U.S. Congress Reforms Law Regulating Telecommunications

The Telecommunications Act of 1996, the first overhaul of U.S. communications law in sixty years, was overdue in the face of new technologies, but even so, it may have been implemented too soon to account fully for the technological innovations that swept the globe within the next decade.

Summary of Event

Because the United States left its telecommunications development to private industry, rather than nationalizing it as European countries had done, creating a balance between market forces and public interest has always been challenging. This conflict became apparent in the nineteenth century with the establishment of nationwide telephone service. At the end of the century, the Bell Company’s monopoly-producing patents lapsed, just as phone service was rapidly expanding throughout the country. The competition between Bell and some six thousand new independent telephone companies served as a catalyst for expansion but also threatened the effectiveness of the system. People using different telephone companies frequently could not call each other, because Bell, wanting to maintain its monopoly, refused to allow independents to interconnect with its lines. Rural and poor areas were not getting service because they did not have the potential to generate enough profits to cover the large capital investment required to bring lines to them. Telecommunications Act (1996)
Telecommunications;government regulation
[kw]U.S. Congress Reforms Law Regulating Telecommunications (Jan. 3, 1996)
[kw]Congress Reforms Law Regulating Telecommunications, U.S. (Jan. 3, 1996)
[kw]Reforms Law Regulating Telecommunications, U.S. Congress (Jan. 3, 1996)
[kw]Law Regulating Telecommunications, U.S. Congress Reforms (Jan. 3, 1996)
[kw]Regulating Telecommunications, U.S. Congress Reforms Law (Jan. 3, 1996)
[kw]Telecommunications, U.S. Congress Reforms Law Regulating (Jan. 3, 1996)
Telecommunications Act (1996)
Telecommunications;government regulation
[g]North America;Jan. 3, 1996: U.S. Congress Reforms Law Regulating Telecommunications[09420]
[g]United States;Jan. 3, 1996: U.S. Congress Reforms Law Regulating Telecommunications[09420]
[c]Communications and media;Jan. 3, 1996: U.S. Congress Reforms Law Regulating Telecommunications[09420]
[c]Laws, acts, and legal history;Jan. 3, 1996: U.S. Congress Reforms Law Regulating Telecommunications[09420]
[c]Radio and television;Jan. 3, 1996: U.S. Congress Reforms Law Regulating Telecommunications[09420]
Clinton, Bill
[p]Clinton, Bill;Telecommunications Act
Gingrich, Newt

In the first decades of the twentieth century, business and government leaders concluded that it was beneficial for one company (Bell, by then part of a larger corporation that included the American Telephone and Telegraph American Telephone and Telegraph Company, or AT&T) to monopolize the telephone business in order to achieve complete interconnection and affordable service. With the Willis-Graham Act of 1921, Willis-Graham Act (1921)[Willis Graham Act] the U.S. government granted AT&T exemption from antitrust laws as long as it agreed to government regulation. Federal regulation of telecommunications was legislated in the 1934 Communications Act, Communications Act (1934) which set up the Federal Communications Commission Federal Communications Commission (FCC), an independent government agency that oversees all wired and broadcast communications. AT&T held on to its monopoly over U.S. telephone service for decades, until a 1984 court-ordered divestiture created the “Baby Bells,” Baby Bells or regional Bell Operating Companies, and opened long-distance service to competition.

By the 1990’s, telecommunications corporations were lobbying hard for relaxation of government regulation. President Bill Clinton was initially skeptical of deregulation, but he was captivated with the idea of using market competition to hasten the deployment of technological advances, particularly connecting all American classrooms to the Internet. Clinton worked with deregulation promoters in order to see some of his “information superhighway” goals achieved. The Telecommunications Act of 1996 was thus created with the stated intention of letting competition, rather than regulated monopoly, drive U.S. telecommunications systems. The two-hundred-page bill was put before the U.S. Congress in January, where it was passed with little debate by an overwhelming bipartisan majority.

The act encompassed a wide range of communications industries, including radio and television broadcasting, cable television, wireless systems, local and long-distance telephone, and the Internet. In most cases, the act attempted to allow competition, rather than regulation, to rule the industry. In order to create the greatest amount of competition, the act provided for easy entry into industry networks for new companies by ensuring that networks remain open to one another. Industry leaders, pleased with the act, pledged to compete fairly and to open their networks to competitors as the government relaxed its regulations. The act also opened the way for mergers between companies in different areas of telecommunications, which had been prohibited prior to the 1996 act. The limits on how much television and radio air could be owned by one corporate entity were greatly extended.

To observers in 1996, the act appeared be in the public interest. Its promoters promised that it would result in consumer savings of as much as $550 billion in telephone and cable television charges, create millions of new jobs, and vastly increase the nation’s gross national product. They predicted that the bill would prevent concentrations of ownership of television and radio stations, thus leading to more diversity in radio and television programming and offering consumers more choices in their cable, Internet, and local telephone service providers. The act was lauded for facilitating a new era of readily accessible education opportunities through the Internet. To ensure fairness, the act included a “universal service” clause that provided for substantial subsidies to enable the extension of telecommunications systems to rural and poor communities as well as the connection of all schools and libraries to the Internet within five years.

The only major controversy at the time arose from the act’s “decency” section, an attempt to prevent the transmission of pornography and offensive speech over the Internet and to provide a filter that parents could use to protect their children. That section of the bill was overturned as a violation of First Amendment rights.

After the Telecommunications Act went into effect, dominant companies in the industry took advantage of deregulation and joined in a fevered rush to merge with or acquire their competition—despite their pledges to compete fairly. The Democrats in Congress took steps to try to halt the growth of industry conglomerates, but Republicans had gained control of Congress in 1996. Under House Speaker Newt Gingrich, reforms to the 1996 act were geared more toward deregulation than toward slowing down consolidation trends. In 2003, the FCC further deregulated media ownership laws.


Within five years, it was clear that the 1996 act had drastically shrunk competition in telecommunications. Radio was transformed dramatically and quickly. By 2005, two companies, Clear Channel Communications Clear Channel Communications and Viacom Viacom (owner of Infinity Broadcasting) owned from one-third to one-half of the entire radio industry, and their constant efforts to economize significantly decreased the number of local stations. This resulted in the loss of tens of thousands of jobs in radio, a widespread loss of local news programs, and a dramatic decrease in the diversity of radio programming. On the other hand, before the mergers radio had been failing financially; after 1996, it became quite profitable. In television, deregulation allowed broadcast networks to purchase cable networks and to own more stations. Ten years after the Telecommunications Act, five companies—the National Broadcasting Company (NBC), Viacom, Disney, News Corporation, and Time Warner—controlled about three-quarters of prime-time television.

The distribution of media and communications changed dramatically after passage of the Telecommunications Act in 1996. Video, voice, and data were increasingly sent over the same networks. The giant telephone companies began to compete with the giant cable companies in offering television, Internet delivery, and mobile phone service. The media corporations that controlled the wires and cable lines, such as Comcast, Verizon, AT&T, Google, Time Warner, Viacom, and Microsoft—gained control within the industry, along with untold political influence. They lobbied continually to eliminate local oversight of wireless networks and to reduce FCC oversight of the industry.

These industry leaders also promoted plans under which consumers would pay on a sliding scale for different levels of network service: Individuals would pay less, while corporations would pay more. Critics of these proposals called for “network neutrality,” regulations that would prevent an environment in which wealthy corporations gain even more space and influence in the media while nonprofit organizations, individuals, and minority groups are eclipsed.

Observers on all sides of the political spectrum have acknowledged that the Telecommunications Act of 1996 was flawed; while striving to create open competition, the act opened the door for the concentration of ownership and power in the industry. With only a handful of companies controlling the nation’s networks, the public did not receive the promised diversified programming, cost reductions, or options. On the other hand, deregulation probably played a role in speeding up the nationwide launch of the Internet, Internet which drastically changed the playing field. Advancing technology and independent innovation brought new platforms to compete with the giant corporations. For example, traditional television faced unexpected competition from extremely popular nontraditional video platforms on the Internet, such as YouTube, that provide diversity and independent views. Telecommunications Act (1996)
Telecommunications;government regulation

Further Reading

  • Crandall, Robert W. Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act. Washington, D.C.: Brookings Institution, 2005. Examines the economic impacts of the 1996 act.
  • Furchtgott-Roth, Harold W. A Tough Act to Follow? The Telecommunications Act of 1996 and the Separation of Powers Failure. Washington, D.C.: AEI Press, 2006. A former FCC commissioner analyzes the failure of the 1996 act in terms of the design and practices of the FCC.
  • McChesney, Robert W. The Problem of the Media: U.S. Communication Politics in the Twenty-First Century. New York: Monthly Review Press, 2004. Describes the media crisis that led to suppression of viewpoints, declining standards of journalism, and a system that favors corporations over the needs of the population.
  • Mueller, Milton L. Universal Service: Interconnection, Competition, and Monopoly in the Making of the American Telephone System. Cambridge, Mass.: MIT Press, 1997. Chronicles the history of the development of the American telephone system.
  • Sterling, Christopher H., Phyllis W. Bernt, and Martin B. H. Weiss. Shaping American Telecommunications: A History of Technology, Policy, and Economics. Mahwah, N.J.: Lawrence Erlbaum, 2005. Presents a multidisciplinary examination of telecommunications technology and the way it shapes, and is shaped by, economics and government policy.

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