An article from McClure magazine, circa 1906, has a lot to say about today's broadband regulatory battles. We've been here before.
Yesterday, while browsing through some of the sources I review for story ideas, I encountered yet another one of those tired “free market solves everything” pieces from Randolph May, filled with the usual memes about keeping government regulation and oversight out of broadband. May, like his pro-business friends, always believes that markets are self-correcting, and that providing checks and balances for the de facto duopoly most Americans have for broadband service would ultimately harm them. Besides, if a provider gets out of hand, its competitor will pounce on the opportunity. Sometimes that happens, but often it does not. For investors, there is more money to be made going along to get along avoiding price and service wars. Indeed, when competition gets too hot and heavy, Wall Street brays that “consolidation” is required to deal with all of the revenue-losing-harm healthy competition causes. Just today, those calls are heard in the prepaid wireless market as analysts continue their relentless pounding that Leap Wireless’ Cricket must merge with MetroPCS to create cost savings, and stop price erosion (your savings).
I want to focus on May’s unintended, but disastrous comparison of American telecommunications regulation with that of the railroad industry of the 1800s:
“This form of regulation was first adopted at the federal level in the Interstate Commerce Act in 1887, which created the Interstate Commerce Commission to regulate the railroads. In 1910, the ICC was given authority to regulate newly-emerging telephone companies as common carriers, and this authority was transferred to the FCC when it was created in 1934.
By the 1980s, the railroads were largely deregulated and the ICC was abolished in 1995. And towards the end of the last century, with the emergence of competitive choices, the FCC began to relax even the regulation of POTS, or plain old telephone service, provided by formerly monopolistic telephone companies. So it was no surprise when the FCC decided to reject public utility-style regulation for the then new broadband Internet service providers.”
May is obviously no student of history, and the introduction of railroads into this argument gives me my “free market” ability to pounce on his out of hand rhetoric. The irony is that this debate takes place over the open and free Internet that May and his friends are willing to entrust to a handful of corporate providers who provide most of the connectivity in this country. They wouldn’t interfere with traffic if it meant making a pile of extra profits selling “preferred partnerships,” would they?
There are obvious metaphors between the railway industry of the 1800s and the broadband industry of 2010s. Many of the challenges are remarkably similar, especially if one considers broadband a sort of digital railroad that is becoming increasingly important to the economy and job growth.
May is lucky that nobody but those who love studying history are likely to notice he completely ignored the rationale for the Interstate Commerce Act of 1887. Railroad robber barons had by this time put such a stranglehold on the industry, entire cities prospered or withered based on what a railroad executive decided was the appropriate price for service on a schedule good enough for that community. If you lived in a city with a strong railroad system with fast lines, competition, and a healthy choice of destinations, your city generally enjoyed economic success. If you lived in an uncompetitive city deemed a railroad backwater by a provider, you paid extortionist pricing to move your goods on a limited schedule that sometimes was followed, other times not.
By the time America had caught on to these abusive practices, railroad barons were secretly charging lower prices and quietly providing rebates to their preferred partners, mostly big businesses, and overcharging everyone else. They even charged completely different rates for different products. If you transported tobacco you paid more than transporting flour. Farmers paid one price to transport crops, lumber suppliers paid something entirely different to move wood. If you were a friend of the railroad industry, and important to their lobbying efforts, you got a pass to travel fare-free.
It took years for Americans to finally achieve the railroad equivalent of Net Neutrality. That’s because the railroads were politically savvy, and maintained their own version of astroturfing — an army of business leaders and supporters provided favors and money to parrot railway talking points in the media and before Congress, all while claiming they were ordinary Joe’s. Railroads supplied generous campaign contributions to members of Congress, and so much money was spread around, it eventually turned into railroad industry graft with the Crédit Mobilier scandal of 1872.
An entire class of “ordinary citizens” and business leaders pleaded in the printed press not to regulate the railway system. It would create “unintentional consequences,” would “hurt jobs,” “ruin the economy,” and would be contrary to the laissez-faire policies of the time, which allowed a completely unregulated railway system to “prosper.” Besides, railroads had “transformed the transportation infrastructure” of America and created economic benefits, all from “millions railways invested to improve railway lines.” Regulation would “discourage that investment.”
Americans might have believed that had the record of abuse by the railway industry not grown into a bulging dossier of unfair pricing and anticompetitive activities. Rural communities were charged high prices for slow, erratic railway service because they rarely had a second choice. Businesses refused to locate in communities where a monopolistic railway charged high prices and provided poor service.
But even legislative reform in 1887, designed to stop railway abuses and charge fair pricing, left enough loopholes in place for the railroad industry to continue its ways for years to follow. Court findings of wrongdoing were ignored by the industry, at least until they could successfully appeal them to federal district courts, which tended to favor business points of view in their rulings.
Sound familiar?
Ray Stannard Baker
But one need not take my word for it. In 1906, McClure’s magazine published the story of Danville, Virginia and its railroads by Ray Stannard Baker, a popular investigative reporter (known then as a ‘muckraker’) for the magazine. While you may be unfamiliar with Danville, located in south-central Virginia, history dealt it several interesting cards in the 1800s. Its Richmond and Danville Railroad was immortalized in the song “The Night They Drove Old Dixie Down,” telling the story of how the Confederate army’s hopes of defending Richmond in the waning days of the Civil War were dashed when the Union cavalry destroyed the railroad tracks. General Lee’s army retreated to Danville — the last declared capital city of the Confederate States of America.
As the era of Reconstruction began, Danville threatened to become as well known as Richmond to the east and Lynchburg to the north. All three communities enjoyed the benefits of competitive railways — providing stable, affordable, and plentiful service between all three cities and points beyond. With excellent railways, an economic boom followed, and the communities prospered from manufacturing, cotton, and tobacco products, all transported on the railway system to eager buyers. What was once a city of 5,000 rapidly grew to 20,000. Danville because a world leader in tobacco production and distribution and built what was once one of the world’s largest textile mills — Dan River Industries, which survived until 2008 when the company declared bankruptcy.
Yet Danville remains completely unknown to most, a forgotten city whose early boom ended when a railway monopoly arrived and strangled the community to a former shadow of itself, perhaps never to completely recover. The effects were long-lasting. Today, Danville is a challenged city of 44,000 and declining. Lynchburg, in contrast, prospered through the manufacturing era, often called the “Pittsburgh of the South,” and has successfully transitioned into one of America’s “top 10 digital cities,” supporting its population of 73,000. Richmond towers over both, with 200,000 city residents in a community well-known nationwide. Both of those cities enjoyed competition from railways and built a substantial economic base from that that paid dividends in the decades that followed.
Of course, in 1906, the final chapter of America’s annoyance with railroad robber barons had yet to be written. Fights over pricing and service continued for years, as communities depended on railroads for their economic well-being. Ultimately, the Eisenhower Administration’s decision to undertake a national highway system, built by and supported with public funds, was symbolically the end of an era that allowed a handful of corporate executives and railroad trusts to determine the fate of entire communities, all based on the kind of railroad service they would enjoy. The highway system gave rise to the trucking industry, with air service from municipally-backed airports picking up some of the more urgent business. Railroads had to compete like they never had before.
The article, lengthy yet surprisingly accessible for contemporary audiences, is provided below in a slightly condensed form. The more you read, the more you realize those who refuse to learn from history are doomed to repeat it. Folks like Randolph May are counting on America’s ignorance of the challenges faced by our great-great grandparents, who would find familiar themes in today’s competitive and regulatory broadband battles, and who ultimately wins control of the lines and the traffic that crosses them.
The railroad industry asked people to trust them, and said notions of discriminatory pricing and access were nonsense, because they didn’t make economic sense. But they very much did, especially when alternatives were limited, if they existed at all.
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