Common Carriage and Title II: The Myth, the Regulatory Enigma
“Disastrous.”
“Draconian.”
“Radical.”
“Calamitous and devastating.”
These are the words that Comcast, AT&T, and the National Cable and Telecommunications Association use to describe the potential reclassification of Internet Service Providers (ISPs) from their current designation as “information service” to “telecommunications service” under Title II of the Communications Act of 1934.
Other politicians have made a bit hokier, colloquial argument: regulating technologies of the 21st century with tools from the age of telephone monopolies doesn’t make any sense! Ubiquitous crows of precipitous declines in investment and innovation ensue.
To understand why Title II isn’t a “radical” or “draconian” approach to the current net neutrality and Open Internet debate in front of the FCC, one must look at the historical roots of Title II and the concept of common carriage.
So what is common carriage?
As Public Knowledge argues in its comments to the FCC on the Open Internet, “while common carriage is often mistaken for a set of regulations, it is actually a description of a type of service.” Put more simply: “common carriage is nothing more than the basic duty to serve the public indiscriminately.” (Public Knowledge, 4).
“Networks are so vital to the functioning of society that the maintenance of such networks cannot be left to the market solely.”
Principles of common carriage are deeply rooted in our society and legal process.
From legal obligations of “shipowners, innkeepers and stable keepers” in the Roman Empire, to early English common law on “public callings” and “common callings,” the idea that public services couldn’t discriminate against users who sought out their services has been part of the social compact for quite a bit of time. (As Free Press argues in its comments to the FCC on the Open Internet, in England, “common law first applied these duties to serve indiscriminately to innkeepers, ferry owners, blacksmiths, tailors and others who were considered to be businesses operating as ‘public callings.’”) (Free Press, 16).
For the United States, the first statutory codification of common carriage can be seen through the Interstate Commerce Act of 1887, which created the Interstate Commerce Commission (ICC) (the predecessor to the FCC). As the current FCC Chairman Tom Wheeler argues in Net Effects, throughout the later 1800s, smaller farming communities were often only served by one rail line. Because of this, the rail companies servicing these towns were often able to extract “monopoly rents,” or rates that were twice as high as those in more competitive communities and markets. In response, “In 1887 pressure from these farmers resulted in the creation of the Interstate Commerce Commission (ICC). The mandate of the ICC was to apply offsetting government power against the power of the railroads so as to assure the protection of the network’s users. It was the first independent Federal regulatory agency and the template for all that was to follow.” (Wheeler, 19–20).
The principles of common carriage expanded to the telecommunications industry and came under the purview of the ICC in the Mann-Elkins Act of 1910. One can interpret the Mann-Elkins Act of 1910 as “a public policy recognition that communications networks are so vital to the functioning of society that the maintenance of such networks cannot be left to the market solely.” This extension of common carriage principles to the telecom industry continued on an even greater scale, reaching its peak statutory strength when Congress passed the 1934 Communications Act. Through the 1934 Communications Act, Congress not only created the Federal Communications Commission, but also, more importantly, “continued application of common carrier duties to all providers of public two-way communications services, regardless of such individual providers’ market power.” (Free Press, 19).
“One System. One Policy. Universal Service.”
Or, at least that was AT&T’s claim in the 1900s, before they were brought under common carriage regulations. In fact, the history of AT&T is intimately enmeshed with the legacy of common carriage.
Funnily, one can make a very persuasive argument that it’s not the 1934 Communications Act that speaks more to the misconstructed legacy of common carriage — despite the fact that common carriage was statutorily enshrined through Title II of the Act. Indeed, a better argument places the crystallization of common carriage’s legacy in 1913 with the Kingsbury Commitment.
In order to settle out the Department of Justice’s pending antitrust inquiries (thanks to the Sherman Antitrust Act and an empowered DOJ coming off of antitrust victories against John D. Rockefeller’s Standard Oil) Theodore Vail, then at the helm of AT&T, entered into a consent decree (named the “Kingsbury Commitment,” thanks to the Vice President Nathan Kingsbury of AT&T) and agreed to be regulated. In exchange for its effective recognition as a government-recognized monopoly, AT&T would fall under the regulatory purview of common carriage.
As Tim Wu argues in The Master Switch: The Rise and Fall of Information Empires, Vail “agreed to operate pursuant to government-set rates, asking in exchange only that any price regulations be ‘just and fair’…under the settlement, Bell made one big concession: it agreed to sell Western Union [which had given AT&T an monopolistic hold of the telegraph market].” (Wu, 55). By agreeing to operate under common carriage rules,
Bell would refrain from picking winners in other sectors of the economy or public life—any area that privileged access to the growing reach of communications could influence. Despite being a monopoly, Bell was committing itself to noninterference and making itself equally open to all users of its service…this is the essence of common carriage, a concept that may seem esoteric, but is as fundamental to free communications over wires and frequencies as the First Amendment is to free expression. (Wu, 57).
So, while the Mann-Elkins Act of 1910, the Willis Graham Act of 1920, and the Communications Act of 1934 all speak to the broader legislative and statutory de jure legacy of common carriage, the reality is that the de facto legacy of common carriage and Title II rests with the Kingsbury Commitment. Yes, Title II wasn’t even technically enacted as law for another 20+ years through the Communications Act of 1934. Nevertheless, what’s important is that this is where the myth begins. The regulatory enigma of Title II/common carriage “a legal framework [solely] developed for the ‘monopoly telephone era.’” (Free Press, 19, fn. 18).
Here’s that misconstrued legacy:
If anything, I’m concerned that that the imposition of new regulations – and in particular expansion of 80 year-old rules designed to regulate old telephone monopolies under Title II – will have the exact opposite effect on the Internet. More regulation normally isn’t seen as something that incentivizes businesses to advance and grow, so it seems counterintuitive in this case as well.
“these observations [that reclassification under Title II is counterproductive as a policy matter] ring particularly true in light of our nation’s experience with public-utility-style regulation, which has led to severely diminished investment in the electrical grid and transportation infrastructure, as well in the legacy telephone networks subject to Title II.”
Bret Swanson, a visiting fellow at AEI:
The substance of Title II common carrier regulation, however, is very real, and it could deal a huge blow to the Internet economy. Title II means price regulation. It means asking Washington and the state utility commissions for permission to launch new products, change existing ones, or deploy new technology, and to approve marketing and advertising programs. It means hundreds of other rules that were written for the monopoly telephone network 80 years ago but that would now apply to the vastly different Internet environment.
“Technology that drives the new networks may have changed their design and operation, but the essential components of the relationship between the network and its users has not changed.”
Believe it or not, those are Chairman Wheeler’s thoughts. And he’s fundamentally right! This is exactly the proper, historically-enlightened understanding of common carriage. Yes, common carriage is enacted through Title II. No, common carriage isn’t about regulating monopolies and no, it certainly is not only about 1930s-esque telephone regulations.
Chairman Wheeler probably said it best, but to drive home the point, as Free Press argues: “Title II is not merely synonymous or co-extensive with a ‘public utility’ or a ‘regulated monopoly.’…[It’s] a legal principle that applies to a carrier that ‘holds itself out…to carry for all people indifferently.” (Free Press, 27).
And you know what? Even if you are concerned about Title II’s potential impact on investment and innovation, which is a perfectly reasonable concern, the data should alleviate those concerns:
As you can tell, especially in Figures 1 and 2 (which come from Free Press’ comments to the FCC), the decline of investment is directly queued to the move from a regulatory regime into a deregulatory regime, as seen through the reclassification of ISPs to be “information services” in 2002.
“To uphold the values which common carriage protected will be a central challenge in the post-deregulatory agenda of communications policy issues.”
In 1994, Columbia University’s Eli Noam predicted the impending doom of common carriage and “argue[d] that the institution of common carriage, historically the foundation of the way telecommunications are delivered, will not survive.” Noam reached this conclusion with “considerable reluctance. Common carriage, after all, is of substantial social value. It extends free speech principles to privately-owned carriers. It is an arrangement that promotes interconnection, encourages competition, assists universal service, and reduces transaction costs.”
While Noam is certainly right in saying that protecting the legacy of common carriage is a “central challenge in the post-deregulatory agenda,” I’m a bit more optimistic about the potential reimagination, the potential reinvigoration of our understanding and approach to common carriage — for better or worse, we’re placed in exactly the right historical moment. The more we understand common carriage to be about something bigger than just telephone monopolies, the better.
Its legacy is bigger than that.
After all, as Chairman Wheeler argued, though the technology may change, the relationship between networks and their users hasn’t.
