"The regulatory issues spawned by the technical confluence of regulated
communications services and unregulated [computer networks] have
been among the most important matters this Commission has dealt
with over the past 20 years. Indeed, during this period, we have
addressed these issues, in one proceeding or another, on a virtually
continuous basis, as we have sought to revise and refine our regulatory
approach in light of rapidly changing technological and marketplace
developments." [CIII R&O ¶ 9 1986]
In proceedings that date back to 1966, the FCC has been concerned with the difference between computers that facilitate communications and computers with which we communicate or interact with. The FCC concluded that Computers that facilitate telecommunications are a basic service. Anything more than that, anything that involves a change in format, a change in message, data processing, or protocol conversion is an enhanced service. Basic service is regulated under Title II as common carriers; Enhanced Services are unregulated (meaning that Enhanced Service Providers are not regulated like telephone companies). ISPs fall within the Enhanced Services category.
The FCC viewed the Enhanced Services market as highly competitive and innovative. The FCC was also aware that Enhanced Services were dependent upon telecommunications and that telephone monopolies presented potential bottlenecks to advancement of the computer and data processing market. In order to ensure that the telecommunication system was an open platform promoting advancement of enhanced services, and in order to protect against potential anticompetitive behavior by telephone companies against enhanced service, the FCC developed a series of separation rules. These separation rules sought to protect against such things as improper cross subsidization (using funds from regulated services to support unregulated services), improper discrimination in favor of affiliated services as opposed to unaffiliated companies, and other anticompetitive behavior.
In Computer I (see full article), the FCC established its policy objectives but failed to implement an efficient regulatory structure; the FCC was almost immediately overwhelm with petitions seeking rulings while the computer industry experienced dramatic growth and transformation.
In Computer II (see full article), the FCC affirmed is policy objectives while establishing the basic versus enhanced service dichotomy which divided the regulatory spheres along "service to the consumer" lines, as opposed to other metaphysical theologies of the difference between one mode of computing power versus another. In Computer II, the FCC established seminal safeguard rules that established separation between regulated telecommunications offerings and unregulated enhanced offerings:
If a BOC wished to offer enhanced services, it could do so only through a fully separate subsidiary. The design objective of this arms length deal is that, whatever the BOC enhanced subsidiary gets from the BOC telecommunications company, every other independent enhanced service provider can get on the same terms and conditions.
If a facilities based telephone company, which is not a BOC (there are lots of these in the mountains and in rural America), offered enhanced services, it had to unbundle
its enhanced services from its telecommunications service and offer the telecommunications services to all other enhanced services on the same terms and conditions.
The BOCs complained that the obligation to establish a separate subsidiary was onerous. Therefore, in Computer III
(see full article) (which took place during the Reagan years) the FCC affirmed its policy objectives but once again altered its implementation. The FCC eliminated the separate subsidiary requirement, but implemented a more progressive unbundling requirement in the form of Open Network Architecture (ONA) - thing of breaking the telephone network down into lego blocks (lines, switches, call forwarding, call waiting, accounting, billing...) that could be selectively purchased by enhanced service providers and reassembled into new and innovative services. There was a transition time from Computer II to ONA, and during this transition time, a BOC which had an enhanced service provider would have to release a comparatively efficient interconnection (CEI) plan, explaining how, whatever the BOC provided to its affiliated enhanced service provider, it would provide to all other independent enhanced service providers on the same terms and conditions.
The FCC got stuck in the implementation of Computer III. Court challenges to the ONA implementation were successful, and remanded the ONA policy back to the FCC for reworking. In the mean time, the industry would proceed forward with the transition policy of releasing CEI plans any time they established an enhanced service provider. The FCC never completed the ONA work and therefore the transition policy became the permanent policy.
In the mean time, broadband happened. The Internet went from being a logical (aka virtual) network that was provisioned over an underlying physical network (the telephone network), to being the underlying physical network (in the form of DSL, Cable Modem Service, fiber and others). The Computer Inquiry policy evolved into the Open Access policy and then into the Network Neutrality debate.
The history of the FCC and the
Internet is now over forty years old. To say that the FCC did not regulate
the Internet is to miss the lessons of this history. While it is true that
computer networks were unregulated, computer networks were very much a
part of the Commission’s policy goals. They were the intended direct
beneficiaries of the Computer Inquiries. Safeguards were imposed on
common carriers for the benefit of computer networks. Furthermore, this is
not a technologically biased policy, segregating one
computer from another based on the technology employed. Rather, this is a market policy, segregating competitive markets from noncompetitive markets.
The Computer III Final Order was released in 1986. The first
commercial ISP was established in 1989. The Commercial Internet
eXchange was set up in 1991 as the first exchange point for traffic between
commercial Internet backbones (such traffic was not permitted on the
NSFNET). The World Wide Web was unleashed in 1991. Al Gore sponsored the High Performance Computing Act in 1991. The White
House came online in 1993 and Congress was placed online in 1994. The
mid-1990s saw the explosive growth of Internet users. In 1998,
Boardwatch magazine reported, at its peak, that there were more than 7,000
ISPs in North America.
Was the success of the Internet attributable to the actions of the
Commission? Did the Commission "invent the Internet?" The success of
the Internet was clearly the result of the confluence of forces. For the
Commission's part, it established the policy of the Computer Inquiries,
deregulated the Customer Premise Equipment market (i.e., modems), and
promoted ubiquitous and affordable flat-rate telephone lines (i.e., universal
service). All of these were necessary preconditions for the success of the
There is also little new under the sun. The problem that the Commission described itself as facing in 1966 was "convergence." The
problems were ones of substitutability, asymmetric regulation between
functionally equivalent services, the restricted supply of communications
infrastructure services to a highly competitive enhanced services market, and the desire
of the communications services dominant players who wanted to enter the
highly competitive enhanced services market. The Commission faces
similar issues today.
The Computer Inquiries have been referred to by some as “wildly
successful.” [Weinberg ¶ 222] From the beginning, the Computer Inquiries had the policy objective of establishing an open telecommunications platform for the benefit of computers and computer networks. The FCC implemented this goal by separating and restraining the market power of the telecommunications infrastructure service providers. The Commission also avoided imposing legacy regulation on new services. The result was open communications platforms
where innovation could flourish, independent of dominant communications
Generally all carriers were required to comply with the following additional safeguards:
- Structural Separation Legislation in Minnesota, AISPA 2/11/02
- Competitors seek to split Verizon wholesale and retail units - again, NWFusion 4/11/01
- Supreme Court Won't Revive Suit Against AOL Oct 2, 2000 (ISPs are not common carriers) techserver
- Supreme Court sides with AOL in subscriber suit Oct 2, 2000 cnet
- SBC Delays Prompt DSL Suspension Aug 3, 2000 internetnews
- SBC Gives Compaqs Away July 10, 2000 cnn
- SBC Offers High-Speed Internet Package July 10, 2000 internetnews
- SBC offers PCs to DSL customers July 10, 2000 cnet
- Compaq, 2 phone companies begin high-speed Internet promotion July 10, 2000 nandotimes
- SBC Offers Free PCs To Boost DSL Usage July 10, 2000 zdnet
- Bell Atlantic mulls ways to keep GTE Net unit C|NET 12/3
- BellSouth.net Widens Service Area Internetnews 11/9/99