What Looks Like A Smart Biden Administration Reform Misses A Vital Ingredient
Apartment tenants are at the mercy of landlords who can make rent skyrocket but take their time about those leaking faucets.
Landlords control Internet access, deciding which Internet Service Provider, or ISP, will serve their tenants. Often that decision is a backroom deal. The landlord gets a kickback from the ISP, which typically is a big cable or telecom corporation, in return for a service monopoly. Tenants must pay inflated prices or go without cable television, VoIP telephone service and Internet access.
President Joe Biden moved to stop these monopoly deals. It was part of a broader Biden administration effort to limit telecom monopolies and promote competition to benefit consumers and the overall economy.
With a new rule from the Federal Communications Commission, those kickbacks are forbidden. What’s terrific is that this new rule isn’t limited to new tenants. It also applies to existing arrangements.
But don’t get excited if you live in a rental apartment, because you still may not get any relief. Standing in the way of your savings are city and town governments.
A history of monopoly
America has had a telecommunications monopoly problem since the industry’s birth in New Haven, Conn., in 1878. The old Bell Telephone, around since Alexander Graham Bell, encouraged people to refer to the company as Ma Bell. That was an effort to humanize a monstrously large monopoly which kept customers in its clutches even as its original patents ended.
A telephone isn’t of much use without a network that can connect any two telephones. This is known as the “network effect.” It’s what helps keep the likes of Facebook and Google in their drivers’ seats, this network effect.
Bell started and then spun off AT&T, which created a long-distance telephone network monopoly. The company also controlled many regional Bell operating companies, putting it in the catbird seat in telephone communications.
A 1974 U.S. Department of Justice antitrust suit against AT&T forced a breakup of the company a decade later. The winning argument in the 1974 anti-trust case was that a monopoly had little incentive to lower prices or develop innovative services, but competition should.
The breakup didn’t result in robust competition, however. AT&T kept the long-distance service, which at the time was tremendously lucrative, while local service was split among seven Baby Bells. Each Baby Bell enjoyed a geographic monopoly, keeping consumers obligated to monopolies. One Baby Bell would later buy Ma Bell’s long-distance service.
More than two decades after the breakup of Ma Bell, our Congress stepped in with the Telecommunications Act of 1996. The idea was to let anyone enter any aspect of the communications business to push competition, bringing the benefits of lower prices as well as new and better services.
The 1996 act appeared to prohibit monopoly access to customers. But Congress neglected to address other barriers to competition.
The big obstacle was utility pole access. By refusing access to the poles, creating onerous “safety” conditions or charging sky-high rents for access to utility poles, the incumbent monopoly blocked competition while still complying with the 1996 law.
The just-emerging internet was part of the 1996 legislation. But politicians and regulators were well behind what business people could visualize about the future of telecommunications. Back then the FCC described the 1996 law this way: “It will affect telephone service — local and long-distance, cable programming and other video services, broadcast services and services provided to schools.”
Notice what’s missing? Internet service.
That has been a problem ever since. It’s the reason for the fight over “net neutrality.” Consumer advocates were rightly concerned that large companies would find other ways to restrict competition in internet service. Controlling what content could reach cable customers or forcing competing suppliers off what was then called the Information Superhighway and onto slow lanes was an especially easy way to throttle competition.
Apartment house deals
In cities with all those steel and concrete structures, over-the-air broadcasting reception was typically bad. Ditto residences far away from the broadcast towers of television and radio stations. Into this stepped the cable companies starting in 1948 in rural areas with poor over-the-air reception. By 1996 most of the country had coaxial cable but with geographic monopolies.
These systems required significant investment in electronic equipment, wires and cables. The service providers wanted guarantees that their investments would be worth their while so they started striking monopoly deals with cities and towns, known as franchises.
On the private sector side, the monopoly cable service providers struck deals with landlords for exclusive long-term access. To win over landlords the cable companies provided kickbacks. Landlords got a share of the payments their tenants made to the cable companies, which depending on local laws could be seen as commercial bribes. But our white-collar crime laws are so weak that smart lawyers could devise ways to disguise kickbacks as lawful transactions, even gifts.
For apartment dwellers, the holes in the 1996 law produced unintended effects: Cable companies got lucrative revenue streams for apartment buildings, landlords got kickbacks and the powerless and in most cases clueless tenants got stuck with the bill.
Biden Takes Action
Just months after becoming president, Joe Biden moved to stop these monopoly deals. It was part of a broader Biden administration effort to limit telecom monopolies and promote competition to benefit consumers and the overall economy.
In response, landlord organizations argued that “the typical apartment community today has at least two broadband vendors available to residents, in markets where such competition exists.” That’s the key phrase: where such competition exists. It’s rare.
The National Multifamily Housing Council even claims that competition is economically damaging.
In his July 2021 Executive Order on Promoting Competition in the American Economy, Biden explicitly proposed “rulemaking to prevent landlords and cable and Internet service providers from inhibiting tenants’ choices among providers.”
The FCC delivered in February with a new rule. It said no “common carrier,” as regulators call cable companies, “shall enter into or enforce any contract regarding the provision of communications service in a multi-unit premise, written or oral, in which it receives the exclusive right to provide the multi-unit premise owner compensation in return for access to the multi-unit premise and its tenants.”
FCC chair Jessica Rosenworcel explained why this matters to millions of Americans. “One-third of this country live in multi-tenant buildings where there often is only one choice for a broadband provider, and no ability to shop for a better deal. The rules we adopt today will crack down on practices that prevent competition and effectively block a consumer’s ability to get lower prices or higher quality services.”
Except for one thing: As with the major hole in the 1996 Telecommunications Act, the new FCC rule lacks a guarantee that more than a single source of internet access is available in any geographic area.
Local governments can and often do stifle competition. Why would they do that? Because municipalities collect a reliable stream of revenue from monopoly cable providers, known as franchise fees. Enabling competing cable systems should generate the same or greater revenue. But local politicians are notoriously averse to risk and with good reason. If competitors are allowed the existing cable monopolist may seek to lower fees. That would force negotiations in which highly paid and deeply experienced corporate negotiators would sit down with much lower paid and relatively inexperienced municipal lawyers.
Until Congress turns its attention to ongoing thorny issues in telecommunications, expecting actual reforms to end monopolies and obtain the benefits of competitive markets, is like hoping to find a pot of gold at the end of a rainbow.