Careful with axe of myths, Eugene!
In 1934 the Federal Communications Commission (FCC) was created to regulate the airwaves and communications over wires – meaning it had to scrutinize the gigantic Bell telephone monopoly. Most telephone companies around the world at that time were state-owned monopolies, but Bell was a private giant, offering Americans the worst of all worlds: touchy-feely USSR-style customer service, and Robber Baron-era monopoly profits.
Not so fast with the presentation of Stuff that My Friendly Bureaucrat told me! Correct history is important for correct analysis. Think AT&T was unbridled capitalism and the FCC was created to fix that? Not so.
First, the FCC was the follower of the Federal Radio Commission, whose business was to regulate spectrum since the 20's, so creation of the FCC was not an idea that came out of nothingness.
Then, 1934 was the time of Mussolini-inspired state interventions all over the US. It was also the time of the neverending Great Depression. As today, these two things are very strongly linked, but that's for another time.
Big Phone was not to be shackled and controlled by the FCC. Big Phone had very good relations to Washington, D.C. Indeed, a bit early, Bell Illinois angled for a little bailout. As Murray Rothbard writes in "The Great Depression: The Hoover New Deal of 1932":
"If Hoover eagerly embraced the statism of the Reconstruction Finance Corporation, he gave ground but grudgingly on one issue where he had championed the voluntary approach: direct relief. Governor Franklin D. Roosevelt of New York led the way for state relief programs in the winter of 1931-1932, and he induced New York to establish the first state relief authority: the Temporary Emergency Relief Administration, equipped with $25 million. Other states followed this lead, and Senators Costigan and LaFollette introduced a bill for a $500 million federal relief program. The bill was defeated, but, with depression deepening and a Presidential election approaching, the administration all but surrendered, passing the Emergency Relief and Construction Act of July, 1932 - the nation's first Federal relief legislation. Particularly influential in inducing Hoover's surrender was a plea for federal relief, at the beginning of June, by leading industrialists of Chicago. Having been refused further relief funds by the Illinois legislature, these Chicagoans turned to the federal government. They included the chief executives of Armour, Wilson, Cudahy, International Harvester, Santa Fe Railroad, Marshall Field, Colgate-Palmolive-Peet, Inland Steel, Bendix, U.S. Gypsum, A.B. Dick, Illinois Bell Telephone, and the First National Bank."
But let's get to the meat of the matter: Regulation. Is it meant to improve the consumers' lot and foster competition? Nope! It is meant to cement existing structures:
In Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly by Adam D. Thierer [Cato Journal, Vol. 14, No. 2, 1994 - yes I know ... KOCH BROTHERS!!], we read:
On regulation before the FCC:
Second, the initiation of extensive federal rate regulation is important because it propelled state regulatory commissions to follow suit by greatly extending the scope of their authority. By 1922, 40 of 48 states were regulating telephone rates (Noll 1991: 180), The public utility commissions at the state level immediately began to mimic federal policies established during World War I. Businesses and urban subscribers were charged more than rural customers to help extend service to distant locations. Likewise, long distance rates were averaged to ensure a company could not charge more for toll calls of the same distance. Robert Garnet (1985: 152) describes this state-based rate regulation: “Statewide rate averaging would eventually become a distinguishing feature of Bell System subscriber charges and would be embraced by regulators as a strategy for promoting the extension of telephone service to areas of marginal earnings potential.” And that is exactly what happened. By 1925 not only had virtually every state established strict rate regulation guidelines, but local telephone competition was either discouraged or explicitly prohibited within many of those jurisdictions. Third, by averaging rates geographically to artificially suppress rural rates, policymakers and regulators created a serious disincentive to local telephone competition. Few firms, after all, will seek to enter a market and offer service if they realize it is difficult, if not impossible, to undercut the subsidized service of the incumbent carrier.
Hence, universal service, the final element of AT&T’s strategy to eliminate competition, was in place thanks to the explicit actions of both federal and state legislators and regulators. Once AT&T’s motto was adopted as the nation’s de facto regulatory policy, no other firm was in a position to adequately extend service in accordance with the
new federal and state mandated social policy. The Bell monopoly was here to stay.
The FCC and Telephone Entitlement:
A few years later, this new unwritten law of the land was codified as the raison d’être of the Federal Communications Commission (FCC) with the passage of the Communications Act of 1934. The commission was created, “for the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.”
In effect, every American was henceforth found to be entitled to the right to telephone service, specifically cheap telephone service. To carryout this difficult policy objective, the FCC was given sweeping powers. Beside its powers to regulate rates to ensure they were “just and reasonable,” the FCC was also given the power to restrict entry into the marketplace. Potential competitors were, and still are required to obtain from the FCC a “certificate of public convenience and necessity.” The intent of the licensing process was again to prevent “wasteful duplication” and “unneeded competition.” In reality, it served as a front to guard the interests of the regulated monopoly and the FCC’s social agenda. The overall hostility to competition by the FCC and the drafters of the legislation that gave birth to it is best illustrated by a 1988 Department of Commerce report on the development of the telecommunications industry. The report notes, “The chief focus of the Communications Act of 1934 was on the regulation of telecommunications, not necessarily its maximum development and promotion. [T]he drafters of the legislation saw the talents and resources of the industry presenting more of a challenge to the public interest than an opportunity for national progress” (164). Over time the FCC would come to see the Bell System simply as the implementor of its agenda. Consequently, it would continue to use its power in favor of AT&T when potential competitors threatened the firm’s hegemony. Their bureaucratic mismanagement of the radio spectrum (which was nationalized under the Radio Act of 1927) meant the most capable competitor of the era would never be given a chance to compete. Despite the fact that wireless technologies would be greatly developed in the near future, the possibility of serious wireless competition rising up to meet the Bell challenge in the first half of this century became less likely once government forces, instead of market forces, controlled how the spectrum was allocated. Just as the wireline technologies where subject to blatant political manipulation, the wireless spectrum became the tool of regulatory and special interests; competition was again dealt a severe blow.