Crawford’s Misplaced Nostalgia for Utility Regulation

by on January 10, 2013 · 0 comments

In her new book, Captive Audience, Susan Crawford makes the same argument that the lawyers for AT&T made in Judge Harold H. Greene’s courtroom in response to the government’s antitrust complaint beginning in 1981, i.e., that telephone service was a “natural monopoly.”  In those days, AT&T wanted regulation and hated competition, which is the same as Crawford’s perspective with respect to broadband now.  Here is what she said today on the Diane Rehm Show:

Diane Rehm: “Is regulation the next step?”

Susan Crawford: “It always has been for these industries, because it really doesn’t make sense to have more than one wire into our homes.  It is a very expensive thing to install; once it’s there, it has to be kept up to the highest level of maintenance, it has to allow for lots of competition at the retail level—across this wholesale facility—and it has to be available to consumers at reasonable cost.  That kind of result isn’t produced by the marketplace; it doesn’t happen by magic, because … when you can divide markets, and cooperate, you’re not going to come up with the best solution for consumers.

In her book, Crawford candidly says that “America needs to move to a utility model” for broadband … and “stop treating this commodity as if it were a first-run art film…”

It’s time for a stroll down memory lane.

In the early 1970’s, writes Steve Coll in his wonderful book on this subject (one of the most readable ever), there was a “precipitous and unprecedented decline in the quality of AT&T’s basic phone service to the public” and “morale among AT&T’s one million employees was disintegrating into malaise and dissension.”  This was when basic phone service was a utility.

By 1970 … the decline had reached crisis proportions in a number of major cities, including New York.  The basic problem was one of supply and demand: too much demand for new phone service and not enough AT&T facilities to accommodate all the new customers.  The result had been horrendous delays and breakdowns, especially in Manhattan, the nation’s media and financial capital.  Television networks, banks, securities underwriters, and publishing companies—all of which wielded great influence over how AT&T was perceived by investors and the public—had experienced long, aggravating delays in obtaining new phone service and having their phone systems repaired … Ma Bell quickly became a favorite object of jokes and political satire.  Lily Tomlin, the “Laugh In” comedienne, had developed a popular routine around an insolent telephone operator which seemed to capture perfectly the widespread unrest over deteriorating phone service.

Innovation also suffered during this period, because a 1956 consent decree severely limited AT&T’s ability to develop new business products based on emerging computer technologies.  The point is, regulation doesn’t always perform like the textbook model.  In telecommunications, the record is extremely spotty.  If regulation did not play a direct role in the service quality problems of 1970, for example, it certainly was powerless to stop them.

Coll’s excellent book is entitled The Deal of the Century: The Breakup of AT&T (1986); sadly, I have not been able to find a reference to this volume in Crawford’s source material.

The AT&T divestiture is frequently cited by progressives and populists as a splendid example of government intervention.  For Crawford, a similar intervention pointed in the reverse direction is the sort of thing the broadband industry needs now.  This is what Judge Greene had to say in 1985:

I have no doubt about the correctness of deregulation.  The basic fact of the phone industry is it grew up when it was a natural monopoly: wooden poles and copper wires.  Once it became possible to bypass this network through microwaves, AT&T’s [long-distance] monopoly could not survive.

As Judge Greene’s observation makes clear, it’s a gross exaggeration to claim that the government magically created the conditions for competition, as some do; technology did that.  The government—which awarded monopoly franchises and encouraged hidden cross-subsidies that were incompatible with competition—merely (as the late Alfred E. Kahn put it) had to “get the hell out of the way.”  Today, voice, video and data services can all be bypassed, and monopolies cannot survive.

Coll notes that the government lawyers were “driven by the conviction that AT&T was ‘unregulatable,’ as Walter Hinchman, the former common carrier chief, always put it.”  Crawford’s great flaw is her stubborn refusal to accept the frequent occurrence of regulatory failure.

Coll also cites the following observation by Irving Kristol, which captures how I partly felt reading Crawford’s book overall:

Irving Kristol, the former socialist turned neoconservative editor of The Public Interest, once commented that U.S. v. AT&T was less a conventional antitrust case than a “modern day variant on classical Marxist class warfare theories,” because it was fundamentally a struggle for power between a class of bureaucrats in the government—lawyers and technocrats in the Justice department, the FCC’s common carrier bureau, and in Congress—and the class of bureaucrats who ran the nation’s phone system, the one million employees of AT&T.

As Crawford’s book makes clear to me, that struggle for power rages on.

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