TeleGeography Explains the Internet is back from summer break.
We return a little older, a little wiser, and you can bet that we've done the summer reading. To that end, we're starting this season with a classic TeleGeography Explains deep dive.
The topic? U.S. telecom law!
Telecom is a regulated industry, and U.S. law holds complexities that impact what happens across the larger ecosystem. I have a lot to learn about telecom policy, so thankfully I'm joined in this explainer by Jeff Long, an attorney in private practice with broad experience in both the data center and telecom industry.
Jeff and I start with a historical review of telecom law in the U.S. going back to plain old telephone service and the AT&T monopoly (and eventual break-up). We talk about the 1996 Telecom Act and issues around Title II and net neutrality, which is especially important now that the SCOTUS has overruled a case about deference to administrative agencies that could have a major impact on the FCC and telecom regulations.
We also get into spectrum allocation and some classic law and economics analysis that impacted how the U.S. and other governments allocate spectrum.
You can scan a chunk of our conversation below or scroll to the bottom to listen to the whole conversation.
Greg: So even though we're focused on the U.S., I think there's a lot of things here that are interesting for the rest of the world, especially as we're going to get into the history of all of this.
Jeff: You know the new iPhone charger port. Are you familiar with why we've made this switch?
Greg: No, please.
Jeff: It turns out that European regulators are obviously more on the consumer-facing side of the cellular industry. They demanded that Apple switch its phones to meet this common standard on the continent.
And Apple figured, you know, we could keep producing one phone for the U.S. and one phone for Europe, but that wouldn't be plausible.
So just a classic example of how all regulation is global these days.
Greg: Exactly! Yeah, that's a great point.
So I want to start, Jeff, with some history—because I actually am really interested in this history. You really can't untangle internet policy and things like we had talked about before—data centers and whatnot—from plain old telephone service, right? From the regulations that arose out of the growing telephone business that was happening more than a century ago now.
So I wonder if you could start there for us and maybe tell us why AT&T was allowed to start a monopoly, since you're talking about law and economics and antitrust issues, right? Here's where they they intersect directly.
Jeff: Sure. Greg, you're you're absolutely correct. And the truth is that, especially in an economy as dynamic as America's, for the last century and a half, there's a tendency of technology to run out ahead of the regulation.
We look to telephone policy as something which ultimately was inherited as modern-day internet policy because it's what was in place when the internet first emerged.
So we look to telephone policy as something which ultimately was inherited as modern-day internet policy because it's what was in place when the internet first emerged.
So the thing about telephones and their telephone service is that, like a lot of other things that we deal with in law and economics and in the regulation of highly regulated industries, is that a telephone network needs to be huge before it hits its minimum efficient scale. Which means in order to provide services efficiently, you need a really, really big part of the market.
It's a little like—there's the old story of the guy who gets on the phone with the telephone operator and places a call and the operator says: okay, that'll be 10 cents. And the guy says: that was nothing. It requires the ping of your wire, 10 cents. And the operator says: no, the million dollars that went into building the network and 10 cents. So a million and 10 cents is what places the call.
So in order to recoup the huge capital investments required to provide telephone services, these markets lend themselves to a minimum efficient scale of 100%, which is to say it may make sense for everybody for there to be telephone service, but it may not make sense for more than one provider to build in any one particular area.
And then that natural monopolistic tendency of telephone markets as they originally were, you know, it's only exacerbated by network effects, which you guys deal with even today in broadband provision. The more connections a network has, the more valuable one additional marginal connection is even as compared with another network. One additional customer will find a built-out network way more attractive than a limited one.
Greg: Hence why Ashburn is a name on the map in the telecom world that's along the front lines of Frankfurt, London, Singapore, etc.
Jeff: Yeah, that's ah that's exactly right. Yeah.
Whether it be like, you know, minimum efficient scale, what that does to competition, network effects like you guys are dealing with in data centers, transport networks writ large, you know, they represent themselves in every industry.
So it was an issue for telephones. It had been an issue for the telegraph before it. It's an issue for broadband. And, you know, we'll see it again and again and again. It's one of those basic recurring economic problems.
Listen to the full episode below.
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