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Regulation of Telecommunications

Clint Bolick

Clint Bolick is an attorney specializing in constitutional law with Mountain States Legal Foundation, a Denver.based public interest law firm which advocates the private enterprise system in the courts.

America has produced many revolutions in its first 208 years, but perhaps none since its founding embodies such enormous potential for shaping our global destiny as the telecommunications revolution.

Cable television and related technologies have thrust us to the threshold of an information age, brimming with potential for increased freedom. From our individual homes we can direct more of our own affairs, utilizing vastly more sophisticated yet personalized information exchange mechanisms that make possible voluntary contact with anyone with whom we wish to communicate.

That this amazing 20th century revolution could occur at all is a tribute to the American Revolution of 1776, whose leaders charted a unique commitment to a “free marketplace of ideas,” enshrined in the First Amendment to the Constitution. This commitment fostered a society characterized by an unprecedented open and robust exchange of views, as well as an unquenchable thirst for new technologies to facilitate that exchange.

The telecommunications revolution is the product of free, creative minds and an unfettered communications marketplace. But as we enter the era in which electronic media will displace print as the dominant vehicle for communications, we face the same decision that confronted the founders of the American experiment: we must choose between the market and the state to regulate the commerce of ideas. Our decision, like that of the founders, will determine whether the technologies of our day will usher in an era of human freedom—or will operate to subvert that freedom.

The Telecommunications Revolution

What is this revolution that is taking place around us? What are the opportunities that it presents?

Some of the new technologies are already here, dramatically expanding the horizons of information exchange. At the forefront is cable television, which utilizes coaxial cables to bring subscribers a wide variety of programming alternatives. Typical cable systems expand viewer choices exponentially, offering local origination and satellite transmission as well as distant broadcast programming. Virtually infinite channel capacity can accommodate the most specialized entertainment, news, educational, community affairs, cultural, political and commercial programming. Already there are 35 million cable subscribers in the United States alone, and by 1990 the percentage of television households patronizing cable services will grow from the present 35 percent to 62 percent. Subscription levels in Western Europe are rising rapidly as well.

Alternative technologies promise stiff competition for these services. Direct broadcast satellites (DBS) bypass cable by transmitting signals directly to dishes installed on subscribers’ property. Multi-point distribution service (MDS) transmits video services to individual subscribers via microwaves. Pay television uses broadcast signals that are “unscrambled” at the customer’s residence.

The accelerating development of computers, two-way “interactive” services, and fiber optics will further expand the ability of individuals to obtain information from diverse sources and to communicate with one another. From private homes and businesses, we may now access computer data banks and share information with others. “Electronic newspapers,” combining traditional publishing with satellite transmission, have enhanced the development of national media and can provide the latest information specifically tailored to suit personal needs and demands. Home banking and a host of other home consumer services are available. And the ad vent of instantaneous voting via cable can potentially transform a large nation into a town hall- style democracy. As Ralph Lee Smith concluded more than a decade ago in The Wired Nation, “In short, every home and office can contain a communications center of a breadth and flexibility to influence every aspect of private and community life.”

The Role of Government

The extent to which these prospects are realized will largely depend on the role of government. All of the new technologies have been subjected to varying levels of regulation. In the United States, for example, heavy regulation by the Federal Communications Commission (FCC) throttled cable television’s development for several years. Subsequently, however, the FCC reversed its course and deregulated cable, immediately leading to accelerated technological developments that restored America’s leadership role in the telecommunications revolution.

In Europe, governmental control over new technologies has slowed progress and delayed service. Former West German Chancellor Helmut Schmidt stalled cable television progress during his tenure, chastising it as “more dangerous than nuclear power,” and refusing to countenance cable development in that country. Now, many European nations, aware at last of cable’s potential and aghast at America’s invasion of their home turfs through that medium, are anxiously playing catch-up.

Why is America the leader in the communications revolution? In large part, it is because of its predilection toward free market solutions and its faith in technology, while Europe tends toward greater state involvement in the economy. What makes America truly unique, however, is that the free communications marketplace is not simply an economic policy, but a matter of constitutional doctrine as well. The First Amendment has fostered not only freedom of speech, but also the virtual explosion of technology that has made that precious freedom more meaningful than ever.

Whether the new technologies will ultimately be used to expand or restrict prospects for freedom, however, is still an open question. The information age may witness an expansion of individual sovereignty as never before—or a loss of that sovereignty to state control. In each of the modern industrial nations, the time for decision-making is at hand. As Ithiel de Sola Pool concludes in Technologies of Freedom,

The problem is worldwide . . . . The onus is on us to determine whether free societies in the twenty-first century will conduct electronic communications under the conditions of freedom established . . . through centuries of struggle, or whether that great achievement will become lost.

Choices and Consequences

In choosing the mechanism that will regulate the telecommunications revolution, two polar opposites are possible: the nightmarish world of George Orwell’s 1984 in which all communications are controlled by the state, and an unfettered marketplace of ideas in which a free press thrives.

The first alternative is vividly depicted by Orwell as a world utterly devoid of freedom. Orwell recognized that a totalitarian state could be achieved and maintained only through absolute control over ideas and communications. The state created a language, “Newspeak,” with which it could control the scope of ideas and rewrite history under the aegis of the Ministry of Truth. It utilized a highly sophisticated technology capable of monitoring all personal thoughts and communications. Orwell traced the development of this awesome power:

The invention of print . . . made it easier to manipulate public opinion, and the film and the radio carried the process further. With the development of television, and the technical advance which it made possible . . . It]he possibility of enforcing not only complete obedience to the will of the state, but complete uniformity of opinion on all subjects, now existed for the first time.

In Orwell’s society, the state con-trois all information dissemination and proscribes all contrarythoughts. The submission of the citizenry is ensured by the Thought Police, who carefully monitor all communications through two-way telecommunications devices designed to serve the needs of the state:

The instrument (the telescreen, it was called) could be dimmed, but there was no way of shutting it off completely . . . . The telescreen received and transmitted simultaneously . . . . You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard.

The world of 1984 is a dismal one, a world in which the new technologies are subverted to constrict, rather than expand, voluntary interpersonal communications. Orwell’s message is replete with tacit warnings against permitting government to control the exchange of ideas and the mechanisms that facilitate that exchange. The technology of 1984 exists today—as does the potential for tyrannous governments to exploit it to subvert freedom.

Another course is possible. In stark contrast to 1984 is the historical experience of the press in the United States. The American founders well understood the dangers of vesting in government the power to suppress and censor speech. They recognized in the Virginia Declaration of Rights in 1776 that “the freedom of the press is one of the greatest bulwarks of liberty, and can never be restrained except by despotick [sic] governments.”

Freedom of Speech

Fresh from their experience with the suppression of colonial speech under the rule of the British crown, many of the founders refused to support the new Constitution until freedom of speech was ensured. Resisting the opportunity to seize such power for themselves, they instead incorporated into their basic law the First Amendment: “Congress shall make no law . . . abridging the freedom of speech, or of the press.” As Justice Hugo Black observed almost two centuries later, it was established for the first time that “[t]he press was to serve the governed, not the governors.”

Ever since the acquittal of publisher John Peter Zenger of charges of seditious libel in 1735, the press in America has been immunized from government interference far more than any other enterprise. Rather than relying on the state to protect the public from “dangerous” or false ideas, the First Amendment vests that right and responsibility in the citizens themselves. As Thomas Jefferson explained, it is “better to trust the public judgment, rather than the magistrate . . . . And hitherto the public has performed that office with wonderful correctness.”

The founders correctly believed that the only dependable and enduring safeguard for the free marketplace of ideas was to bar the government from exercising editorial control over private communications. As Justice Potter Stewart explained, the First Amendment “is a clear command that government must never be allowed to lay its heavy editorial hand on any newspaper in this country.” The concept of free speech has been applied to protect the commerce of ideas between willing communicators, and those willing to receive such communications. The Supreme Court has generally recognized that any departure from these protections would have serious adverse consequences. As Justice Thurgood Marshall observed, “Our whole constitutional heritage rebels at the thought of giving government the power to control men’s minds.”

The results of the commitment to free speech and a free press are readily apparent in the vigorous exchange of ideas which is a hallmark of American society. Anyone with a typewriter, telephone, or soapbox may freely transmit views to those wishing to receive them. These constitutional guarantees protect dissenting viewpoints and provide mighty deterrents against government tyranny. Indeed, but for the First Amendment, the horror of 1984 could be today’s reality.

The Market or the State?

The idea of a free communications marketplace essentially unregulated by the state was a radical one in 1776, and sadly enough remains so today. Particularly with the onset of new technologies, many today advocate some form of “mixed” state and private control of speech, for any of a number of high-sounding reasons. But as Ludwig von Mises warned, the issue is always the same—“the market or the state; and there is no third solution.”

Those who advocate mixed control have concluded that individuals should relinquish some measure of their sovereignty for the greater good. All of their rationalizations rest on the notion that the state enjoys a superior capability to determine the interests of society as a whole in the information age.

The first of these justifications is the most transparent. Many government officials view regulation as a vital safeguard against “commercial exploitation” of consumers. This paternalistic notion seeks to justify imposed choices by government while proscribing the individual autonomy provided by the market. But far from exploiting consumers, the market inherently provides the most effective consumer-protection mechanism possible—competition. Due to omnipresent pressures in the market for technological change, the new media must be fiercely competitive. Those entrepreneurs offering the finest products, lowest prices, most personalized services, and latest technical advances will prosper. Conversely, government interference inevitably adds regulatory costs and hampers profitability, thus dampening innovation and choice.

A second justification is fiscal policy. The revenues certain to be realized from the telecommunications revolution are tempting to cash-poor governmental entities. Further, harnessing these new technologies could provide the cornerstone for revived “industrial policy” in many countries. This modern-day mercantilism suffers, however, from the same fundamental flaw that plagues all state-controlled industries: the gains to society’s wealth obtained by state displacement of or interference with private enterprise pale in long-term comparison with free industries, which enjoy greater incentive to maximize efficiency, productivity, and improvement. Indeed, those governments which have restrained the new communications technologies are in a virtual frenzy over the spectacle of massive consumer spending in their own countries for the goods and services made possible by these technologies in less-regulated countries. Many have commenced policies of protectionism and government subsidies in a belated and futile attempt to steer consumers away from products they desire.

A third rationale for government regulation is “scarcity” of one sort or another. This is the justification typically cited by those wishing to impose content control to protect the public interest. One type is physical scarcity, which holds that airwaves are limited and thus may only be fairly allocated and regulated by the state. The physical scarcity concept brought about a major departure from First Amendment protections as communications exchange shifted from the press to broadcast media. While newspapers continued to receive full protection, television programmers were subjected to substantial “public interest” regulation, much of which was upheld in the courts. The result has been stifling homogenization in programming as producers concentrate as much on satisfying governmental dictates as they do on customer demands. Still another result, however, has been the rapid development of the new alternative technologies, which offer increasingly stiff competition to the broadcast media. If it was ever a valid premise for government regulation, the physical scarcity rationale is clearly rendered obsolete by the new competitors and the unlimited program-ruing options they present.

A second form of scarcity is “economic scarcity,” or the theory of”natural monopoly.” Some theorists argue that many communications technologies require such intensive capital investments that only one producer may profitably serve a given market. Ostensibly protecting the citizenry from “monopoly power,” the governmental entity chooses and licenses a single producer as a “franchisee” or “common carrier,” and then subjects that producer to extensive taxation and regulatory control. This notion dates at least as far back as 1585, when the British crown awarded monopoly privileges to publishing guilds. The artificial restriction on the number of publishers facilitated government censorship, but was ultimately undermined by sustained illicit competition.

“Economic Scarcity”

In America, the concept of economic scarcity was suggested as a rationale for requiring newspapers to publish replies to unfavorable reporting—an argument the Supreme Court firmly rejected. But although the Court has opposed even the most “benign” regulation of newspaper content, it has yet to fully extend this protection to the new media. It has failed to do so because it asserts that differences in the characteristics of new media justify different degrees of First Amendment protection.

This approach contradicts the teachings of America’s founders. They did not provide protection only to the press, but to speech itself as well, perhaps anticipating that new mechanisms would arise to challenge the press as the prime facilitator of communications exchange. Speech is no less an exchange of ideas if it is transmitted by television, cable, or satellite rather than by newspapers. Yet the courts have departed from First Amendment principles and allowed state regulation of radio and television, and now face a similar decision in the context of cable and other new media. Any further failure to zealously protect the free communications marketplace portends distressing consequences.

The American Cable Experience

Nowhere is the abandonment of First Amendment values more apparent than in the cable television arena. Despite deregulation at the Federal level, regulation of cable in America is increasingly extensive, restraining the full realization of that medium’s enormous potential and laying the groundwork for massive state interference with editorial processes traditionally entrusted to private discretion.

With the lifting of most regulations at the Federal level in the last decade, municipal governments have made cable television a focus of attention. Relying on all three justifications—public interest, revenue, and economic scarcity—they have subjected cable to broader regulation than any communications medium in American history.

Starting with the premise that cable television is a “natural monopoly,” municipalities award exclusive franchises, in effect rendering economic scarcity a self-fulfilling prophecy. Based on its control of the public streets, the governmental entity essentially precludes other firms from entering the community. In return, it exacts enormous tribute from the winner of the franchise. Typical concessions include expensive franchise fees, “public access” studios, subsidized programming for special interest groups, and review of program content. While filling public coffers and placing the strong arm of government on the pulse of local communications, these regulations add nearly 25 percent to the cost of cable programming and limit subscribers to a single choice for cable services.

Unsound Reasoning

The rationales for government control in the cable context are fundamentally unsound. Cable is an unnatural monopoly; few companies compete head-to-head only because the system of local franchises and pervasive regulations makes it unprofitable and frequently illegal to do so. Even without direct competition, however, the existence of alternative technologies provides the ira-portant disciplinary effects of the marketplace, making “public interest” regulation wholly unnecessary. Open entry policies and the constant threat of competition would accomplish the same end. Indeed, some lo cal governments, recognizing that the natural monopoly myth rests on tenuous assumptions, have acted to exclude from their communities not only additional cable companies but competing alternative technologies as well.

If the First Amendment is displaced and government control over cable is entrenched, the state will be free to further invade the sanctity of the communications marketplace. At least one franchise requires the installation of devices of empowering government officials, at any hour of the day or night, to turn on every subscriber’s television set and broadcast “emergency” messages. Two-way telecommunications capacity—a central feature of Orwell’s scenario—renders the specter of government control even more alarming.

The courts have yet to definitively rule on the First Amendment implications of government control over cable, and the battle over these issues will be a long and fierce one. While much of the upcoming legal fight may center on economic questions, the basic issue is a moral one: should individuals be autonomous in choosing what, how, and to whom to communicate, or should those choices be made by government? The resolution of this vital question will loom large in determining the future of human freedom.

The Challenge Ahead

America is unique in its commitment to an uninhibited marketplace of ideas. Yet America itself is precipitously close to discarding that commitment, which for more than 200 years has supported its claim to moral leadership in the area of freedom of speech.

Even before the rapid development of the new media, Justice William O. Douglas warned of the dangers involved in abandoning the commitment to First Amendment principles on the basis of technological change:

The struggle for liberty has been a struggle against government . . . . [I]t is anathema to the First Amendment to allow government any role of censorship over newspapers, magazines, books, art, music, TV, radio or any other aspect of the press . . . . My conclusion is that the TV and radio stand in the same protected position as do newspapers and magazines . . . for the fear that Madison and Jefferson had of government intrusions is perhaps even more relevant to TV and radio than it is to other like publications.

With the onset of cable and related technologies, the stakes are higher still. We are on the brink of facilitating voluntary communications and commerce on a scale unprecedented in history. Whether the telecommunications revolution will be a tool for freedom or for suppression depends upon the policy choices we make today. As de Sola Pool warns, “It would be dire if the laws we make today . . . in such an information society were subversive of its freedom.”

The year 1984 is upon us. If we are to avoid the prophecies of totalitarian doom, we must resolve to protect the legacy of freedom which we have inherited, and to expand it to the world-wide scale now made more possible than ever by the new technologies.

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