The Telecommunications Act of 1996 at 30, Part 2: Why It Failed in Many Ways
Part 1 in this series discussed the troubling history of information and communications technology (ICT) regulation in America, which created monopolies, limited innovation, and diminished consumer choices. This led Congress to pass The Telecommunications Act of 1996, which turns 30 years old on February 8th. Part 2 in this series explores how, despite the best of intentions, Congress made many mistakes in the Telecom Act that left the door open to considerable Federal Communications Commission (FCC) regulation of American communications and media markets.
Addressing the Analog Era Regulation Through “A Model of Ambiguity”
The unfortunate regulatory history described in part 1 forced Congress to explore major reforms to traditional communications and media policies, and after an intense debate, the Telecommunications Act of 1996 passed. While Congress hoped to “promote competition and reduce regulation,” the Telecom Act ultimately yielded micromanaged, partial liberalization. The law did not initiate far-reaching deregulation or agency abolition—which was what the Carter administration and Congress did in the late 1970s by sweeping away the regulatory regime that once governed the commercial airline marketplace. The Telecom Act instead retained much of the traditional regulatory apparatus. It tweaked some old rules, introduced new ones, and even empowered the FCC to engage in new types of market manipulation.
The Act retained the traditional regulatory approach of partitioning ICT markets in different “silos,” with sector-specific FCC bureaus overseeing unique bodies of law for “cable companies,” “telephone providers,” “mobile firms,” or “broadcasters.” The rise of digital markets, online speech, and other new communications and media options signaled that a world of technological convergence was coming. Yet, instead of eliminating those past artificial distinctions and regulatory silos, Congress allowed them to persist and even bolstered them.
In a 1999 Supreme Court decision that evaluated the FCC’s powers under the Telecom Act, Justice Antonin Scalia concluded, “It would be gross understatement to say that the 1996 Act is not a model of clarity. It is in many important respects a model of ambiguity or indeed even self-contradiction. That is most unfortunate for a piece of legislation that profoundly affects a crucial segment of the economy worth tens of billions of dollars.” Despite this ambiguity, the Court allowed continued FCC micromanagement of telecom markets because the justices generally deferred to Congress and its authority to establish the powers of the agency, even if the law was broad and contradictory in many ways.
This makes it clear that the biggest problem with the Telecom Act was Congress’ failure to impose serious constraints on the FCC, which empowered the agency to regulate more using open-ended new powers. The most problematic of the new rules promulgated by the agency involved “open access” provisions regulating the sharing of traditional wireline telephone lines and components.
Leading up to and following the Telecom Act, an astonishing amount of time and paperwork was devoted to maintaining the artificial demarcation between “long distance” versus “local” telephony. Instead of sweeping these distinctions away in the Telecom Act, Congress reinforced them and created new regulatory authority through infrastructure-sharing rules and interconnection mandates, and left broad discretion to the FCC to enforce them. The agency used these ambiguous provisions to create a confusing new set of “unbundled network element” (UNE) sharing rules and a convoluted pricing formula for them called “Total Element Long-Run Incremental Cost” (TELRIC) pricing.
Like all central planning efforts, the UNE / TELRIC regulatory regime produced more paperwork and litigation than consumer benefits. Three of the most important rules the FCC generated during this period—the Local Competition Order (1996), the UNE Remand Order (1999), and the UNE Triennial Review (2003)—totaled a staggering 1,575 pages and 6,770 footnotes of regulations. The FCC promulgated many other rules and to implement other parts of the Telecom Act, and countless additional state Public Utility Commission (PUC) proceedings created many new rules and proceedings.
Lawyers benefited far more from this paperwork than the public did, and it set back industry investment for a time as more regulatory proceedings and legal challenges ensued, creating enormous market uncertainty. In the wake of the 2003 UNE Triennial Review rulemaking, one telecom lawyer famously told The New York Times that “Every word will be challenged … My children will go to college on this stuff. This is a lawyer’s dream.” What is most astonishing about this is how irrelevant it would all become due to dynamic change within ICT markets. With the rise of robust nationwide wireless networks and high-speed fiber networks, the “long distance” versus “local” telephony distinction became meaningless rapidly. Markets and the public moved along faster than the FCC.
The Net Neutrality Wars and Continuing FCC Speech Control Efforts
The FCC promptly shifted its attention to control of broadband markets as the “net neutrality” wars began in the mid-2000s. Another long fight ensued over whether the FCC could regulate how broadband services were packaged and priced. Once again, lawyers and lobbyists benefited more than anyone else from this until the regulations were finally beat back after a protracted decade-long fight.
There were also many other FCC efforts to use its ambiguous authority under the Telecom Act (or previous policies that Congress failed to reform) to regulate in other ways. That includes agency efforts to influence television programming decisions both directly and indirectly (something the FCC is still doing in 2026) by using the threat of agency fines and other penalties. And the law included requirements for new broadcast television ratings to address violent content using a so-called “V-Chip,” which could block rated shows if households programmed their V-Chip to do so. Few did, however, and the system proved to be a bust and was forgotten quickly.
The Telecom Act also included a variety of other new speech-related regulatory schemes that raised First Amendment-related challenges. The law included Communications Decency Act provisions seeking to regulate “obscene, lewd, lascivious, filthy, or indecent” content online, but the Supreme Court unanimously declared them unconstitutional in the historic 1997 case Reno v. ACLU. The Act also included cable TV signal “scrambling” rules to filter sexually explicit programming, but the Supreme Court also struck those down in 2000.
On top of all the economic and speech-related regulation that unfolded in the wake of the Telecom Act, the FCC also used any telecom and media merger as an opportunity to extract from firms a variety of “voluntary concessions” that could not otherwise be obtained through standard legal procedures. Again, this happened because Congress failed to limit the scope of agency powers in the Telecom Act.
While this dismal history suggests the Telecom Act has been a failure, Part 3 will identify some benefits of the law.