To understand today's net neutrality debate, its important to understand the history of how of the government has regulated the telecom industry. Beginning in the 1970s, the federal government deregulated the industry, paving the way for the modern internet. But when people talked about deregulation back in the 1970s, they meant something different from the concept liberals hate — and conservatives love — today.
This history has important implications for the modern network neutrality debate. Today, most conservatives portray any regulation of incumbent phone and cable companies as an assault on the free market. But a previous generation of right-leaning policymakers had a different view. They understood that the free market can't work without competition, and that competition sometimes requires active support from the government.
"Deregulating" communications involved a lot of regulation
The era of telecommunications deregulation stretched from the late 1960s until the 1990s. During this period, regulators opened a number of industries — long distance calling, telephony devices like answering machines and modems, and online services — up to competition from third parties.
In part, that meant repealing regulations that had made it effectively illegal for anyone other than AT&T to offer these services, which is why the policy is usually referred to as deregulation. But that wasn't all the feds did. They also took action to ensure that AT&T — and, later, the seven regional monopolies, dubbed Baby Bells, created by AT&T's breakup — didn't abuse their monopoly power.
The breakup itself is the most obvious example. The Justice Department filed an antitrust lawsuit in 1974 that led to the company's breakup a decade later.
At the same time, the FCC was working on regulations designed to shield the fledgling computer networking industry from anti-competitive behaviors by AT&T. While the term network neutrality hadn't yet been coined, the basic idea was similar. Under regulations developed in the 1970s, AT&T wasn't allowed to discriminate among companies that leased its facilities in order to provide online services.
This policy became particularly important in the 1990s, when customers went online by connecting modems to old-fashioned telephone lines. Some incumbent phone companies argued that it was abusive for dial-up ISPs to use their phone lines so much, and they wanted to charge ISPs per-minute usage fees. But the FCC refused, forcing incumbent telephone companies to continue leasing phone lines to dial-up ISPs for the same flat monthly rates it charges to other business customers. That decision helped to make the internet widely available and affordable in the late 1990s.
The dial-up internet depended on the FCC in another way too: agency regulations in the late 1960s and 1970s forced AT&T to allow third-party devices such as modems to operate on its network. Without FCC action, AT&T might have strangled the market for modems in its cradle, setting the online economy back by years.
Pro-competitive regulations once enjoyed bipartisan support
Today these might be classified as left-wing policies, but they weren't seen that way at the time.
The antitrust lawsuit against AT&T was begun under Republican Gerald Ford, continued under Democrat Jimmy Carter, and completed under Republican Ronald Reagan. The forerunner of modern neutrality regulations, known as the Computer Inquiries, were developed over the course of two decades by Democratic and Republican administrations.
And this consensus endured in the 1990s. The 1996 Telecommunications Act, crafted by the conservative Congress of Newt Gingrich, continued the basic approach of the Computer Inquiries. It regulated the Baby Bells as common carriers, requiring them to lease their networks to competitors at regulated rates. Few people saw these regulations as an attack on the free market; to the contrary, they were seen as an essential precondition to a healthy, competitive market.
Why the consensus broke down
In the late 1990s, cable companies began offering high-speed internet access over cable lines. That created a quandary for the FCC. In previous decades, pro-competitive internet regulations had focused on telephone companies. The FCC had to decide whether those same rules should apply to cable internet service.
At the time, there was a lot of optimism that these cable modem services were the first step toward a much more competitive broadband market. People predicted that other new technologies, such as broadband over power lines, high-speed wireless internet, and new fiber optic networks, would introduce additional competitors into the broadband market. The optimists hoped that a much more competitive market for broadband service would make regulation of incumbent telephone companies unnecessary.
Under George W. Bush, this view became the conventional wisdom on the political right. The Bush FCC largely abandoned the pro-competitive regulations that had been developed under previous administrations, arguing that these regulations were holding back investment in broadband networks. They hoped that eliminating regulation would encourage existing companies to invest in faster networks and also encourage new companies to enter the market.
A decade later, these policies aren't working so well. Most American consumers still have two or fewer options for home broadband access. And for many customers (including me) the local phone company only offers ancient DSL service, making cable internet the only realistic option. The vigorous competition we were promised hasn't really materialized.
Meanwhile, the largest broadband providers have begun abusing their market power in exactly the way AT&T's critics feared decades ago. At least two broadband providers have threatened to degrade customers' Netflix streaming experience if Netflix doesn't pay a toll to reach their customers. That's particularly alarming because Netflix competes directly with cable companies' own paid TV service.
A key insight of the 1970s was that deregulation works best when the market is competitive — and that when competition is lacking, regulation is needed to promote competition and prevent monopoly power from being abused. Unfortunately, that lesson has largely been forgotten on the political right, which increasingly sees any efforts to safeguard the open, competitive internet as a threat to the free market.