Today in 1996: The Telecommunications Act is signed into law

February 8, 2013

Today in Legal HistoryLast month was the two year anniversary of Comcast’s acquisition of NBC Universal, the largest merger of media companies in history (discussed in another Today in Legal History post here).

This merger would not have been possible if not for legislation enacted 15 years prior – specifically, the Telecommunications Act, which was signed into law by President Bill Clinton on February 8, 1996.

The seventeen year old law was billed at the time as “promoting competition” in all telecommunications markets by removing regulatory barriers to market entry.

Basic economic principles hold that increased competition leads to lower prices and greater selection for consumers.

So how could a law that purports to increase competition be responsible for the Comcast-NBC Universal merger, which, by reducing competitors in the marketplace, would injure competition under basic economics?

There are two possible explanations for this: either the merger was not actually facilitated by the 1996 Telecom Act, or it just failed at it accomplishing its stated goal.

The first explanation cannot possibly be correct, since the Act repealed the statutory telephone/cable cross-ownership ban, the statutory cable/broadcast cross-ownership ban, and the FCC limits on cable/network cross-ownership.

“Cross-ownership” bans refer to restrictions on one entity owning two different forms of media within the same market (e.g. one corporation owning a newspaper and a broadcast TV station in the same metropolitan area).

In addition, the Act called on the Federal Communications Commission (FCC) to review its broadcast ownership rules every two years to determine “whether any of such rules are necessary in the public interest as a result of competition.” The Act then requires the FCC to “repeal or modify” any regulation it determines to be “no longer in the public interest.”

In the 2002 biennial review mandated by the Act, the FCC voted 3-2 along party lines to further lift remaining broadcast cross-ownership restrictions.

In other words, without the 1996 Act, the Comcast-NBC Universal merger legally could not have happened.

Okay, so maybe the Telecom Act failed to increase competition in the cross-ownership sphere; did it succeed in other fields that it affected?

If by “succeed” you mean “in reducing competition,” then, yes, the Act achieved spectacular success.

For one, the Telecom Act lifted all restrictions on the national ownership cap on commercial radio stations, previously set at 40 stations.  This led to a massive ownership consolidation that left two companies (Viacom and Clear Channel Communications) in control of 42% of radio stations nationwide (Clear Channel currently owns over 1,200 stations).

The Act also entirely eliminated restrictions on the number of broadcast TV stations that any one entity could own (previously set at 12), and raised the ceiling on the national audience one company could reach from 25% to 35% of households.  Again, both of these actions led to more ownership consolidation – and less competition.

On the price front, the Telecom Act eliminated all regulation on rates for non-basic cable service (which, after they were first lifted in 1984, were reinstituted in 1992 after prices skyrocketed).

Considering all of the Act’s hindrances to competition already mentioned, it shouldn’t come as any surprise that cable rates increased at 2.5 times the rate of inflation since enactment 17 years ago.

Consumer advocates reading this will be quick to point out that I missed quite a few other anti-competitive effects of the bill, but I think my point has been made.

Namely, that, because of Congress’ lack of foresight or deceptiveness (or both), the public cannot trust congressional declarations as to the stated purpose of a law.

But that shouldn’t really come as a surprise to anyone.