwestern Cable Co., 392 U.S. 157 (1968); Parsons, Blue Skies, 247–48.

  8. Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394 (1974); Parsons, Blue Skies, 238–46, 350–51.

  9. Cabinet Committee on Cable Communications, “Cable: Report to the President” (1974), 20. Two other studies at about the same time argued that cable should be treated as a common carrier of some kind. See Committee for Economic Development, Broadcasting and Cable Television: Policies for Diversity and Change (New York: CED, 1975), and Sloan Commission of Cable Communications, On the Cable: The Television of Abundance (New York: McGraw-Hill, 1971).

  10. Parsons, Blue Skies, 344–46.

  11. Monroe E. Price, “Requiem for the Wired Nation: Cable Rulemaking at the FCC,” Virginia Law Review 61, no. 3 (April 1975): 572.

  12. Walt Mossberg, “Show Me the Money,” Wall Street Journal, June 2, 2009.

  13. Parsons, Blue Skies, 227, 260.

  14. Representative Ed Markey, interview with the author, January 2011.

  15. Parsons, Blue Skies, 90
, 92–96.

  16. In the Matter of the Associated Bell Sys. Co.’s Tariffs for Channel Serv. for Use by Cmty. Antenna Television Sys., 6 F.C.C.2d 433 (1967); In the Matter of California Water & Tel. Co. Tariff F.C.C. No. 1 & Tariff F.C.C. No. 2 Applicable to Channel Serv. for Use by Cmty. Antenna Television Sys.; In the Matter of the Associated Bell Sys. Co.’s Tariffs for Channel Serv. for Use by Cmty. Antenna Television Sys.; In the Matter of the Gen. Tel. Sys. & United Utilities, Inc., Co.’s Tariffs for Channel Serv. for Use by Cmty. Antenna Television Sys., 22 F.C.C.2d 10 (1970).

  17. Memorandum Opinion and Order in Docket 16928, 37 Rad. Reg. 2d (P & F) 1166 (July 28, 1976); Parsons, Blue Skies, 360.

  18. Parsons, Blue Skies, 360; Communications Act Amendment of 1978, Pub. L. No. 95–234, Sect. 6 Stat 33–35 (1978) (codified as amended at 47 U.S.C. § 224).

  19. Parsons, Blue Skies, 298–320, 365–69.

  20. Paul Baran, “Convergence: Past, Present, and Future,” lecture presented at CableLabs Winter Conference, February 9–11, 1999.

  21. Parsons, Blue Skies, 404–15.

  22. Ibid., 473–79. Cable Communications Act of 1984, Pub. Law 98-549, 1984 98 Stat. 2779, codified at 47 U.S.C. sec. 521 et seq.

  23. Parsons, Blue Skies, 498–501, 544–46.

  24. Ronald Goldfarb, TV or Not TV: Television, Justice, and the Courts (New York: New York University Press, 2000), 137.

  25. Ken Auletta, “Annals of Communications: John Malone, Flying Solo,” New Yorker, February 7, 1994.

  26. Parsons, Blue Skies, 469–71; “Cable Rate Hikes Anger Residents of Oregon City,” Multichannel News, October 24, 1988 (citing “indifferent service, unanswered telephone calls, arbitrary programming changes and rate increases” by TCI). In 1988, Congress held hearings into citizen complaints about cable customer service. Problems included “poor signal quality, inadequate service, decrepit system infrastructures, escalating subscriber rates, with monopolistic cable operators behind the whole scam,” as reported in K. Van Lewen and R. Stoddard, “What's Wrong with the Cable Act,” Cable Television Business (March 1, 1989): 58–61.

  27. Mark Robichaux, Cable Cowboy: John Malone and the Rise of the Modern Cable Business (Hoboken, N.J.: Wiley, 2002), 95.

  28. Parsons, Blue Skies, 544, 569–75; Andrew Kupfer, “The No. 1 in Cable Has Big Plans,” Fortune, June 28, 1993, available at CNN Money, http://money.cnn.com/magazines/fortune/fortune_archive/1993/06/28/78011/index.htm.

  29. Robichaux, Cable Cowboy, 104–8; Parsons, Blue Skies, 581–83, 540–41. John Malone today is the largest private landowner in America, with more than two million acres of land. See “2011 Land Report 100,” Land Report, available at http://www.landreport.com/americas-100-largest-landowners/.

  30. General Accounting Office, Report to the Chairman, Subcommittee on Telecommunications and Finance, Committee on Energy and Commerce, House of Representatives, 1991 Survey of Cable Television Rates and Services, GAO/RCED-91-195 (July 17, 1991), 4–5.

  31. Parsons, Blue Skies, 577–78.

  32. Ibid., 554–62, 567–68, 570–72.

  33. Robichaux, Cable Cowboy, 117–18, 570–72.

  34. “Company News: House Gets Cable TV Bill,” Reuters, March 26, 1992.

  35. William M. Kunz, Culture Conglomerates: Consolidation in the Motion Picture and Television Industries (Lanham, Md.: Rowman and Littlefield, 2007), 174.

  36. Broadcasting and Cable (September 14, 1992): 6.

  37. Parsons, Blue Skies, 578.

  38. “Competition in the Telecommunications Industry: Hearings Before the Subcomm. on Communications of the H. Comm. on Interstate and Foreign Commerce,” 94th Cong., 2d Sess. 23 (1976) (Testimony of John DeButts).

  39. Parsons, Blue Skies, 432–33.

  40. “The American Telephone & Telegraph network is the most important communication network we have to service our strategic systems in this country … it seems to me essential that we keep together this one communications network we now have, and have to rely on” (Department of Defense Supplemental Authorization Act: Hearing on S. 694 Before the S. Comm. on Armed Services, 97th Congress 1 [1981] [Statement of Caspar Weinberger, Sec. of Def.]). “The Department of Commerce also lined up solidly in support of Defense's campaign to have the case dropped. Secretary Baldrige … wanted a legislative, not a judicial, solution of the telecommunications problem, and Baldrige felt that the presence of the case inhibited congressional action” (Peter Temin, with Louis Galambos, The Fall of the Bell System: A Study in Prices and Politics [New York: Cambridge University Press, 1987], 227).

  41. Representative Ed Markey, interview with the author, January 2011.

  42. United States v. AT&T Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd mem. sub nom. Maryland v. United States, 460 U.S. 1001 (1983). See also Parsons, Blue Skies, 433–34.

  43. Joseph D. Kearney, “From the Fall of the Bell System to the Telecommunications Act: Regulation of Telecommunications Under Judge Greene,” Hastings Law Journal 50 (Aug. 1999): 1395–1418.

  44. Markey, interview with the author, January 2011; James C. Goodale and Rob Frieden, All About Cable and Broadband (New York: Law Journal Press, 2006), 116–17. Judge Greene's opinion was decided in 1991 and affirmed by the Court of Appeals in 1993: United States v. Western Electric Co., 767 F. Supp 308 (D.D.C.), affirmed by United States v. Western Electric Co., 993 F.2d 1572 (D.C. Cir. 1993).

  45. Parsons, Blue Skies 632; H.R. 3626, 103rd Cong. (1994).

  46. Parsons, Blue Skies 632–33; Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).

  47. Parsons, Blue Skies 633–35.

  48. Federal Communications Commission, “Implementation of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992,” Second Report and Order, 8 F.C.C.R. 8565 (Oct. 23, 1993).

  49. Parsons, Blue Skies 643–47, 687–89.

  50. Mark D. Schneider and Marc A. Goldman, “The USTA Decisions and the Rise and Fall of Telephone Competition,” Communications Lawyer 22 (Summer 2004).

  51. Parsons, Blue Skies, 688–89; Final Transcript, T-Q1 2006 AT&T Conference Call, Thomson Street Events, April 25, 2006, available at http://seekingalpha.com/article/9502-at-t-inc-q1-2006-earnings-conference-call-transcript-t.

  52. Federal Communications Commission, “Chairman Michael K. Powell Launches FCC University,” news release, August 15, 2002.

  53. Declan McCullagh, “Newsmaker: The Technologist Who Has Michael Powell's Ear,” CNET News, September 30, 2004, http://news.cnet.com/The-technologist-who-has-Michael-Powells-ear/2008-1033_3-5388746.html.

  54. Michael K. Powell, “Digital Broadband Migration, Part II,” remarks delivered at Federal Communications Commission Press Conference, October 23, 2001, available at http://transition.fcc.gov/Speeches/Powell/2001/spmkp109.html.

  55. Michael K. Powell, “The Great Digital Broadband Migration,” remarks delivered before the Progress & Freedom Foundation, Washington, D.C., December 8, 2000; Powell, “Before Cellular,” remarks delivered before the Telecommunications Internet Association's CTIA Wireless, 2001, Las Vegas, Nev., March 20, 2001; Powell, “Q & A with Chairman Powell,” Forrester Research Telecom Forum, Washington, D.C., May 21, 2001; Powell, Remarks delivered to the National Cable Television Association, Washington, D.C., June 12, 2001. Powell's speeches are available at http://transition.fcc.gov/commissioners/previous/powell/speeches.html.

  56. Marguerite Reardon, “With Internet TV, Cable Wins Even if It Loses,” CNET News, October 29, 2010, http://news.cnet.com/8301-30686_3-20021118-266.html.

  57. Parsons, Blue Skies, 656.

  58. National Cable & Telecommunications Association to Hon. Julius Genachowski, Re: Preserving the Open Internet, GN Docket No. 09-191; Broadband Industry Practices, WC Docket No. 07-52; A National Broadband Plan for Our Future, GN Docket No. 09-51, February 22, 2010.

  59. Michael K. Powell, “Addressing Academic and Telecom Industry Leaders at University of California (UCSD),” remarks delivered at the University of California, San Di
ego, December 9, 2003), available at http://www.fcc.gov/realaudio/ch120903.ram.

  60. Parsons, Blue Skies, 288; Final Report and Order, 21 F.C.C.2d 307, reconsidered in part, 22 F.C.C.2d 746 (1970), aff'd sub nom, General Telephone Co. S.W. v. United States, 449 F.2d 846 (5th Cir. 1971); Second Computer Inquiry, 77 F.C.C.2d 384 (1980), aff'd sub nom, Computer & Communications Industries Association v. FCC, 693 F.2d 198 (D.C. Cir. 1982).

  61. Parsons, Blue Skies, 433–34. The telecommunications service/information service dichotomy in the 1996 act largely codifies the preexisting regulatory distinction that the Commission had drawn between “basic” common-carrier communications services and “enhanced services.” See Jason Oxman, “The FCC and the Unregulation of the Internet,” Federal Communications Commission Office of Plans and Policy, July 1999, and Earl W. Comstock and John W. Butler, “Access Denied: The FCC's Failure to Implement Open Access to Cable as Required by the Communications Act,” CommLaw Conspectus 8 (Winter, 2000): 10–12.