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Competition, Interconnection and Universal Service

by Brennon M. Martin
School of Communications
University of Washington

CPSR News Volume 15, Number 2: Spring 1997

A contrary, and strongly staked-out free-market position, was taken in "Universal Service and the Telecommunications Act: Myth Made Law" by Milton Mueller in the March 1997 issue of Communications of the ACM. He states that the universal service provisions included in the Act "represent a throwback to the policies of a regulated monopoly (and possibly undermine) the march toward a competitive, deregulated telecommunications industry while re-politicizing industry pricing." He argues that section 254 of the act-which sets forth guidelines for universal service and mandates the FCC to pursue it-effectively rewrites history, and legitimizes an erroneous interpretation of actual events. The act, he continues, jeopardizes the efficient operation of the market system which, left to its own devices, would ensure rapid diffusion of advanced technologies throughout all sectors of the populations.

While Mueller make important points, I would take the slightly different position that the act codifies an evolved, but empirically questionable, concept of universal service that reflects the meaning it has for most of us involved in the discussion today.

Mueller exposes potential problems with the new law by offering some historical background. The meaning of the concept of universal service has evolved since it was first applied to telecommunications service at the beginning of this century. In the often-quoted passage from the 1910 AT&T Annual Report, Theodore Vail called for "One system, one policy, universal service [connecting] every one at every place to every one at every other place." Today, these words are sometimes interpreted by activists to mean that networks must be able to interconnect everyone; but to Vail, the concept of universal service had more to do with having the network reach everywhere.

Until the regulated telephone monopoly was created in the United States with the Communications Act of 1934, the efficiency of the telephone network suffered from a lack of interconnection. Small, independent service providers offered telephone service between callers on the same network, but two users in the same town buying telephone service from different providers often could not call one another, and there was limited ability to call long-distance because of the same problem. Vail recognized an opportunity and set about convincing the U.S. government that the only way to provide for the interconnection of the local networks that would allow long-distance service and the ability to call anyone connected to any part of the network was to establish a system controlled by a single company.

The Communications Act of 1934 established regulation "to make, so far as possible, to all peoples of the United States a rapid, efficient, nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charge." Whereas history has enshrined this passage as a mandate for universal service, that term does not appear in the act. The passage might be viewed more appropriately as introductory fluff, given its appearance in the preamble.

Universal service, or the diffusion of the interoperable network throughout all geographic regions of the United States, was achieved not through government intervention or the benign good will of Theodore Vail. Wide geographic diffusion of the network was achieved through fierce competition and the drive to claim territory, called "access competition" by Mueller, followed by the creation of the regulated telephone monopoly.

Over time, however, the concept of universal service has evolved to mean much more than wide geographic diffusion of an interoperable network through interconnection provisions. Regardless of its origins, the concept of universal service has developed to the point where many perceive access to the telephone network to be a human right worthy of government guarantees. As new network technologies have grown in popularity in the United States, the debate over universal service has assumed a renewed vigor. The prospect of the establishment of a global information infrastructure, as a descendent of the Internet, has led some groups to call for the extension of the universal service policy to cover advanced computer networks.

Proponents of universal service, such as the Alliance for Public Technology and the Benton Foundation, have argued that those who have a connection to the global network of the future will have an unfair advantage over those who do not. Individual benefits that some foresee include greater educational opportunities; greater access to consumer information, job opportunities, and health care information; and a greater ability to participate in the democratic process and to obtain government information.

Furthermore, proponents argue that extending the network to everyone will likely be more beneficial than costly because of the positive network externalities that will result. The network externalities argument says that the network will increase in value as more users join, because each of the current users will be able to communicate with the newest. Rather than focusing on benefits to the individual (either as consumer or citizen), these arguments focus instead on the benefits to the collective (either as economy or polity). However, individuals and collectives, as well as the benefits to each, are necessarily intertwined. As Jorge Reina Schement puts it, "an informed and participating citizenry is the necessary condition to approach the ideal of a participatory democracy, whereas an informed and economically capable public is a necessary condition for meeting the goal of a fair and open market economy." ("Beyond Universal Service: characteristics of Americans without telephones," Telecommunications Policy, 1995).

Although Schement's logic is sound, it would be a mistake to jump from this premise to the condlusion that a network connection is sufficient to ensure either an "informed and participatory citizenry" or an "informed and economically capable public." The logical fallacy arrived at by proponenets of universal service is that a network connection is sufficient to solve the problems of information poor individuals. Not only is a connection insufficient, but it is highly questionable whether the technology is even a necessary part of the equation.

The problems with the argument have their roots in a misunderstanding of what it means to be information poor. If we assume that information is anything that helps someone solve a problem (not just data that have no relevance to any paraticular situation), then everyone is information poor and information rich at the same time. The problem you face determines the wealth of your information reserves. There are always problems we cannot solve, and there are always problems we can.

Let's consider the phenomenon known as "information overload." Sometimes, the problem is that one has too much data coming in at once to be processed into information efficiently, which actually makes the problem worse. Anyone who has had to synthesize the academic literature on a given topic, for instance, knows this problem all too well. Some people, furthermore, believe that "less is more" in terms of available data. Information poverty is not always a bad thing.

Thus, the point is not whether a network connection might make someone information rich. It won't. Nothing will. The point is whether a network connection might help to alleviate the unattractive consequences of information poverty. But unattractive for whom? Depending upon the perspective taken, information poverty may be unattractive for individuals (either as consumers or as citizens) or for communities (as polities, economies, geographies, or whatever).

To say the least, the jury is still out on whether a network connection will help alleviate the unattractive consequences of information poverty. One need only look for a definitive answer to the question of whether "information technologies" have increased or decreased business productivity to understand this dilemma. It may be that the best we can hop for is some rewording of the less-than-illuminating theory of limited media effects: the position that some media, sometimes, will change some behavior for some people.

In other words, the answer to the queston of whether a network connection might help to alleviate the unattractive consequences of information poverty is-maybe sometimes. For the proponents of universal service, this answer is something less than convincing in terms of a reason for ignoring costs of implementation in order to guarantee acess to advanced technologies for everyone.

Mueller point out that telephone penetration had reachedover 80 percent of households in the U.S. before the universal services subsidies were implemented in the mid 1960s. There is little to suggest that these subsidies increased the rate of telephone connectivity, which had risen steadily throughout the centurey and had seen its most rapid growth in the era prior to the establishment of the AT & T monopoly. It was this period marked by fierce comptetion that planted the seeds for universal telephone service, which was then achieved in spite of government intervention, not because of it.

Interconnection is a very different matter from subsidization. Regulations can play a critically helpful role in furthering diffusion of the network. Although it may not be economically efficient for a large provider to offer service in a given area, easy interconnection would allow a smaller provider to offer the same level and numer of services to regions and neighborhoods ignored by the mega-carriers. Diffusion of the network would be drivn by the scramble to gobble up unserved territory (Mueller's "access competition" mentioned above). Easy interconnection would ensure that traffic would flow seamlessly among all the various providers. However, withou watchdogs in the FCC and the Public Utility Commission (PUC) of each state, established carriers couldmake interconnecton technically difficult or price it out of reach.

Given the history of how this country achieved one of the highest telephone penetraton rates in the world and the questions regarding the real benefits of network connections, any universal service provsion or other network interconnection rules that work against the efficient operation of the market for data traffic ought to be highly suspect. Capturing this dilemma in a recent posting on the discussion list of the CPSR Cyber-Rights Working Group, Jamie Love of Consumer Project on Technology wrote: "The current FCC proceedings on universal service point to yet another issue (related to access charges and carrier subsidies), however. Should the FCC tax telecommunications services to provide some undefined set of services to the public? Our view on this is generally favorable to a new tax, if it is based upon something like gross revenues or value added, rather than minutes or bytes (which would be a disaster), and if it is targeted to services that are appropriate. But the second 'if'is particularly a big one. What exactly will this new tax pay for? Puting new databases on the Web? Creating new virtual libraries? Hooking up classrooms in wealthy communities like Bethesda? How we feel about this will depend a lot on what the new tax will be use for."

CPSR should concentrate on issues of openness (such as the use of standards, ensured interconnection among competitors, and diversity of content) rather than chase the chimera of massive economic subsidies to promote universal use of the National Information Infrastructure (NII). CPSR should also scrutinize any proposed subsidies or access charges to determine whether they serve to raise barriers to market entry or whether they make sense for an open network characterized by competition. If the history of the diffusion of the telephone system can be repaeated, this competitive environment may be the catalyst needed to allow the widest possible spread of the advanced data network.

Brennon Martin is a Ph.D. student in the School of Communications at the University of Washington. His Master's Thesis investigated the problems of universal service. This article is taken, in part, from a paper "Universal Service in the Political Community: Investigating Relationships between Telecommunications and Information Poverty" which was delivered at the 1997 Annual Convention of the International Communications Association.

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