Gaps in the framework have led to awkward legal moments for the Federal Communications Commission. In 2010, courts undercut the agency's authority to regulate broadband, which left the communications regulator with a remarkably narrow purview. The FCC has reasserted its authority over broadband, but faces renewed charges in recent months that it is overstepping its legal bounds.
The Communications Act is ripe for an upgrade in 2013, but don't count on Congress fixing the law this year or even this term.
"It was written at a time when different types of entities had different types of networks and provided different types of service," says Barbara Esbin of Chicago law firm Cinnamon Mueller regarding the Communications Act.
Regulatory obligations flow from a company's statutory identity, she explained. These categories include traditional common carriers, cable operators and broadcasters, but not Internet service providers. "The definitions in the act control how you are regulated," she adds. "They are tremendously important and they are woefully out of date."
The result has been what she terms "definition wars" over the classification of service providers, which face differing obligations based on their statutory category.
Roger Entner of Dedham, Mass.-based Recon Analytics LLC argues that regulation should be aligned more with function than with the underlying technology. "Today when we are talking on the phone, depending on the technology we are using, we are regulated five or six ways," he says.
"Does the consumer care if we're using a wireless, wireline, VoIP or cable networks?" Entner says. "No."
In its youth, the Internet was treated with a light touch. As it has matured, however, incongruities have emerged. Skype, which left the incubator long ago and was sold to Microsoft Corp. for $8.5 billion last year, does not have the obligation to provide 911 service that the quaintest rural phone company must satisfy. "Why can't Microsoft comply with the same rules that a rural carrier with 300 customers has to comply with?" Entner asks.
The regime of FCC Chairman Julius Genachowski has had a number of accomplishments in broadband. It introduced a far-reaching national broadband plan for upgrading wireless and wireline infrastructure. It also overhauled the universal service fund, which traditionally subsidized landline phones but now supports broadband deployments.
But issues such as network neutrality, or the proposition that the Internet should be an open, level playing field, have proven litigious and divisive.
The Washington, D.C., Court of Appeals agreed with Comcast Corp. that the FCC had exceeded its authority over broadband with a ruling enforcing net neutrality.
The FCC has reformulated its approach, but Verizon Wireless and MetroPCS Communications Inc. are challenging the agency before the same appeals court. In November pleadings, the telecoms compare the prerogative of the broadband provider to that of a newspaper publishing, claiming "editorial discretion" gives them the right to prioritize some Internet transmissions over others.
"Just as a newspaper is entitled to decide which content to publish and where," the carriers argued, "broadband providers may feature some content over others."
AT&T Inc. has taking a more diplomatic approach. The telecom has pushed the FCC to work within its regulatory discretion to lighten the regulatory impositions on broadband. In a November petition, it argued that as carriers invest in broadband networks, the FCC should forbear from many regulations.
When and if lawmakers wade into this mess, they will face a dilemma. "Do we keep the basic framework of naming service providers and discussing how we want to regulate them?" Esbin says.
Congress could also take an approach that is more akin to an antitrust review. "You look for market failures," she says. "You don't really care so much what you call the providers."
Regulators would consider whether an entity has significant market power, and then impose a series of obligations. South Carolina Republican Senator Jim DeMint, who is leaving the Senate to run the Heritage Foundation, suggested a similar approach in the late 2005 Digital Age Communications Act.
However, Congressional dysfunctions, and the immense stakes of communications regulations, suggest that process could take a while. AT&T, Comcast and Verizon are the 7th-, 12th- and 14th-biggest spenders on lobbyists in 2012, respectively, according to the Center for Responsive Politics. Google Inc., which also has some skin in the game, is No. 5.
It took a solid decade to produce the 1996 Telecommunications Act. It's difficult to look at Congress' work in recent years and believe it can address a complex, divisive problem that requires compromise in a timely manner.
While some issues, such as cybersecurity, may have support across the aisle, there are real divisions on other topics. Republicans often align with incumbents such as AT&T and Comcast, and Democrats with competing forces, whether it's network operators or Google and other tech companies.
"It's a nonstarter in terms of reaching new legislation next term," says Andrew Lipman of Bingham, McCutchen LLP. "Nonetheless the debate could influence the FCC and it's going to be a multiyear debate that will ultimately lead to new legislation some time in the future."
If lawmakers could begin to establish a record, even if they failed to reach an accord, that could be a helpful step. "Issues will be tested and weighed," Lipman says, "and parties would have an opportunity to sharpen their arguments."
Larry Freedman of Edwards Wildman Palmer LLP observes that while rewriting the Telecom Act is one way to make substantial change, it's not the only option. "There are, as AT&T says, tools in the regulatory tool kit that in the alternative to legislation could be utilized to effectuate pretty massive change," he says.
For instance, Michael Powell, FCC chairman under George W. Bush, shifted the way the Commission gauged competition among services providers. Powell included cable operators in the FCC's calculations, rather than focusing just on the incumbent and smaller telecom carriers. This indicated a greater level of competition in the eyes of the FCC.
A change in leadership, of course, could indicate a new path on broadband, though Genachowski told CNBC in November that he is not currently planning his exit.
"A big question is who will be the next FCC Chairman," Freedman says, "and what agenda he or she brings."
Given the precedent of the 1996 Act, we might count on at least a decade or so of wrangling and look ahead to The Communications Act of 2023.
But hopefully the next update will require less than the six decades that elapsed between the 1934 Act and the 1996 Telecom Act. "We don't have 62 years' time to rewrite it," Entner says.
Jeremy C. Stein, a former member of the Board of Governors of the Federal Reserve System, will consult hedge fund BlueMountain Capital Management LLC. For other updates launch today's Movers & shakers slideshow.
Rob Kindler, the global head of M&A and vice chairman at Morgan Stanley, says that the M&A market remains strong, continuing trends from last year. More video