March 15, 2015 | by Wayne Smith

Net Neutrality Part II: These Markets Aren’t What They Used To Be

In this article, we are going to trace some of the changes in the telecom markets since the Telecommunications Act of 1996 was passed. For context, we will outline how the Internet and the telecommunications markets looked then, and how they have since changed. The Internet Service Providers (ISPs) that provide Internet access services primarily consists of three market segments- the mobile broadband market, the fixed broadband market (cable) and the fixed wire-line market. There are other providers, but these three market segments provide the vast majority of access services in the country.

Context: 20 Years of Internet History

As most of us are aware, the Internet was created between the 1960s and the 1990s by a collection of unlikely players including universities, DARPA, government and a couple private corporations. The academic culture was the dominant influence at the time. The primary objective for the Internet then was to create a resource-sharing, worldwide communications network that would change the nature of collaboration and enhance the advancement of science and public knowledge. Every user would have equal access and the ability to have unencumbered freedom to express ideas, information, speech, etc. This was the original concept of the “Open Internet” and what today is called “Net Neutrality.”

IPv4 was introduced in 1993 and provided the transport protocols for all Internet communications. Then in 1995, the ARPANET name of the network was suspended, and the Federal Network Council replaced it with the term “Internet.” At this same time, it opened access to the Internet to private companies and individuals. There were about 50,000 networks across the globe communicating with the Internet. The first rudimentary web browser was just introduced; search engines did not exist; there were no social networks except for bulletin boards; no cloud-based software, storage or wireless data. This was the context within which the Congress drafted the Telecommunications Act of 1996.

By 2015 the Internet had run out of available IPv4 addresses – about 3.4 billion. Access to the Internet is almost ubiquitous; there are over 280 million users in U.S., and more than 3 billion worldwide. Google’s search engines direct more than 50% of the searches. Netflix accounts for more than 50% of the traffic, and Microsoft is a dominant player in cloud storage with hundreds of products. The Internet is nothing like what it was in 1995. This is the environment of today’s debate about net neutrality.

Telecom Market Changes

In 1982, the Anti-Trust division of the Department of Justice forced AT&T to relinquish control of the Bell Operating Companies and give up its monopoly in the telecommunications industry. The ruling formed the seven Regional Bell Operating Companies (RBOCs) that focused on local calling while allowing AT&T to manage its long distance business. This decision was based on the argument by AT&T, which was false, that the money was in long distance calling. The plan was a partial failure that caused AT&T to almost collapse.

On the bright side, the AT&T breakup removed the shackles from several new technologies that would launch communication into its exciting future.

By the early 1990s, the nation was abuzz with “free market” enthusiasm, and there was considerable push from large corporations for the government to reduce regulation. In response, Congress passed the Communications Act of 1996 that aimed to placate these demands. The Act’s objectives were to remove monopoly-facilitating controls, promote competition and encourage private sector investment in order to accelerate the deployment of advanced broadcasting and telecom technologies. Since the Act allowed “media cross-ownership and investment,” anyone was allowed to enter and compete in communications, film, radio, publishing, etc. The RBOCs, AT&T, cable companies and other media organizations could now compete in any market (plus the Internet). The promise was that free markets, competition and the absence of government intervention would make the world a better place.

The Result

Competition was spurred, but now the pros and cons of market consolidation are beginning to form their own giant cloud.

In the wire-line, cable and wireless sectors, a few players from each experienced tremendous growth and noticeably rose above their competitors. In a few fell swoops, many were granted unique and exciting opportunities for innovation, while others just as easily fell short of the curve.

The unleashing of the competitive market forces delivered what the drafters of the Communications Act of 1996 intended – the rapid development and deployment of advanced telecommunications technologies. However, it also produced an unexpected domino effect of mergers and acquistions at both the national and local levels. With the net neutrality debate back in the public sphere, the various perceptions that exist in regards to “good old fashioned competition” are beginning to surface (and grow teeth).

Regardless of which side of the fence you stand on, it is quite clear that the market is simply not what it used to be.

The next article will discuss the players involved in the current debate, the consumers and how infrastructure is impacted.