Conceptual Overview

Telecommunications may be broadly defined as “the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received” (47 U.S. Code § 153 2011). The information transmitted may take the form of data, text, audio, and/or visual materials.

Whether the telegraph, the telephone, or the Internet, the full value of a telecommunications medium may not be realized until there is a network of users that can transfer information among themselves. This addition in value can be attributed to what is known as a “network effect.” There is a significant difference, however, between network effects and network externalities. While the term “network effect” refers to the increase in the value of a network that corresponds with the increase in the number of participants in the network, “network externalities” occur when market participants do not fully “internalize” (obtain) that increase in value, for example, the owners of a private network (Liebowitz and Margolis 1998).

The network effect is an example of a positive externality, in which the action of one individual benefits another individual without any mutual agreement to make compensation for that benefit (Easley and Kleinberg 2010). A prime example is the benefit gained from additional participants in a social networking site, which raises the potential for any given individual to network through that site, even though no participant is explicitly compensated for joining (Easley and Kleinberg 2010). The Internet illustrates the network externality of the social media to a grand degree, with over 200 million Americans having broadband access to the Internet (Broadband Fact Sheet Pew Research Center 2013) and an estimated 2.9 billion Internet users worldwide (International Telecommunication Union Key ICT Data 2005 to 2015), bringing major economic benefits with it. The Internet “alone accounted for 21% of the GDP growth in mature economies from [2006 to 2011]”: Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, Russia, Sweden, the UK, and the United States (Manyika and Roxburgh 2011). According to one study, among such “high-income” economies from 1980 to 2002, “a 10% increase in broadband penetration yielded an additional 1.21 percentage points of GDP growth,” while the same level of broadband penetration in “low- and middle-income economies” yielded 1.38 percentage points of GDP growth (International Telecommunications Union Impact of Broadband 2012).

This value of an established network due to an existing pool of participants has led some to worry that an earlier-created inferior product with a preexisting network of participants would win out against a later-arriving but superior product without such a network. If two competing networks produce similar but incompatible products, the product with the greater market share will have an advantage. If the network effect does not diminish, the advantaged network could be seen as a natural monopoly (Liebowitz and Margolis 1998).

However, the network effect is not limitless. If additional participants cease to provide value to the existing network of participants, meaningful competition among networks may be possible. Subjective valuation of the network by individuals may also differ, allowing multiple competing networks to coexist (Liebowitz and Margolis 1998). Similarly, different individuals may value individual participants added to the network differently, which could provide an opening in the market for separate networks to serve different groups based on the actual makeup of the participants (Liebowitz and Margolis 1998).

The United States and Europe possess the most mature telecommunications regulatory regimes. An overview of these systems provides insight on the sorts of problems national governments face as they oversee the development of their telecommunications sectors. Following the overview, this essay briefly describes international telecommunications regulation and emerging policy issues.

Telecommunications Regulation in the United States of America (USA) and the European Union (EU)

In one of the first attempts to regulate telecommunications as a whole, the US Congress passed the Communications Act of 1934, establishing the Federal Communications Commission (FCC) to take responsibility for regulating radio and wire communications, which had previously been dealt with by separate agencies (Communications Act of 1934). Congress amended the law with the Telecommunications Act of 1996, allowing for federal preemption of local regulations that acted as barriers to entry and more competition in the long-distance market and requiring incumbents to allow access to their networks at wholesale prices (Telecommunications Act of 1996). The FCC also has oversight over wireless services and radio and television broadcasting (“What We Do,” Federal Communications Commission 2015), which are licensed to use certain portions of the electromagnetic spectrum.

In 1974, the Department of Justice sued under the Sherman Antitrust Act to rein in the dominant US national telecommunications company, in filing suit against AT&T to modify an existing 1949 consent order. The suit alleged that AT&T, the monopoly provider of local telephone service in most parts of the United States, had engaged in various anticompetitive acts to maintain monopoly power in the provision of long-distance telephone service (U.S. v. AT&T 1978). The suit ended in divestiture for AT&T in a modified consent decree in 1983, effectively breaking up the telecom giant (U.S. v. AT&T 1983). Since 1983, additional antitrust actions have been directed at major US telecommunications companies. For example, in 1998, the United States sued under the Clayton Antitrust Act to block the merger of AT&T with TCI (the merger went forward subject to a consent agreement) (U.S. v. AT&T 1999), and Verizon was sued under the Sherman Antitrust Act for conduct that had been found to violate the Telecommunications Act of 1996 (the antitrust suit failed) (Verizon Communications 2004).

The telecommunications regulatory regime in the United States receives policy advice and technical support from the National Telecommunications and Information Administration (NTIA), established in 1978. The NTIA advises the President and works with executive branch agencies to develop policy on telecommunication and information issues and manages the federal use of the electromagnetic spectrum by administering grants and holding auctions to assign licenses (About NTIA 2015) (the NTIA has worked with the FCC to reassign certain spectrum frequencies from public use to private use). The NTIA also has been indirectly involved in Internet governance (and, in particular, the administration of the Internet Domain Name System) through its administration of a US government contract with the Internet Corporation for Assigned Names and Numbers, or ICANN, and the Internet Assigned Numbers Authority, or IANA (ICANN 2015).

In Europe, telecommunications was mostly provided by state-owned monopolies until the 1970s, when pushes for a smaller role for governments in the telecommunications market began to rise (Bauer 2013). In the 1980s, the European Commission began to promote a vision of a pan-European telecommunications sector (Bauer 2013). The EU successfully liberalized terminal equipment, value-added, and other services and had opened all services up to competition by 1998 (Bauer 2013). By 2012, all but one member, Luxembourg, had at least partially privatized their telecommunications sector (Bauer 2013). Since then, the European Union has moved toward facilitating regulation and standardization of telecommunications throughout EU member states as part of the Digital Agenda for Europe. The EU’s framework is made up of five directives, the Framework Directive, the Access Directive, the Authorisation Directive, the Universal Service Directive, and the Directive on Privacy and Electronic Communications, and two regulations, the Regulation on Body of European Regulators for Electronic Communications (BEREC) and the Regulation on Roaming on Public Mobile Communications Network (Digital Agenda for Europe Telecoms Rules 2015). In 2012, the European Parliament and Council approved the first Radio Spectrum Policy Programme (RSPP) to set objectives, make recommendations, and establish principles for the administration of the radio spectrum (Digital Agenda for Europe Radio Spectrum Policy Program 2015). The overall aim of these efforts is to move toward a pan-European approach to telecommunications regulation, in place of the nation-specific regulatory regimes that currently exist within the EU.

Other jurisdictions throughout the world employ a variety of regulatory schemes, with the trend being toward provision of telecommunications services through private operators rather than the state (Struzak 2003). The recent fast international growth of mobile wireless telecommunications, which has rapidly spread the availability of telecommunications services to new populations (especially the poor), is another feature that is expanding the telecommunications network effect and, in particular, widespread access to the Internet.

International Telecommunications Regulation

While the United States has historically acted as steward of the Internet, the NTIA has received pressure to move toward a more global model of Internet governance. As a step toward this model, the NTIA asked ICANN to turn over its role in coordinating the Internet’s Domain Name System (DNS) to the international community as part of a program of privatization (NTIA Announces Intent to Transition 2014). In so doing, the NTIA, acting consistently with resolutions of the US Senate and House of Representatives (S. Con Res. 50, 112th Cong., 2012), specified that it would not support handing its responsibility to any governmental or intergovernmental. The current contract expires on September 30, 2015. Some commentators have expressed concerns about the implications of this transition for the future of Internet governance (Schaefer et al. 2015), while others support NTIA’s initiative (Llansó 2015; Tennenhouse 2014).

The International Telecommunication Union (ITU), founded in 1865 as the International Telegraph Union (International Telecommunication Union History 2015), is now a United Nations Agency focused specifically on information and communication technologies (ICTs). The organization has proposed to take up the mantle of the NTIA, resolving to “to explore ways and means for greater collaboration and coordination between ITU and relevant organizations involved in the development of IP-based networks and the future Internet, through cooperation agreements, as appropriate, in order to increase the role of ITU in Internet governance so as to ensure maximum benefits to the global community,” specifically mentioning ICANN in its 2014 Plenipotentiary Resolution 102 (ITU Plenipotentiary Resolution 2014).

Emerging Policy Issues

Proposals to increase privatization of the radio spectrum and to regulate more heavily the provision of Internet communications are the subject of considerable recent debate. While auctions have been the chosen method of allocating newly privatized spectrum blocs in the United States, the process is not without controversy. For example, after a January 2014 auction for wireless licenses, AT&T accused Dish Network Corporation of intentionally driving up the price of spectrum licenses at auction, arguing that the coordinated bidding strategy involving three entities artificially inflated the perceived demand for the licenses. Dish Network asserted that it fully complied with FCC rules when implementing the bidding strategy, but there have been calls for the FCC to intervene to prevent such behavior (Gryta and Ramachadran 2015).

More generally, some commentators have advocated in favor of “net neutrality,” the principle that Internet service providers (ISPs) should treat all data traffic equally, in the regulation of ISPs (Lessig and McChesney 2006). On February 26, 2015, The FCC adopted a rulemaking that would, among other things, classify the Internet as a “public utility” regulated under Title II of the US Telecommunications Act, invoking the cause of net neutrality. In so acting, the FCC opined that in absent regulatory action, the Internet service providers may throttle data speeds based on content or offer high-paying customers prioritization in data traffic (FCC News Release 2015). Opponents voice concern that the regulation of the Internet as a public utility will result in the entrenchment of larger Internet service providers (ISPs) at the expense of smaller providers, a slowdown in Internet speeds (or the rate of increase in speeds), and Internet access rates (Summary of Pai Testimony 2015). The rule is likely to face challenges from opponents, and the future of Internet regulation by the FCC remains uncertain (Hughes 2015). Concerns about imposing “net neutrality” and various other constraints on the provision of Internet service may be expected in other jurisdictions as well.

Ongoing changes in telecommunications infrastructure will also drive policy debates. Commentators have predicted the increased use of cloud services, investment in telecommunications infrastructure, and replacement of telephone lines with broadband in the developed world and with the rise in multi-device telecommunication services (Lopez 2015). The problem of “big data,” or collections of information that “had grown so large that the quantity being examined no longer fit the memory that computers use for processing,” has been a focus of discussion among telecommunications experts (Pflugfelder 2013; International Telecommunications Union Press Release December 2014).

Conclusion

The importance and diffusion of telecommunications services may be expected to grow apace, with the rapid expansion of wireless services and Internet-related transactions. This development promises to bestow large and growing benefits on producers and consumers worldwide. Nevertheless, questions about the future of Internet governance and regulation in general create some uncertainty as to the manner in which telecommunications (and, in particular, Internet) service provision will grow and evolve.