Democracy & Technology Blog Telephone and cable industries Wozniak attacks were fully regulated

Apple Computer co-founder Steve Wozniak has a poignant, but factually problematic, plea for Internet regulation in The Atlantic.

Please, I beg you, open your senses to the will of the people to keep the Internet as free as possible. Local ISP’s should provide connection to the Internet but then it should be treated as though you own those wires and can choose what to do with them when and how you want to, as long as you don’t destruct them. I don’t want to feel that whichever content supplier had the best government connections or paid the most money determined what I can watch and for how much. This is the monopolistic approach and not representative of a truly free market in the case of today’s Internet.

The free and open Internet Wozniak celebrates actually evolved in the absence of regulation. William E. Kennard, FCC chairman during the Clinton administration, declared that the “best decision government ever made with respect to the Internet was the decision … NOT to impose regulation on it.”
Meanwhile, back when the computer age was getting started and telephone services were ridiculed and reviled by Lily Tomlin (see SNL clip from 1976) and others, there existed a crucial – albeit frequently overlooked – symbiosis between monopoly and regulation. You don’t hear about it from Tomlin or Wozniak, but the Bell System was a legally-sanctioned and closely regulated monopoly.

While grieving that life for a young computer engineer sucked in the old days when phone and cable companies were monopolies, Wozniak alludes to several persistent misconceptions about the telephone and cable industries that ignore pervasive regulatory failure and provide no justification for Internet regulation.

For example, he recounts that in 1972 he couldn’t attach his own answering machine to the phone network and that it cost too much to lease a Codaphone 700 from the phone company. As a result, his Dial-a-Joke venture failed.
The high rate Wozniak was forced to pay was part of a complex, progressive system of cross-subsidization practiced by phone companies under the watchful guidance of Federal and state regulators, who traditionally focused on keeping rates for basic residential service at the lowest possible level – often below cost – by authorizing and encouraging the phone company to overcharge commercial subscribers, charge high prices for vertical features and self-provision all of the equipment that comprised the network. The goal was to provide basic residential service that was affordable to all and a “reasonable” return of approx. 11.75 percent in the aggregate for investors, by charging the highest rates to subscriber categories deemed most willing and able to pay.
Wozniak also complains that a cable company refused to provide him with service, even though he offered to pay the cost of laying the cable. The cable company claimed there were not enough homes on Wozniak’s hill to pay for the monthly rental of running their cable on telephone poles. Again, pole attachment rates are set by the FCC, and in my opinion they are set too high for cable companies.
Next, Wozniak complains that HBO told him that he couldn’t expand the cable ‘company’ he built in his own garage to provide service to his neighbors. HBO told him he needed to be a real cable company, charging rates and sharing a percentage with HBO. Duh. HBO expected to be paid for its services. And in order for Wozniak to provide cable service to his neighbors for a fee, he needed to obtain a cable franchise from his city council or other Local Franchising Authority (LFA) and comply with applicable regulation governing use of public rights-of-way and other matters.
Astoundingly, Wozniak complains that we once had a right to listen to any radio signals, which went away with a ban on radios that could tune in to cell phone frequencies in the days of analog cell phones. He’s referring to a federal law which made it a crime to eavesdrop on private conversations via cell phone.
Finally, Wozniak attacks metered pricing.

Imagine that when we started Apple we set things up so that we could charge purchasers of our computers by the number of bits they use. The personal computer revolution would have been delayed a decade or more. If I had to pay for each bit I used on my 6502 microprocessor, I would not have been able to build my own computers anyway.

Regulation is not responsible for flat-rate broadband pricing. Consumers have demanded it. As Ken Bode at points out,

There’s not a broadband provider out there who wouldn’t instantly begin billing you by the byte if they thought you (the consumer) would sign off on it. Unfortunately for them, Time Warner Cable’s recent PR disaster illustrated that consumers aren’t sold on low caps and high overages when broadband delivery costs continue to drop. Many customers may be stupid, but they can apparently read an ISP’s 10-K form, which shows that flat-rate billing provides broadband operators with very healthy profits.

Of course, with the increasing demand that video places on broadband networks, traditional pricing models may need to evolve. But broadband providers are going to have to sell the public on the changes. Bode predicts that there is “only one way that the broadband industry is hoisting metered billing on a wary public, and that’s if all broadband carriers embrace the idea at once.” Unless the changes are economically unavoidable, some broadband providers will seek to undercut their competitors to capture market share. We’ve seen this happen over and over again in the airline industry.
Regulation is appropriate for monopolies, although if regulation were perfect Wozniak wouldn’t have so many gripes about the telephone and cable services of the past. The key difference between the era Wozniak deplores and today is the role of government. There were no ambiguities about the scope of Federal, state or local jurisdiction for telephone and cable services. Not only did regulation fail to prevent the problems cited by Wozniak, those problems are directly traceable to regulation.
Most people understand that competition is superior to regulation. You can see this in the overwhelming bipartisan vote in favor of the Telecommunications Act of 1996, and, more recently, an NBC/Wall Street Journal survey in June, which revealed that 65 percent of respondents thought Internet service providers either needed less regulation or the same amount of regulation as they have today.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.