When Industry and Government Don’t Stay in Synch

In satellite communications, when the clocks of two earth stations fall far enough out of synchronization, a slip error occurs and a chunk of information is discarded. Much like a slip error, when government institutions fall far enough behind private industry, a crisis occurs. This ‘de-synchronization effect,’ as Alvin Toffler calls it, has already been observed in financial and intelligence institutions of the United States government. 

The Way We Communicate Has Changed

Communication is now mostly asynchronous, discontinuous and in bursts. Voice, video and data get intertwined into a single stream and yet pieces of the same content separate geographically only to meet at a final destination. The amount of information produced, transported and stored every year is beyond comprehension. Yet, the U.S. Federal Communications Commission (FCC) regulatory system is still based on a paradigm set out when the Communications Act of 1934 was enacted. 

The Slip Errors of Modern Times

There is no shortage of examples in which government institutions failed to maintain pace. Twice in recent times the U.S. Securities and Exchange Commission (SEC) has failed to keep up with the complexities of the private sector it is supposed to regulate: First, during the Enron ordeal and other creative accounting scandals, and again during the subprime mortgage and hedge fund crises. Similarly, U.S. intelligence agencies failed to timely adjust from a Cold War focus to address terrorist threats. These illustrate the so-called ‘de-synchronization effect’ that often acts as a wake-up call for government institutions.

The current U.S. regulatory model is based on geographical boundaries. State utility commissions regulate telecommunications that stay within state boundaries (intrastate), while the FCC regulates telecommunications that cross state boundaries (interstate). This dual-federalism model is essentially an assortment of one federal code along with 50 different state codes, which made sense in 1934 when almost all telephone traffic was local.

Even after the breakup of AT&T, the divested regional operating companies managed local calls while AT&T provided long distance. The creation of the Local Access and Transport Areas (LATAs) perpetuated the dual-federalist models as they were drawn mostly along state lines. Long distance (interstate) traffic, through payments of local access charges, subsidized the local network and unlimited local calls were sold at a flat monthly rate. In 1996, an amendment to the 1934 Communications Act was passed that primarily unbundled the local network into elements. Yet, the dual-federalist model was maintained. 

The Network of Today

With the advent of the Internet, the spokes of technology have accelerated, thus increasing the likelihood of de-synchronization and a slip error. In 2004, the FCC was faced with deciding whether nomadic interconnected VoIP services (e.g., Vonage) could be jurisdictionally divided. It concluded that because people could travel between states with their IP devices, it was impossible to determine whether a call was intrastate or interstate. As such, states could not regulate nomadic interconnected VoIP services. Surprisingly, in 2010 the FCC reversed its decision. What changed? Only that states placed enough pressure on the FCC because universal service coffers were depleting. What is likely to ensue is a battle between state commissions and the FCC regarding the jurisdictional nature of VoIP and other IP-enabled services. 

Towards the Future

While the regulation of certain telecommunications elements needs to remain localized, the bulk of the regulation should be placed under the FCC. Consumer protection, rights-of-way, emergency response and universal service subsidies should remain local issues, but telecommunications policy should move under one policy leader. The AT&T monopoly has been broken, the network has been digitized, intelligence has moved to the edges of the network, traffic has been packetized and 1934 has long gone. It is time to rethink our regulation model.

Raul Magallanes runs a Houston-based law firm focusing on telecommunications law. He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.