From Ma Bell to FaceTime: Why the next Telecom Act must embrace innovation over regulation

This year is the 30^th anniversary of the Telecommunications Act of 1996 (Telecom Act), a landmark law that Congress is considering updating. Lawmakers should begin with a clear-eyed assessment of what did and didn’t work. The attempt to create telephone competition is a prime example.

The Telecom Act was crafted for a world that no longer exists. In 1996, the internet was still nascent, dial-up access was the norm, and mobile service was a luxury. Telephone markets were defined by a rigid divide between local and long-distance service, with entrenched monopolies controlling the “last mile” to consumers’ homes.

Congress attempted to create competition in this environment. The Act required incumbent local phone companies to lease portions of their networks – so-called unbundled network elements – to would-be competitors on terms that were just, reasonable, and nondiscriminatory. It also created a path for local phone companies to enter the long-distance market. The goals were straightforward: to lower barriers to entry and jumpstart competition.

In practice, it did neither.

Countless battles among carriers over interconnection terms, cost-based rates, and competitive checklists were fought at state utility commissions. These disputes lasted years, bogging down competitors in regulatory process.

The Telecom Act created work for lawyers and economists and kept regulators fully employed. But it did not deliver meaningful competition for consumers. Many entrants focused on higher-margin business customers rather than residential users. The promised wave of consumer benefits never fully materialized.

But competition did emerge – just not in the way Congress envisioned.

Competition came from outside this regulatory framework. Cable operators, leveraging their own infrastructure, introduced Voice over Internet Protocol (VoIP) services in the early 2000s and rapidly gained millions of subscribers. As broadband expanded, “over-the-top” VoIP providers like Vonage offered additional alternatives.

At the same time, advances in wireless technology and the arrival of smartphones led many consumers to abandon landlines altogether. Consumers began meaningfully cutting the cord in the mid-2000s as wireless-only households surged from single-digit levels to more than one-third of homes within a decade. Today, more than three-quarters of households are wireless-only and consumers increasingly use applications such as FaceTime and WhatsApp – something unimaginable to policymakers in 1996.

The lesson is unmistakable: competition was driven by innovation and investment, not regulatory mandates.

That maxim should guide Congress as it considers a 21st-century rewrite of the Telecom Act. Lawmakers cannot predict which technologies will define communications markets decades from now any more than they could have predicted the importance of smartphones and app-based communication in 1996. If anything, the pace of technological change has only accelerated.

A modern Telecom Act should therefore reject attempts to micromanage markets and instead prioritize conditions that foster innovation. That means embracing light-touch regulation and ensuring that any authority granted to the Federal Communications Commission is clear, narrow, and grounded in market-oriented principles.

Heavy-handed regulatory schemes risk repeating the mistakes of the past. They slow investment, distort incentives, and ultimately leave consumers worse off. Instead of trying to engineer outcomes, Congress should create a legal environment where competition can emerge organically.

The next generation of communications breakthroughs will not come from Washington. They will come from innovators operating in a dynamic marketplace.