The Early History of the FCC Doesn’t Provide a Basis for Regulating Facebook and Google Now

O.H. Caldwell, Federal Radio Commissioner, Source: Library of Congress

Last month Jeff Spross explored whether Facebook and Google should be regulated under a new emboldened antitrust. Reaching back into history, he finds basis for these claims in the development of broadcast regulation, noting

Back in the New Deal era, when anti-trust law really expanded, communications technology was limited to things like radio and telephones and newspapers. But policymakers at the time still grasped that the problem of access applied not just to railways and farmers, but to radio and phones and communications as well. Before reform, rich radio broadcasters would just buy more powerful transmitters, and totally overpower radio stations on nearby frequencies, as Marshall Steinbaum, a senior economist and fellow at the Roosevelt Institute, explained to The Week.

So lawmakers passed the Communications Act of 1934 and created the Federal Communications Commission, to fight monopolies and ensure equal access to all market participants. Companies were prohibited from owning too much of any one form of communication in a geographic area, and from owning more than one form (say, radio and newspapers) in the same geographic area. Particular frequencies were licensed to particular broadcasters, on the assumption that the radio spectrum belongs to the public — which gives everyone a chance to be heard.

While I often find Spross’s work insightful, the history about the FCC lacks a lot of context. The goal of the Communications Act of 1934 wasn’t to fight monopolies, as both Spross and Steinbaum suggest, but to wield effective regulatory power. This is the real problem that the FCC has grappled with throughout its history. And the problem of effective regulation continues today with Facebook and Google.

What Spross highlights, which is known today as the public interest mandate, was already in existence by 1927 with the Federal Radio Act, since it created the Federal Radio Commission to work within the “public convenience, interest, or necessity.” Rather, the 1934 Communications Act was important because it merged regulation of a variety of communication mediums into a new agency, the Federal Communications Commission (FCC). The new FCC assimilated the Federal Radio Commission’s (FRC) power over radio, authority over telephone and telegraph previously at the Interstate Commerce Commission (ICC), telegraph rate regulation at the Post Office, and cable landing rights from the State Department.

Contra to Spross and Steinbaum, monopolies were in vogue at the time. In 1921, Congress passed the Willis Graham Act to lift AT&T’s limitations in acquiring telephone systems, allowing the company to consolidate throughout the 1920s and 1930s. As the bill’s committee report noted, “there is nothing to be gained by local competition in the telephone business.” The ICC was charged with telephone regulation, but the agency was created to regulate railroad rates. In part, the 1934 law aimed to rectify a perception that the ICC wasn’t all that concerned with telephone regulation.

President Roosevelt’s address to Congress on the creation of the FCC focused on this exact issue,

I have long felt that for the sake of clarity and effectiveness the relationship of the Federal Government to certain services known as utilities should be divided into three fields: Transportation, power, and communications. The problems of transportation are vested in the Interstate Commerce Commission, and the problems of power, its development, transmission, and distribution, in the Federal Power Commission.

In the field of communications, however, there is today no single Government agency charged with broad authority.

Another driver in the creation of the FCC comes from the lessons of “the breakdown of the law” period, occurring between 1926 and 1927. To understand it, some history is needed. (Much of the proceeding history comes from Thomas Hazlett’s “The Rationality of US Regulation of the Broadcast Spectrum”)

Following the Titanic disaster and the confusion in the rescue, Congress passed the Radio Act of 1912 which gave the Department of Commerce the ability to hand out radio licenses. Only at the beginning in the 1920s did this become a meaningful tool as the radio industry grew. At first, the Commerce Department only gave out permits for one wavelength, 833.3 kHz, which created the need for complicated time sharing arrangements. So when Steinbaum suggests that broadcasters would overpower radio stations on nearby frequencies, this was due to explicit government mismanagement.

Being the consummate engineer, Commerce Secretary Herbert Hoover withheld new licenses, restricting a number of potential broadcasters within a space to reduce interference. But this didn’t sit well with some new entrants, and so a case was brought that became Hoover v. Intercity. There, the Court determined that the Commerce Secretary didn’t have the ability to withhold licenses because Congress hadn’t given him that ability. Instead, it did give the Secretary the ability to select time and wavelengths to minimize interference.

License granting continued from 1923 to 1926 with this new redefined role, and the number of channels expanded from one to 70. Again, the allotments became scarce and April 1926, the issue again went on trial in US v. Zenith. This time, an Illinois court said that time and wavelength restrictions weren’t expressly given by Congress. Hoover turned to acting Attorney General William Donovan for an opinion and soon it was declared that the federal government didn’t have the authority to define spectrum rights.

Ethereal bedlam ensued.

The 1927 Radio Act came on the heels of this regulatory confusion, and it was here that the public interest mandate was first codified into communications law. Yet, there is still considerable debate as to the merits of the public interest, especially if the mandate was meant to upset the balance of power so corporations couldn’t “totally overpower radio stations on nearby frequencies.” Indeed, as the first report of the Federal Radio Commission noted, “Until April 1926, the situation was fairly well in hand. There was some interference, due to the surplus of stations over the number of available channels, but in almost every case, station owners showed a willingness to cooperate in making beneficial adjustments.”

Commentors have long confused the chaos of 1926 and 1927 with a system of private ownership. The 1927 Act, which gave an agency licensing power, wasn’t the only way to regulate spectrum. Courts could have adjudicated claims of ownership, and indeed, a market had popped up in the early 1920s where station permits were exchanged for cash.

In Chicago, the classic problem of interference was experienced and litigated in Tribune Co. v. Oak Leaves Broadcasting Station. WGN, a subsidiary of Tribune, was the incumbent radio station and brought a suit against the entrant when it began to broadcast in an adjacent frequency. Interestingly, the defendant never denied the premise of the suit, that their broadcast caused interference, just that it was giving WGN enough space to operate effectively.

Interestingly enough, something akin to this private system now exists. Beginning in 1994, the FCC began to auction off spectrum. In the last go around, the sale totaled $41 billion. Taken as a whole, these sales are credited with sparking the mobile revolution.

Of course, there is much, much more to the history of the FCC. But the lessons I get from this era lead me down a different path than either Spross or Steinbaum. In the early days of the FCC, monopolies were encouraged, and the public interest mandate worked alongside that market structure. But, the public interest has also been hugely important in the era of competition sparked by the AT&T antitrust case and the 1996 Telecommunication Act. Vague notions of either the market structure or the public interest aren’t especially good guides for policy. Rather, policymakers and the commitariat should focus on concrete alternatives and actionable outcomes. While Spross might want to “smash the centralized behemoths,” effective regulation of Facebook and Google should begin with an outline of the world that would be achieved.

Senior Research Fellow | Center for Growth and Opportunity | @WillRinehart

Senior Research Fellow | Center for Growth and Opportunity | @WillRinehart