Transformative Choices: A Review of 

70 Years of FCC Decisions 

Sherille Ismail 

FCC Staff Working Paper 1 

Federal Communications Commission 

Washington, DC 20554 

October, 2010 

FCC Staff Working Papers are intended to stimulate discussion and critical 

comment within the FCC, as well as outside the agency, on issues that may affect 

communications policy. The analyses and conclusions set forth are those of the 

authors and do not necessarily reflect the view of the FCC, other Commission staff 

members, or any Commissioner. Given the preliminary character of some titles, it 

is advisable to check with the authors before quoting or referencing these working 

papers in other publications. Recent titles are listed at the end of this paper and all 

titles are available on the FCC website at http://www.fcc.gov/papers/. 
Abstract 

This paper presents a historical review of a series of pivotal FCC decisions that helped 

shape today’s communications landscape. These decisions generally involve the 

appearance of a new technology, communications device, or service. In many cases, they 

involve spectrum allocation or usage. Policymakers no doubt will draw their own 

conclusions, and may even disagree, about the lessons to be learned from studying the 

past decisions. 

From an academic perspective, however, a review of these decisions offers an 

opportunity to examine a commonly-asserted view that U.S. regulatory policies — 

particularly in aviation, trucking, and telecommunications — underwent a major change 

in the 1970s, from protecting incumbents to promoting competition. The paper therefore 

examines whether that general view is reflected in FCC policies. It finds that there have 

been several successful efforts by the FCC, before and after the 1970s, to promote new 

entrants, especially in the markets for commercial radio, cable television, telephone 

equipment, and direct broadcast satellites. 

FCC Staff Working Paper 

ii
FCC Staff Working Paper 

iii

 

Transformative Choices: A Review 

Of 70 Years of FCC Decisions 

Sherille Ismail*

Table of Contents 

Introduction ............................................................................ 1 

Radio (1928) ........................................................................... 2 

Broadcast Television (1945, 1952) ............................ ............ 5 

Cable Television (1966, 1970s)............................................... 10 

Carterfone (1968) .................................................................. 13 

Direct-Broadcast Satellite Television (1982) ........................... 15 

Digital Cell Phones (1988, 1994) ..................................... 18 

High Definition and Digital Television (1987-1997) ................ 21 

Lessons Learned ...................................................................... 25 

Bibliography ............................................................................ 29 

*

 Senior Attorney, Office of Strategic Planning & Policy Analysis, FCC. He may be contacted at 

Sherille.Ismail@fcc.gov. Several FCC colleagues reviewed this paper and offered thoughtful criticism and 

suggestions, most notably, Paul de Sa, Chief, OSP; Jonathan Baker, Chief Economist; Jonathan Levy, 

Deputy Chief Economist, and Stuart Minor Benjamin, Scholar in Residence. Two distinguished former 

colleagues, Tom Krattenmaker and Dale Hatfield, also reviewed the paper and suggested improvements. 

Pramesh Jobanputra and Heidi Kroll, of the Wireless Telecommunications Bureau, and Norm Miller, of the 

Media Bureau (AM radio), clarified specific issues. Mathew Cipriani, FCC library staff, cheerfully 

obtained research materials. I am very grateful for all their help. 
Introduction 

This is a historical review of a series of 

pivotal decisions that helped shape today’s 

communications landscape, including 

decisions by the FCC about the following: 

establishing commercial radio (by the 

Federal Radio Commission) in 1928; 

spectrum allocations and color standards for 

over-the air-television in 1945 and 1952; 

regulating cable television in 1966 and the 

early 1970s; authorizing customers in 1968 

to attach equipment to their telephone lines; 

promoting direct broadcast satellites as a 

competitive alternative to cable television in 

1982; letting the market decide the 

appropriate standards for digital cell phones 

in 1992; and adopting technical standards 

for high-definition and digital television in 

1996 and 1997. 

Overall, these decisions have been among 

the most critical the Commission has faced, 

generally involving the appearance of a new 

technology, communications device, or 

service. In many cases, the decisions involve 

spectrum allocation or usage. These are 

“transformative” decisions in the sense that 

they required the Commission to decide 

whether to “adopt, with minor revisions, the 

same legal and regulatory framework and 

mode of organization, or fundamentally 

transform them?”1

Some of the decisions are sufficiently far 

back in the past that policymakers may not 

be fully aware or have forgotten what was 

decided. In addition, these particular 

historical decisions happen also to shed light 

on topical issues. The Commission’s choices 

about radio in the 1920s and television in the 

1950s have their echoes in current debates 

about media concentration, diversity, and 

localism. Competing demands for scarce 

spectrum resonate from the earliest days to 

the present. The Carterfone decision can be 

seen as a precursor to open Internet 

 

 

1

 Paul Starr, The Creation of the Media (2004) at 

6. 

principles. All these are reasons to study this 

history, even though policymakers no doubt 

will draw their own conclusions, and may 

even disagree, about the lessons to be 

learned from studying the past decisions. 

From an academic perspective, too, these 

case studies offer an opportunity to examine 

a commonly-asserted view that regulatory 

policies throughout the economy underwent 

a major change in the 1970s, from protecting 

incumbents to promoting competition.2

 Is 

that general view reflected in FCC policies? 

Two case studies are relevant on this point: 

(1) the Commission’s efforts to protect 

incumbents are shown in the cable industry 

case study; and (2) the Commission’s efforts 

to promote entry by a new entrant are 

explored in the DBS study. 

Finally, the case studies on digital cell 

phones and high-definition TV examine the 

Commission’s role in setting technical 

standards, as well as the trade policy impact 

of these Commission decisions. 

2 See Marc K. Landy and Martin A. Levin, 

“Creating Competitive Markets: The Politics of 

Market Design,” in Marc K. Landy et al, 

Creating Competitive Markets: The Politics of 

Regulatory Reform (2007) (“A wave of 

deregulation hit aviation, trucking, and 

telecommunications in the mid-1970s, stimulated 

by an intellectually powerful and persuasive 

body of writings from experts in influential 

economics departments, law schools and think 

tanks.”) at 2. 

FCC Staff Working Paper 

1
Radio (1928) 

Commercial broadcasting began in 1920, 

when Westinghouse opened station KDKA 

and broadcast the November 2 election 

results.3

 For much of the rest of the decade, 

however, broadcasting was not a profitable 

operation and most broadcasters were not 

professional broadcasters, as we know them 

today.4

 Although large corporations like 

RCA, GE, AT&T, and Westinghouse 

dominated the manufacturing of radio sets 

and other aspects of the radio industry, by 

far the vast majority of broadcasters in the 

early 1920s were non-commercial entities: 

colleges and universities, labor unions, and 

civic organizations. Only 4.3% of all 

stations in 1926 were “commercial 

broadcasters.”5

 

Chaos in the airwaves

FRC Commissioner Orestes Caldwell 

explained in a June 1927 speech why the 

FRC needed to step in and assert control 

over the airwaves: 

 “Proper separation between 

established stations was destroyed 

by other stations coming in and 

camping in the middle of any open 

spaces they could find, each 

interloper thus impairing reception 

of three stations—his own and two 

others. Instead of the necessary 50 

kilocycle separation between 

stations in the same community, the 

condition soon developed where 

separations of 20 and 10 kilocycles, 

and even 8, 5, and 2, kilocycles 

existed. Under such separations, of 

course, stations were soon wildly 

blanketing each other and distracted 

listeners were assailed with 

scrambled programs.” 

Federal Radio Commission, First Annual 

Report, 1927, pp. 10-11. 

A major concern for industry leaders and 

policymakers was making broadcasters 

economically self-sufficient. In 1924, 

Secretary of Commerce Herbert Hoover, 

solicited major foundations to subsidize 

educational programming and proposed a 

2% tax on sales of radio sets to “pay for 

 

3 Christopher H. Sterling, John Michael Kittross, 

Stay Tuned: A History of American Broadcasting 

(2002) at 66. The distinction of being the first 

broadcast station goes to KQW, licensed in 

1912, but which began offering regularly 

scheduled news reports and music programs to 

San Jose listeners as early as 1909. Sterling and 

Kittross, Stay Tuned at 45. The station continues 

to operate today as KCBS in San Francisco. 

http://www.kcbs.com/pages/3504672.php. 

Network broadcasting started on January 4, 

1923, when telephone circuits connected WNAC 

in Boston and WEAF in New York for a fiveminute saxophone solo. Sterling and Kittross, 

Stay Tuned at 77. 4 Robert McChesney, Telecommunications, Mass 

Media, and Democracy: The Battle for Control 

of U.S. Broadcasting, 1928-1935 (Oxford 

University Press, 1994) at 14. 5 McChesney, Telecommunications, Mass Media, 

and Democracy, at 14-15. But see Sterling and 

Kittross, Stay Tuned at 70 (though noncommercial, many early broadcasters were often 

an arm of some other business or activity). 

daily programs of the best skill and talent.”6

Hoover also engaged in strenuous efforts to 

regulate the emerging radio industry but 

after a federal district court ruled that he 

lacked authority under the Radio Act of 

1912 to issue broadcast licenses, took the 

decisive step of discontinuing all 

regulation.7

 Chaos ensued when more than 

200 new broadcasters began to operate in 

the next six months. [See box] 

Congress then enacted the Radio Act of 

1927, establishing the Federal Radio 

Commission (FRC), to which it granted 

authority to issue licenses and regulations 

governing broadcasting.8

 

6

 McChesney, Telecommunications, Mass Media, 

and Democracy, at 16. 7

 Sterling and Kittross, Stay Tuned at 97-98. 8

 Sterling and Kittross, Stay Tuned at 141-143. 

FCC Staff Working Paper 

2
What did the FRC do?

The Federal Radio Commission created a 

new structure favoring commercial 

broadcasting. Specifically, the FRC: 

-- adopted a series of orders widening the 

broadcast band to the entire spectrum 

between 550 kHz to 1500 kHz and removing 

portable stations from the air;9

-- allocated 40 nationwide high powered 

(generally 25,000-50,000 watts) “clear 

channels” on which only one station 

operated at nighttime, plus other regional 

and local channels;10

--set a preference for commercial use over 

stations representing religious, political, 

social, and economic viewpoints.11

The FRC’s rationale for its actions 

The main stated reason for regulating 

spectrum use was to bring order to the 

chaotic situation where stations operated 

without licenses and interference was a 

major concern.12 

Though national networks could have been 

created by interconnecting (using telephone 

lines) a chain of lower-power local stations, 

 

 

9

 Sterling and Kittross, Stay Tuned at 143. 

10 Federal Radio Commission, General Order

40, First Annual Report (1928) at 48-50. 11 In re Great Lakes Broadcasting Co., Federal 

Radio Commission, Third Annual Report (1929) 

at 32-35; Robert McChesney, 

Telecommunications, Mass Media, and 

Democracy at 26-28. 12 For a different viewpoint, arguing that the 

private sector would have resolved interference 

issues though private arrangements with minimal 

governmental action, see John Berresford, “How 

Government Can Bring New Communications to 

All Americans: Six Lessons of History,” Program 

on Information Resources Policy, Harvard 

University (2004) at 24-28. Though interesting, 

this argument is ultimately unpersuasive because 

the private arrangements were too few and far 

between to solve a major nationwide problem. 

the FCC at that time favored networks 

consisting of high power, ‘clear channels’ 

that had nationwide coverage at nighttime.13

Commercial broadcasters pushed for 

national radio networks which they saw as 

“the only plan” for successfully financing 

radio broadcasting because it would permit 

the development of national advertising.14 

The FRC initially steered away from 

endorsing these proposals to create a 

national advertiser-financed broadcasting 

system. The FRC’s chief engineer described 

the channel allocation plan as entirely an 

engineering matter: “The reason for this is 

purely physical fact.”15 Indeed, the FRC 

stated in 1928 that its allocation plan was 

not intended for the primary benefit of 

advertisers.16 By 1929, however, after 

having created 40 national clear channels 

and other regional high powered stations 

that depended on advertiser financing, the 

FRC acknowledged that the system it had 

created would need to be financed by 

13 Nationwide coverge at nighttime is possible 

for AM radio stations due to a phenomenon 

called "skywave" propagation. To prevent 

massive interference, the small number of clear 

channel stations was granted nighttime 

exclusivity. Since 1980, however, these stations 

(now called Class A stations) generally broadcast 

over a 750 mile range, rather than nationally. 

http://www.fcc.gov/mb/audio/bickel/daytime.ht

ml. 14 McChesney, Telecommunications, Mass 

Media, and Democracy, at 23. 15 Critics questioned the FRC’s claims. See 

McChesney, Telecommunications, Mass Media, 

and Democracy, at 22 (noting that the engineer 

was an employee of the affected industries and 

returned to his corporate employment after his 

FRC service ended). See also Thomas Streeter, 

Selling the Air: A Critique of the Policy of 

Commercial Broadcasting in the United States 

(1996) at 100 (disputing FCC impartiality). 16 McChesney, Telecommunications, Mass 

Media, and Democracy, at 25 (noting FRC 

statement that “advertising is usually offensive to 

the listening public.”). 

FCC Staff Working Paper 

3
The decline of non-commercial radio 

 “Although more than 200 educational 

AM stations had been started in the 

early 1920s, almost all of them left the 

air by the end of the decade.” 

Sterling, and Kittross, Stay Tuned, at 115-

116, 124-127. 

“Nonprofit broadcasting accounted for 

only 2 percent” of all air time by 1934. 

McChesney, Telecommunications, Mass 

Media, and Democracy, at 30 -31). 

advertising: “without advertising, broadcast 

would not exist.”17 

The FRC also said it was driven by spectrum 

scarcity to favor “general purpose” 

commercial stations over the non-profit 

(“propaganda”) stations. In regard to 

“propaganda” stations, the FRC stated: 

“There is not room in the broadcast 

band for every school of thought, 

religious, political, social, and 

economic, each to have its separate 

broadcasting station, its mouthpiece in 

the ether.”18 

In practice, the FRC issued licenses to wellfinanced commercial stations rather than to 

non-commercial stations.19

Impact of the decision: the long view 

* The FRC’s decisions brought an end to the 

chaos in the airwaves that had existed in the 

mid-1920s and set the structure of the 

broadcasting industry for decades.20

* Commercial broadcasting replaced noncommercial broadcasting as the dominant 

force in radio.21 [See box.] 

* National radio networks rose in 

prominence. In 1926, the National 

Broadcasting Company (NBC) was created, 

with 22 affiliates. This became known as the 

 

 

17 In re Great Lakes Broadcasting Co., Federal 

Radio Commission, Third Annual Report at 35. 

See McChesney, Telecommunications, Mass 

Media, and Democracy, at 25. 18 In re Great Lakes Broadcasting Co., Federal 

Radio Commission, Federal Radio Commission, 

Third Annual Report at 34.. 

19 See McChesney, Telecommunications, Mass 

Media, and Democracy, at 26-28 (“by the FRC’s 

interpretation, commercial advertising is deemed 

the only legitimate form of financial support for 

a broadcaster, as by definition any other form of 

support had propaganda strings attached.”). 

20 Sterling, and Kittross, Stay Tuned, at 150-151. 21 See Streeter, Selling the Air, at 99; 

McChesney, Telecommunications, Mass Media, 

and Democracy, at 28. 

Red network. NBC‘s second network, 

known as the Blue network, had 6 affiliates. 

These added up to 7 percent of all stations. 

By 1933, Red had 28, Blue had 24, and 36 

were supplemental, for a total of 88 NBC 

affiliates, nearly 15 percent of all affiliates. 

The Columbia Broadcasting System (CBS) 

had 17 affiliates in 1928 (4 percent of the 

total) and rose to 91 affiliates in 1933 (16 

percent of the total).22 More significantly, 

NBC and CBS were affiliated with all but 3 

of the 40 “clear channels” and accounted for 

97 percent of nighttime broadcasting (when 

the smaller stations were not allowed to 

operate).23

* Advertising became the principal source of 

broadcasting revenue. Radio advertising, a 

marginal factor in 1927, rose to $100 million 

in 1930. 24 Radio stations’ income rose from 

less than $5 million in 1927 to $56 million 

four years later.25 

22 Sterling, and Kittross, Stay Tuned, at 117-122. 23 McChesney, Telecommunications, Mass 

Media, and Democracy, at 29. The average 

independent station had 566 watts of power, and 

the average NBC station over 10,000 watts. Id. 24 McChesney, Telecommunications, Mass 

Media, and Democracy, at 30. See Streeter, 

Selling the Air, at 98 (“By 1933, broadcast 

entertainment delivered by networks and 

saturated with advertising was already a fixture 

of American culture.”). 

25 Sterling, and Kittross, Stay Tuned, at 127. 

FCC Staff Working Paper 

4
Broadcast Television 

(1945, 1952) 

In the postwar period, television stations 

were on the air in only six cities (New York, 

Washington, Schenectady, Chicago, 

Philadelphia, and Los Angeles) and 

broadcasting only a few hours a day.

Stakeholders

There were two competitors for VHF 

channels: FM radio (esp. radio pioneer 

Edwin Armstrong) wanted to keep and 

expand on its 55 channels in the 42-50 

MHz band; commercial TV networks

(esp. RCA) wanted the VHF channels 

for television. 

RCA, as the leading provider of black 

and white TV sets and TV 

programming, also favored continuing 

TV in black and white on 6 MHz 

standard channels but CBS, the 

disruptive new entrant, urged delaying 

TV allocations until after deciding on 

color and high-definition standards. 

Demand grew quickly, so that by 1948 there 

were 34 stations in 21 cities, and over a 

million TV sets. 26 Television had arrived, 

and the FCC faced a series of pivotal 

decisions that helped to shape its future. 

They involved resolving competing claims 

for spectrum for TV and FM radio; whether 

to use the VHF or UHF bands; adopting a 

color TV standard, and deciding whether to 

establish educational TV (later known as 

“public television”). The FCC’s options 

were: 

i. Permit FM radio to retain its VHF 

channels and assign TV channels in the 

UHF band (which could accommodate the 

wider 16 MHz channels CBS requested) 

after the new technical standards were set; 

or

 Move FM radio to an upper part of the VHF 

band and allocate TV channels in the VHF 

band, delaying a decision on color TV, highdefinition TV and UHF allocations for TV. 

ii. In interpreting section 307(b) of the 

Communications Act, which required the 

FCC to distribute licenses on a “fair, 

efficient, and equitable” basis to all States 

and localities,27 choose between assigning 

licenses on a local or regional basis. 

iii. Allocate space for educational TV [ETV] 

in the VHF or UHF bands or, alternatively, 

 

 

26 Sterling and Kittross, Stay Tuned, at 251, 278. 

The FCC allocated 19 VHF channels in 1937 for 

experimental TV and 18 VHF channels in 1941 

for commercial TV (though most of the channels 

were used by the military during the war). 

27 Sixth R& O at ¶ ¶ 12-18, in Pike and Fisher, 

Radio Regulation, Vol. 1, Part 3, at 91:603-

91:606. 

leave it to commercial broadcasters to 

produce educational content. 

iv. Choose between the color standard 

proposed by CBS or RCA. 

What did the FCC do?

-- In 1945, the FCC moved FM radio up the 

VHF band, from 42-50 MHz to 88-108 MHz 

(1945);28

-- At the same time, the FCC also rejected 

proposals for wideband, high-definition 

color TV on the UHF band and instead 

allocated 12 channels (2 to 13) in the VHF 

band for TV, with channels 2-6 at 54 MHz 

to 88 MHz, and channels 7-13 at 174 MHz 

to 216 MHz.;29

--In 1948, with 50 stations on the air, and an 

additional 50 construction permits issued, 

the FCC instituted a “freeze” on licenses.30

-- In 1952, the FCC added 70 UHF channels 

(14 to 83) for commercial and noncommercial TV, intending the VHF and 

28 Sterling and Kittross, Stay Tuned, 249-253. 

29 Sterling and Kittross, Stay Tuned, 251. 30 Sterling and Kittross, Stay Tuned, at 319-321. 

FCC Staff Working Paper 

5
UHF stations to “constitute an integral part 

of a single, nationwide television service”;31

-- The FCC also assigned local, not regional 

or national TV licenses;32

--Reserved one VHF channel for educational 

broadcasting in any city with more than 3 

VHF channels (unless all the VHF channels 

had already been assigned), and one UHF 

channel in other cities.33

Initially, the FCC picked the CBS color 

standard (1950) but later reversed itself and 

adopted the NTSC standard developed by 

RCA (1953).34

The FCC’s rationale for its actions 

FM radio v. TV: Initially, in 1940, the FCC, 

under new Chairman James Lawrence Fly, 

favored FM, primarily to limit the dominant 

power of radio giants, RCA and NBC. Thus, 

the FCC transferred a TV channel (44 to 50 

MHz) to FM radio, giving FM a total of 40 

channels in which to expand. 35 However, 

after Fly left office in 1944, FM lost ground. 

Faced with competing demands for the same 

spectrum band, the FCC picked TV over FM 

radio, and justified its decision in part on an 

engineering analysis (later alleged to be 

flawed) predicting that FM radio would 

experience interference from the sunspot 

 

31 Television Allocations, Sixth Report & Order, 

at ¶¶ 22-25, 197 in Pike and Fisher, Radio 

Regulation, Vol. 1, Part 3, at 91:607-608, 664 

(1952). 

32 Television Allocations, Sixth Report & Order, 

at ¶¶ 70-79 in Pike and Fisher, Radio Regulation, 

Vol. 1, Part 3, at 91:622-624. See Roger Noll, 

Merton Peck, and John J. McGowan, Economic 

Aspects of Television Regulation, (1973) at 100-

101. 

33 Sterling and Kittross, Stay Tuned, at 328. 

34 Sterling and Kittross, Stay Tuned, at 322-324; 

Carl Shapiro and Hal R. Varian, Information 

Rules (1999), at 214-218. 35 Hugh R. Slotten, Radio and Television 

Regulation, Broadcast Technology in the United 

States, 1920-1960 (2000), at 118. 

cycle in 1947-1948.36 The FCC’s 1945 

decision was a compromise decision, 

intended to accommodate the competing 

demands of multiple parties (FM v. TV, 

RCA v. CBS, etc.), but RCA proved to be 

too tenacious to lose.37 

TV allocations: The FCC reasoned, in 1945, 

that there was not enough capacity in the 

VHF band to provide the 30 or more 

channels needed to provide nationwide, 

competitive television broadcasting, so it 

allocated 12 channels in the VHF band for 

TV, authorized experimental use on a 

limited scale in the UHF band (between 480 

and 920 MHz), and suggested it would find 

more space for TV in the UHF band later.38 

 

36 Sterling and Kittross, Stay Tuned, at 252 

(noting “flawed” prediction of former FCC 

engineer that FM radio would experience 

interference in the 40 to 50 MHz band when the 

11-year sunspot cycle reached its peak in 1947-

1948). See also Slotten, Radio and Television 

Regulation, at 126 (“controversial” evidence). 

Dale Hatfield, a respected technology expert and 

former Chief of the FCC’s Office of Engineering 

and Technology (1997-2000), supports the 

original findings: “In my opinion, if the FM band 

had been left in the 42-50 MHz range, we would, 

in fact, be suffering from rather severe 

interference during periods of high solar activity 

even today. In fact, recent experience with the 

DTV transition supports that argument. 

Television stations making the transition have 

almost without exception tried to avoid operation 

on TV Channel 2 (54-60 MHz) and the low VHF 

channels more generally because of 

interference.” Email communication with Dale 

Hatfield, March 21, 2010. 

37Slotten, Radio and Television Regulation, at 

127; Sterling and Kittross, Stay Tuned, at 252. 

38FCC Chairman Coy, on September 13, 1948, 

said: 

“These [12 VHF channels] were not 

intended to represent a satisfaction of 

television’s requirement; 12 simply 

represented the most VHF spectrum 

space—72 [MHz]—which, on a relative 

basis, the Commission then believed 

was justifiable for a wide-band service 

whose full accommodation obviously 

would have to be higher in the 

spectrum.” 

FCC Staff Working Paper 

6
The FCC most likely found it difficult to 

delay allocating channel capacity until color 

standards were set and HDTV developed (as 

CBS had proposed), because that would 

have run counter to the post-WWII pressure 

from consumers and industry to produce 

consumer goods immediately.39 

Because demand for channels increased, the 

FCC, in 1952, allocated additional capacity 

for television in the UHF band, but did not, 

as it had earlier suggested, move all TV 

service to UHF, most likely because of 

resistance from incumbent operators in the 

VHF band who had large investments in 

VHF transmitters and receivers.40

“Intermixing” (i.e., assigning VHF and UHF 

stations to compete in the same 

communities) was doomed to fail because 

the new UHF stations in many cities were 

forced to compete with existing VHF 

stations whose customers already owned 

VHF-only receivers and were unlikely to 

incur the additional expense and 

inconvenience of buying, installing and 

operating a UHF tuner that down-converted 

the UHF channels to VHF. The FCC noted 

that intermixing may “temporarily handicap 

operations in the new UHF band and place 

certain communities at a disadvantage,” but 

remained hopeful that solutions would be 

worked out in the long run.41 But, no 

solution emerged until Congress passed the 

All-Receiver Act in 1962, mandating that all 

receivers must be able to receive both VHF 

and UHF signals.42

 

Local or regional licenses: Under the 

regional station concept, as proposed by 

Dumont Broadcasting, regional stations with 

powerful transmitters could serve a large 

area and provide most of the country with as 

many as seven networks. The FCC instead 

 

39 Sterling and Kittross, Stay Tuned, at 254-255. 40 Sterling and Kittross, Stay Tuned, at 325-326. 

41 Sixth R& O at ¶ 199, Pike and Fisher, Radio 

Regulation, Vol. 1, Part 3, at 91:665 (1952); 

Sterling and Kittross, at 387-388.

42 Sterling and Kittross, Stay Tuned, at 415-416. 

preferred to license less-powerful local 

stations that would permit local 

communities to have their own stations but 

would reduce the number of channels any 

viewer would receive.43 

Educational broadcasting: Commercial 

broadcasters opposed reserving channels for 

educational TV, arguing that educational 

broadcasters did not have the resources to 

offer TV programming and would not be 

able to use the channels they were seeking. 

The FCC, led by Commissioner Frieda 

Hennock (the first female Commissioner), 

disagreed. Instead, the FCC ruled that when 

more than three VHF channels were 

assigned to a city, one would be for 

education. Additional VHF channels were 

reserved for educational institutions. [By 

2001, these had grown to more than 370 

public TV stations.]44

Color standard: The FCC initially favored 

CBS’ color standard over RCA’s because it 

was technically superior, even though a 

significant drawback was that CBS’s color 

sets were not backward compatible with 

existing black and white sets. 45 After 

consumers failed to buy CBS color sets, the 

FCC agreed to change the color standard to 

the industry consensus NTSC standard.46

 

43 Noll et al, Economic Aspects of Television 

Regulation, at 101. 

44 Sterling, and Kittross, Stay Tuned, at 328; 

Sixth R& O at ¶ 38, in Pike and Fisher, Radio 

Regulation, Vol. 1, Part 3, at 91:612-91:613 

(1952). 

45 Sterling and Kittross, Stay Tuned, at 322-324; 

Shapiro and Varian, Information Rules, at 214-

218. David Sarnoff, RCA’s chief, acknowledged 

after a test that RCA’s color was not that good: 

“The monkeys were green, the bananas were 

blue, and everyone had a good laugh.” Shapiro 

and Varian, Information Rules, at 215. 46 Shapiro and Varian, Information Rules, at 215-

216. 

FCC Staff Working Paper 

7
Impact of the decisions: the long view 

FM radio: Though FM radio gained by 

getting more channels, the creator of FM 

radio, Edwin Armstrong, lost, as the FCC 

decision rendered obsolete 400,000-500,000 

radio sets.47 In 1941, FM radio seemed to be 

on the march, with 67 commercial FM 

stations (and another 43 license applications 

pending at the FCC), but the FCC’s 1945 

allocation stopped FM in its tracks.48 FM 

radio did not start to grow again until the 

1960s.49 

“Mess in the Making”

“It would be hard to overemphasize 

the importance of the 1945 decisions 

that stemmed from these hearings. 

Much of their structure remains, and 

they are the source of many of today’s 

problems.” 

Sterling and Kittross, Stay Tuned, at 

255, 319. 

TV allocations: The 1945 and 1952 

allocations decisions created problems that 

plagued the FCC for decades.50 

Because the FCC had not allocated 

sufficient spectrum for TV to satisfy the 

post-war needs in 1945, FCC engineers 

struggled for years to meet demand by 

narrowing mileage separations between 

stations until reception was impossible in 

many areas, leading broadcasters and 

viewers to complain. 

 

47 Sterling and Kittross, Stay Tuned, at 253 

(400,000); Slotten, Radio and Television 

Regulation, at 119 (500,000). 48 Slotten, Radio and Television Regulation, at 

118. 

49 Sterling and Kittross, Stay Tuned, at 249-253, 

389, 412-415. 

50 See e.g., Sterling and Kittross, Stay Tuned, at 

255, 319 (“Mess in the Making: 1945 through 

1948”), 387-391 (“The UHF Mess”). 

* Even greater problems resulted from the 

1952 decision to intermix VHF and UHF. 

With VHF sets already in use, and 

manufacturers uninterested in producing sets 

that received both VHF and UHF signals, 

UHF stations were at a disadvantage. By 

1958, only 308 communities out of 1275 had 

stations in operation and in larger markets 

“virtually no UHF station was doing well” 

against a VHF competitor.51

* Though television was almost universal in 

the United States by the early 1960s, 

viewers did not receive anywhere near the 

amount of competitive choice the FCC had 

expected from its earlier decisions. Overall, 

the result for most Americans was fewer onair stations, more oligopolies, and higher 

advertising costs than intended. 52 

Color standard: The networks invested 

heavily in color transmission equipment, 

with the result that, by 1957, 106 of 158 

stations in the top 40 cities had the ability to 

transmit in color, but viewers stayed away: 

Only 3 percent of households had color TV 

sets in 1963. Color TV did not take hold 

until the mid-1960s, after prices of sets fell 

and sufficient content was produced to make 

color TV attractive to consumers.53

Local or regional licenses: By focusing on 

localism as a principal goal, and by 

intermixing VHF and UHF stations, the 

FCC missed the chance to create as many as 

7 national networks.54 If the FCC had 

adopted the concept of “regional TV stations 

centered around powerful transmitters 

receivable over a large area,” most of the 

country could have had as many as seven 

VHF channels.55 

 

51 Sterling and Kittross, Stay Tuned, at 387-388, 

415-416 (Between 1952 and 1959, 55% of 165 

UHF stations that went on the air shut down.) 

52 Sterling and Kittross, Stay Tuned, at 331. 53 Shapiro and Varian, Information Rules, at 216. 54 Noll et al, Economic Aspects of Television 

Regulation, at 99-120, esp. 116. 55 Noll et al, Economic Aspects of Television 

Regulation, at 101. 

FCC Staff Working Paper 

8
Local Programming Expectations

Study by two former FCC 

Commissioners: 

“Congress created the present 

scheme in order to promote specific 

policies and specific kinds of 

programs. A system of locally based 

stations was deemed necessary to 

ensure that broadcasting would be 

attentive to the specific needs and 

interests of each local community. It 

was also considered a guarantee to 

local groups and leaders that they 

would have adequate opportunity 

for expression. Ultimately, our 

broadcasting system is premised on 

concern that the very identity of 

states and cities might be destroyed 

by a mass communications system 

with an exclusively national focus.” 

Kenneth Cox and Nicholas Johnson, 

“Broadcasting in America and the FCC 

License Renewal Process: an Oklahoma 

Case Study (FCC, 1968), quoted in Noll 

et al, Economic Aspects of Television 

Regulation, 100. 

Instead, because licenses were issued for 

local stations, a different result followed: 

“The local station concept, on the other 

hand, would reduce the power of each 

station, permitting many more 

communities to have their own station 

but reducing the number of channels 

any given viewer would receive.”56

As a result of favoring local stations over 

regional stations, only the “Big 3” national 

networks developed in the U.S., until 

1987,57 when a fourth (Fox) was added.58 In 

 

 

56 Noll et al, Economic Aspects of Television 

Regulation, at 101. 57 See Stanly M. Besen, Thomas G. 

Krattenmaker, A. Richard Metzger, Jr., and John 

R. Woodbury, Misregulating Television (1984) 

(“a confluence of avoidable FCC policy choice-

...virtually assured that only three, national, fullscale television networks would succeed.”). 

effect, localism triumphed at the expense of 

competition.59 But, “localism” has not 

produced the desired local programming. As 

a leading economics text written in 1973 

noted: 

 “the fact remains that almost all of the 

programming broadcast over the local 

stations has a national focus. The 

network affiliates, which constitute the 

vast majority of VHF stations, rely on 

the networks for 82 percent of their 

prime-time programming. Of the 

remaining 18 percent, a high proportion 

is devoted to non-network films and 

other programming. Outside of prime 

time, the reliance is less—particularly 

for affiliates of ABC, which offers less 

daytime network programming—but the 

pattern is much the same. Few local 

programs other than local news and 

weather and sports are offered.”60

Clearly, the lack of local programming was 

a concern for Congress and the FCC, who 

expected a much more extensive role for 

local broadcasting than turned out to be the 

case. [See box] 

58 Florence Setzer and Jonathan Levy, 

“Broadcast Television in a Multichannel 

Marketplace,” OPP Working Paper Series (FCC, 

June 1991) (Fox began service in the 1987/1988 

season, distributing programming five nights a 

week to independent stations) at 28, n.25. 

59 Noll et al, Economic Aspects of Television 

Regulation, at 101. 60 Noll et al, Economic Aspects of Television 

Regulation, at 108-109. 

FCC Staff Working Paper 

9
Cable Television 

(1966, 1970s) 

From its modest beginnings around 1950, 

cable TV grew rapidly as an alternative 

distribution mechanism to broadcast TV. 61

In the 1950s, new cable systems were 

introduced at an annual rate of 24.9 percent 

and subscriber growth was about 40 percent 

annually. In 1959, the FCC adopted a policy 

supporting the growth of cable TV, except in 

the extreme case in which a broadcaster 

could show that “it was the only local 

broadcast service whose existence was 

threatened.”62 By 1966, more than 1 million 

homes out of 60 million received cable, and 

more than 1,200 systems were operating.63

By then, the FCC began to change its view 

that cable was no longer a threat to 

broadcasting. 

What did the FCC do? 

1966: The FCC decided to limit and regulate 

the manner in which CATV competes with 

the basic off-air television broadcast 

service.64 Specifically, the FCC imposed 

 

61 The first subscription cable system was 

established in Lansford, Pennsylvania, in 1950, 

though non-commercial systems existed a few 

years earlier in Pennsylvania and Oregon. See 

Robert W. Crandall and Harold Furchtgott-Roth, 

Cable Television: Regulation or Competition

(1996) at 3. 

62 See Stanley M. Besen and Robert W. Crandall, 

“The Deregulation of Cable Television,” 44 Law 

and Contemporary Problems 77 (1981), at 83. 63 Gregory S. Crawford, "Cable Regulation in 

the Satellite Era," (2006), at 5-6, 

http://www.u.arizona.edu/~gsc818/research/pape

rs/cablereg.pdf. See Sterling and Kittross, Stay 

Tuned, at 417. 64 Rules and Regulations Relating to the 

Distribution of Television Broadcast Signals by 

the Community Antenna Television Systems, 

Second Report and Order, 2 FCC 2d 725 (1966). 

See Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems at 88. Though the Commission never 

considered this option, the FCC instead could 

two conditions on cable systems: (1) the 

cable system must carry the signals of all 

local stations [“must carry”], and (2) the 

cable system was not permitted to carr

programs of a distant station when they 

duplicated the programs of a local station 

fifteen days before or after the local 

broadcast.

y the 

65 Most significantly, the FCC 

broadened the scope of its concern from 

markets in which the broadcaster was the 

only TV station to the top 100 markets.66 

1972: The FCC adopted complex rules 

(described by two scholars as “baroque”):67 

* “Must carry” was still required; 

* The number of distant signals that could 

be imported (e.g., 3 networks, 3 

independents) varied depending on the 

stations market size (top 50, 50-100, smaller 

markets); 

* Cable operators could not “leapfrog” 

nearby stations in favor of large-market 

independent stations; 

* Syndicated network programming on local 

stations was protected from competition by 

identical programming on imported signals; 

* Systems with 3,500 or more subscribers 

had to originate some of their own 

programming; 

* Channels had to be set aside for public, 

educational, and government use; 

* Channel capacity had to be added if all 

channels were in use for more than 80 

percent of the time in any three hour period 

for six weeks.68

From 1974-1978, the FCC undid the 1972 

rules. First, in 1974, the FCC allowed cable 

systems to import unlimited signals during a 

 

have restricted broadcast TV to permit cable to 

emerge as a strong competitor. 

65 Second Report and Order, 2 FCC 2d at 747-

756. 

66 Second Report and Order, 2 FCC 2d at 783. 67 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems at 95. 68 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems at 95-96, especially Table II. 

FCC Staff Working Paper 

10
Protecting TV from cable (I):

“[T]hese requirements were 

necessary to ameliorate the risk 

that a burgeoning CATV 

industry would have a future 

adverse impact on television 

broadcast service....” 

Distribution of Television Broadcast 

Signals by the Community Antenna 

Television Systems, Second Report and 

Order, 2 FCC 2d 725, 736 (1966). 

Protecting TV from cable (II):

“CATV may, we recognize, 

increase viewing opportunities, 

either by bringing in 

programming not otherwise 

available or, what is more 

likely, bringing in 

programming locally available 

but at times different from 

those presented by the local 

stations. But this contribution 

(and the related ones such as 

better reception, etc.) should 

not be made at the expense of 

healthy maintenance of UHF 

operations.” 

Distribution of Television Broadcast 

Signals by the Community Antenna 

Television Systems, Second Report and 

Order, 2 FCC 2d at 781. 

period in which local stations were not 

broadcasting. Leapfrogging restrictions were 

abandoned in 1976. In 1977, cable operators 

were permitted to use 4.5 meter receive-only 

earth stations, which drastically cut their 

costs and made pay-cable affordable. In 

1978, the Commission exempted smaller 

systems from all exclusivity and signalcarriage rules.69

 

 

69 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 99-100. 

A postscript is worth noting: as cable TV 

grew and prospered and demonstrated 

market power from its monopoly position in 

some communities, Congress, the FCC, and 

local jurisdictions responded by imposing 

rate regulation and other restrictions.70

The FCC’s rationale for its actions 

The FCC’s actions in 1966 were designed to 

prevent “unfair” competition by cable 

systems and to foreclose any “adverse 

impact” on broadcasting as a result of 

cable’s growth.71 

The purpose of extending these rules to the 

top 100 markets was to protect UHF 

broadcasters, who were still struggling to 

gain a foothold despite the FCC’s efforts 

since the 1950s to promote broadcasting in 

the UHF band.72

The complex 1972 rules were the result of a 

compromise between the broadcasters and 

cable operators that was defended by the 

FCC as being in the public interest because 

they protected local broadcasting while 

allowing some growth for cable.73

70 Sterling and Kittross, Stay Tuned, at 417-418; 

Crawford, "Cable Regulation in the Satellite 

Era," at 6-11. 

71 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 88. See Crandall and FurchtgottRoth, Cable Television: Regulation or 

Competition, at 3 (“high-water mark of 

repressive regulation”). 

72 Community Antenna Television Systems, 

Second Report and Order, 2 FCC 2d at 781: 

See also Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 89. 73 Crandall and Furchtgott-Roth, Cable 

Television: Regulation or Competition, at 4. See 

also Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 97 (“The obvious intent of the rules 

was to continue to protect large-market 

broadcasters while unburdening cable 

somewhat.”). 

FCC Staff Working Paper 

11
Impact of the decision: the long view 

The mid-1970s proved to be a decisive 

decade in the twists and turns of FCC’s 

regulation of the cable industry.74 First, 

there was a decisive shift in regulatory 

thinking in favor of a “policy which would 

permit some cable growth in major 

75 markets.” 

ight 

HF 

luence 

emonstrable harm to broadcasters.”77

1974-1978 had a 

ramatic impact: 

 

Second, economic studies began to show 

that the growth of the cable industry m

actually benefit—rather than harm—

broadcasters, particularly owners of U

stations who would be better able to 

compete with VHF stations in homes served

by cable.76 Finally, cable grew in inf

as the industry passed the 5 million

subscriber mark in 1971 “with no 

d

The deregulatory efforts of 

d

“As the 1980s dawned, therefore, cable 

was free of the most repressive federal

regulatory provisions that had limited 

, 

n by 

sing or 

gulatory efforts.”78

 the 

n 

amming to cable and broadcast 

tations.79 

x 

cause 

e 

, 

ns of nationally distributing 

rogramming.80

assignments, 

nearly 400 were still vacant.

 

74 Sterling and Kittross, Stay Tuned, at 468 

(“Over nearly four decades, the FCC’s regulation 

of cable television has undergone substantial 

changes in direction.”). See generally, Daniel 

Brenner et al, Cable Television and Other 

Nonbroadcast Video: Law and Policy (2004) at 

2-10 to 2-22 (discussing the 1992 Cable Act and 

its precedents). 

75 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 96 (citing in particular the role of a 

new FCC Chairman, Dean Burch, and the 

influence of the Office of Telecommunications 

Policy). 

76 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 97 (citing in particular studies by 

the Rand Corporation). 

77 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 97. By 1976, 1 of every 6 homes 

subscribed to cable, and there were more than 

3,700 systems. Sterling and Kittross, Stay Tuned,

at 417. 

its ability to offer diverse programming

but it was still subject to regulatio

municipal or state franchi

re

Adding to the deregulatory efforts,

FCC’s Open Skies policies led to 

competition in the domestic satellite field 

that made low-cost satellite transmission a

attractive alternate to the more expensive

terrestrial microwave networks that had 

been the principal means of distributing 

video progr

s

Cable deregulation also got a significant 

boost from the court decision in Home Bo

Office v. FCC (1977), which rejected the 

FCC’s claim of jurisdiction on the theory 

that cable was subject to regulation be

it impinged upon the FCC’s primary 

responsibility over local broadcasting. Th

FCC did not attempt to rewrite the rules

thus leaving cable networks free to use 

satellite as a mea

p

Meanwhile, broadcast TV in the UHF band 

never grew as much as the FCC hoped. By 

1976, of 590 commercial UHF 

81

78 Crandall and Furchtgott-Roth, Cable 

Television: Regulation or Competition, at 4. 79 Crandall and Furchtgott-Roth, Cable 

Television: Regulation or Competition, at 5-6. 

See also Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 108, citing FCC Network Inquiry 

Staff, Video Interconnection: Cost and 

Regulatory Policies (March, 1980) at 68-73. 80 See Streeter, Selling the Air, at 177, n.21; 

Crandall and Furchtgott-Roth, Cable Television: 

Regulation or Competition, at 6. 81 Sterling and Kittross, Stay Tuned, at 415-416. 

FCC Staff Working Paper 

12
Carterfone (1968) 

In the 1940’s and 1950’s, the FCC had 

repeatedly supported prohibitions against 

any “foreign attachments,” e.g., the 

Jordaphone (a prototype of today’s 

answering machine) and the Hush-A-Phone 

(a small plastic device snapped onto the 

mouthpiece to provide privacy in crowded 

office environments).82 The Court of 

Appeals reversed the FCC’s Hush-A-Phone 

decision, stating: “The mere fact that the 

telephone companies can provide a rival 

device would seem a poor reason for 

disregarding Hush-A-Phone’s value in 

assuring a quiet line.”83 Next up was the 

Carterfone, a device that linked mobile radio 

to the landline network.84 From 1959 to 

 

 

82 A casebook describes the FCC’s Hush-APhone decision as: “Perhaps [the FCC’s] most 

comical order, revealing how a regulatory mindset can sometimes overwhelm common sense.” 

Michael K. Kellogg, John Thorne, and Peter W. 

Huber, Federal Telecommunications Law (1992) 

at 502. 

83 Hush-A-Phone v. United States, 238 F. 2d266 

(D.C.Cir. 1956). 

84 The device in question was the Carterfone, 

described by the FCC as follows: 

“The Carterfone is designed to be 

connected to a two-way radio at the 

base station serving a mobile radio 

system. When callers on the radio and 

on the telephone are both in contact 

with the base station operator, the 

handset of the operator's telephone is 

placed on a cradle in the Carterfone 

device. A voice control circuit in the 

Carterfone automatically switches on 

the radio transmitter when the telephone 

caller is speaking; when he stops 

speaking, the radio returns to a 

receiving condition. A separate speaker 

is attached to the Carterfone to allow 

the base station operator to monitor the 

conversation, adjust the voice volume, 

and hang up his telephone when the 

conversation has ended.” 

Use of the Carterfone Device in Message Toll 

Telephone Prices, 13 FCC Rcd 420, recon. 

denied, 14 FCC 2d 571, 572 (1968). 

1966, Carter Electronics had produced 4500 

of these devices and sold 3500 devices to 

dealers. AT&T filed tariffs prohibiting their 

use. 

What did the FCC do? 

In 1968, the FCC struck down AT&T’s 

tariff and ordered all carriers to file new 

tariffs permitting use of devices not made by 

the phone companies.85 The FCC found that 

AT&T’s tariff was unreasonable because it 

would have prohibited the Carterfone 

attachment whether or not it harmed the 

telephone system: “the vice of the present 

tariff ... is that it prohibits the use of 

harmless as well as harmful devices.”86

The FCC also found that the tariff was 

discriminatory because it permitted 

customers to attach equipment similar to the 

Carterfone provided that the equipment was 

manufactured by AT&T.87

On reconsideration, the FCC set some limits, 

insisting that it was not “opening the door to 

customer ownership of telephone 

handsets.”88

Impact of the decision: the long view 

Although the FCC’s decision allowed users 

to connect equipment to the telephone line, 

AT&T filed a revised tariff that also 

permitted the use of privately supplied 

telephones and other telephone equipment. 

As a former FCC Commissioner later noted: 

Carterfone had said nothing about 

substitute equipment; there is no 

indication that the FCC intended to 

terminate AT&T’s monopoly on nonperipheral terminal equipment.” 89

85 Carterfone, 13 FCC 2d at 423. 86 Carterfone, 13 FCC2d at 424. 87 Carterfone, 13 FCC2d at 423-424. 88 Carterfone, 14 FCC2d at 572. See Kellogg, et 

al, Federal Telecommunications Law, at 504.

89 See Glen O. Robinson, “The Titanic 

Remembered: AT&T and the Changing World of 

Telecommunications,” 5 Yale Journal of 

FCC Staff Working Paper 

13
Two additional steps needed to be taken for 

the full impact of Carterfone to be realized. 

First, in 1975, the FCC created the Part 68 

rules which required that all terminal 

equipment connect to the network through 

standard plugs and jacks. Any manufacturer 

that met the Part 68 standards was 

authorized to produce customer premises 

equipment [CPE].90 

Second, in the Computer Inquiries (decided 

in the 1970s and 1980s), the FCC required 

telephone companies to sell equipment 

through separate subsidiaries, thus 

“facilitating competition in the equipment 

market” that led to an “explosive growth in 

the variety of end user devices.”91 As former 

FCC Chairman Reed Hundt noted: 

 

“Today, the benefits of competition in 

the CPE market are tangible. 

Consumers can buy telephones of all 

shapes, sizes and colors with a 

bewildering array of features and 

functions. They can buy telephones 

with built-in answering machines, 

telephones with memory, telephones 

with speed dialing, and cordless 

telephones.” 

“Since deregulation, prices for this 

equipment have fallen, and as prices 

declined, sales increased. Sales of 

cordless telephones, for example, 

increased from approximately 4 million 

units in 1985 to 9 million units in 

1992.” 92 

 

 

Regulation 517, 520-32 (1988) excerpted in

Thomas Krattenmaker, Telecommunications Law 

and Policy (1998) at 361. 

90 See Jonathan E. Nuechterlein and Philip J. 

Weiser, Digital Crossroads: American 

Telecommunications Policy in the Internet Age

(2005) at 58-59. 

91 Nuechterlein and Weiser, Digital Crossroads 

at 59. 

92 Reed E. Hundt, Statement, Committee on 

Commerce, Science, and Transp., U.S Senate, 

February 23, 1994. 

The Carterfone decision resulted in huge 

benefits to consumers who were offered a 

multiplicity of new telephone equipment and 

functions (see box), but the decision is even 

more lauded today for its role in enabling 

the growth of the Internet. As a former FCC 

colleague wrote: 

 

“Most important for the growth and 

development of the Internet, the 

Commission's deregulation of customer 

premises equipment, or CPE, cleared 

the way for the rapid deployment of the 

modem. ... In fact, without Part 68, 

users of the public switched network 

would not have been able to connect 

their computers and modems to the 

network, and it is likely that the Internet 

would have been unable to develop.” 93

 

In addition, though it is not widely 

acknowledged, Carterfone was critical not 

only to the development of the Internet but 

also to the data communications industry 

(consisting of companies like IBM and 

DEC) that preceded it.94 

93 Jason Oxman, The FCC and the Unregulation 

of the Internet (OPP Working Paper, July 1999) 

at 14. 

94 For example, at the time of the Carterfone 

decision, technology experts were developing 

“sophisticated data communications networks 

using combinations of dialup modems with 

acoustical couplers (rather than the direct 

connections that Carterfone allowed) and private 

lines with directly connected modems—all 

connecting to, for example, the early timesharing computers,” to create what was known as 

Remote Access Data Processing. In addition, 

public packet switching was also developed in 

the form of X.25 networks that preceded the 

development of the Internet. Email 

communication with Dale Hatfield, March 21, 

2010. 

FCC Staff Working Paper 

14
Direct-Broadcast Satellite 

(DBS) (1982) 

Stakeholders

The FCC received the first application for a 

license to offer satellite television from the 

Satellite Television Corporation in 1980, 

shortly after the ITU designated the 12.2-

12.7 GHz band for Broadcast Satellite 

Services. Several other applications soon 

followed, from CBS, Direct Broadcast 

Satellite Corporation, RCA, United States 

Satellite Broadcasting Corporation and 

Western Union.95 

Broadcasters (e.g., NBC, the Association of 

Maximum Service Television) and several 

public interest groups (e.g., the United 

Church of Christ), and others (e.g., the 

American Newspaper Publishers 

Association, the American Petroleum 

Institute, the Association of American 

Railroads) opposed the applications. 

Options 

i. Deny the application on the grounds that the benefits to the public do not justify using 

the spectrum and orbital slots for DBS; 

ii. Permit use of the orbital slots and spectrum to provide broadcast video to unserved 

rural areas; 

iii. Allocate only a portion of the 500 MHz for DBS while retaining the balance for 

private microwave uses; 

iv. Allocate the entire 500 MHz for DBS and grant the applications because DBS 

potentially had a unique capability to provide service to rural and other unserved areas; 

would increase competition and diversity by offering additional programming to the 

public; could introduce new video services such as high-definition TV; and would 

promote the satellite communications industry. 

v. Impose a traditional broadcast regulatory framework for DBS or adopt minimal 

regulation. 

 

95 Inquiry into the Development of Regulatory 

Policy in Regard to Direct Broadcast Satellites, 

90 FCC 2d 676 (1982) at ¶¶ 2-5. 

What did the FCC do? 

The FCC authorized DBS service, amended 

the Table of Frequency Allocations to 

permit DBS downlink operations in the 

12.2-12.7 GHz band and uplink operations 

in the 17.3-17.8 GHz band, and adopted 

rules to prevent harmful interference to DBS 

operators from terrestrial licensees in the 12 

GHz band.96 

The FCC also decided to adopt a “flexible 

regulatory approach” to DBS systems, 

permitting DBS providers to choose to 

operate either as broadcasters or common 

carriers or both (i.e., as a broadcaster on 

some channels and a common carrier on 

others) and declined to impose ownership 

restrictions or access requirements.97

96 Direct Broadcast Satellites, 90 FCC 2d 676, at 

¶¶ 7, 59-77. 

97 Direct Broadcast Satellites, 90 FCC 2d 676, at 

¶¶ 78-101.

FCC Staff Working Paper 

15
The FCC’s rationale for its actions 

DBS’ Shaky Start

None of the applicants survived (at 

least until one or two resurfaced in 

the 1990s), sunk by the high cost of 

launching satellites (estimated at 

$700 million in the first year) and the 

lack of programming that 

differentiated DBS from on-air 

television. 

Edward A. Comor, Communication, 

Commerce, and Power: The Political 

Economy of America and the Direct 

Broadcast Satellite, 1960-2000

(1998) at 60-63. 

Program Access: Key to the 

Growth of DBS 

Congress went further than the 

FCC and enacted the “program 

access” requirements (section 

628), which essentially enabled 

DBS to get the right to offer 

cable content to its viewers on 

non-discriminatory terms. 

See Daniel Brenner et al, Cable 

Television and Other 

Nonbroadcast Video: Law and 

Policy, at 15-9. 

The FCC concluded that DBS would give 

high-quality television service to as many as 

11 million people in rural areas who in 1981 

had no on-air reception or got fewer than 3 

channels and who would be willing to pay as 

much as 5 percent of their income for this 

service.98

The FCC also determined that viewers in 

urban areas would highly value the 

additional options for television viewing that 

DBS could provide.99

Overall, the FCC concluded that the benefits 

of DBS far outweighed any adverse impact 

DBS would have on local broadcasting, and 

would also constitute efficient spectrum 

utilization.100

 

 

98 Direct Broadcast Satellites, 90 FCC 2d 676, at 

¶¶13-14. 

99 Direct Broadcast Satellites, 90 FCC 2d 676, at 

¶¶15-20. 

100 Direct Broadcast Satellites, 90 FCC 2d 676, at 

¶ 21. See Staff Report, Policies for Regulation of 

Direct Broadcast Satellites (Office of Plans and 

Policy, September 1980) at 87 (“most forms of 

regulation now imposed by the Commission will 

prove unnecessary or counterproductive.”). 

Impact of the decision: the long view 

Although the FCC “moved with the 

regulatory speed of light” in approving this 

new service, the market was slow to 

follow.101 (See box, left) 

DBS, thus, at least initially was seen as a 

major flop: “the 1983-84 disaster of DBS 

was on such a scale as to somewhat depress 

the entire business of space satellites.”102

Cable companies, fearing the threat from 

DBS, denied emerging DBS operators like 

DirecTV access to programming, and also 

formed their own DBS operator (Primestar), 

which led to an antitrust lawsuit filed by the 

New York Attorney General.103

Congress then stepped in and helped DBS 

by enacting the Satellite Home Viewer Act 

in 1988 which allows satellite carriers to 

deliver broadcast programming to satellite 

viewers who were unable to receive 

broadcast programming (“unserved 

101 Sterling and Kittross, Stay Tuned, at 573. 102 Comor, Communication, Commerce, and 

Power, at 63. 103 Comor, Communication, Commerce, and 

Power, at 166-168. 

FCC Staff Working Paper 

16
households”).104 In 1992, Congress went 

further and enacted the “program access” 

requirements (section 628), which 

essentially enabled DBS to get the right to 

offer cable content to its viewers on nondiscriminatory terms.105

An ongoing issue for regulators is whether 

(or when) these “program access” rules 

should be ended. If the rules are continued 

too long, there is a danger of harm to the 

competitive process. As Shapiro and Varian 

have stated: 

“Regulations like these, which control 

and circumscribe the vertical 

relationships between those who 

produce content and distribute it, are 

increasingly out of place as the creation 

of content and distribution of 

information become more and more 

competitive.... 

Hopefully, the monopoly power 

enjoyed by cable operators will also 

erode as broadcast satellite becomes a 

stronger force and as telephone 

companies enter into multichannel 

video distribution. In this setting, 

regulations on vertical relationships in 

the information sector may well serve to 

benefit certain special interests rather 

then the public interest.” 106 

 

 

104 Comor, Communication, Commerce, and 

Power, at 168; Stuart Minor Benjamin, Douglas 

Gary Lichtman, Howard A. Shelanski, 

Telecommunications Law and Policy (2001) 

at 549 (Congress created a compulsory license 

which permits satellite carriers to deliver 

network programming to unserved viewers 

without the copyright owners permission). 

105 Stuart Minor Benjamin et al., 

Telecommunications Law and Policy, at 500. 

Congress stepped in again in 1999 with further 

revisions that imposed additional requirements 

on DBS but also permitted them to carry local 

signals. Stuart Minor Benjamin et al., 

Telecommunications Law and Policy, at 550-

557. 

106 See Shapiro and Varian, Information Rules, at 

312. The Commission extended the program 

access rules for an additional five years, 

beginning in 2007. Review of the Commission’s 

 

In 1994, DirecTV became the first DBS 

system in operation in the United States and 

quickly became a popular service, signing 

up close to 10 million subscribers by 

2000.107 

In 2006, a Kagan report showed that cable’s 

market share had dropped more than 20 

points throughout the previous 10 years as 

DBS added about 25 million subscribers. In 

10 years, Kagan projects net new DBS 

subscribers will grow more than 6 million to 

more than 33.5 million by 2015.108

Program Access Rules and Examination of 

Programming Tying Arrangements, Report and 

Order, 22 FCC Rcd 17791 (rel. October 1, 

2007). 

107 Sterling and Kittross, Stay Tuned, at 597. 

DBS service started in 1989 in the United 

Kingdom (as BSkyB), and had grown to serve 

5.5 million households by 1996; in Europe the 

Astra system was serving over 65 million homes 

by the end of 1995. Comor, Communication, 

Commerce, and Power, at 166. 108 See “DBS subscribers to reach 33.5 million 

by 2015, says Kagan Research”, available at 

http://broadcastengineering.com/news/dbs_subsc

ribers_33million_2015/. 

FCC Staff Working Paper 

17
Digital Cell Phones 

(1988-94) 

“In comparison to its policy of the early 

1980s in the AMPS cellular bands, the 

FCC did not mandate a specific 

standard for the PCS bands. Carriers 

were free to choose whatever standard 

they wished.”109

Stakeholders 

In 1988, American cellular firms disagreed 

about whether the FCC or the market should 

set the digital cellular standard. Northern 

Telecom, for instance, argued that market 

forces should determine the “precise digital 

radio standard (e.g., channel coding) and 

basic technologies (e.g., Frequency Division 

Multiple Access or Time Division Multiple 

Access) to be used.” PacTel Cellular and 

Bell Atlantic Mobile Systems urged the FCC 

to begin a rulemaking to set the digital 

standards.110 The Telecommunications 

Industry Association began work on 

developing a voluntary standard for next 

generation cellular systems. 

In the early 1990s, Qualcomm entered the 

picture, proposing a new standard, based on 

Code Division Multiple Access (CDMA), 

which offered significant new capabilities: 

“Whereas D-AMPS would roughly 

double the number of calls possible per 

chunk of spectrum, CDMA promised 

between ten and twenty times as many 

calls compared to the old AMPS 

[standard] ...; the battery life of 

terminals would be longer and fewer 

 

 

109 N.Gandal et al, Standards in Wireless 

Networks, Telecommunications Policy 27 (2003) 

at 327. 

110 Amendment of Parts 2 and 22 of the 

Commission’s rules to Permit Liberalization of 

Technology and Auxiliary Service Offerings in 

eh Domestic Public Cellular Radio 

Telecommunications Service, 3 FCC Rcd 7033 

(1988) at 7040. 

(expensive) terminals would be 

needed.”111

Options 

i. Let the market decide what standard to use 

to provide advanced cellular services; 

ii. Codify a consensus standard developed 

by industry; 

iii. Mandate a standard in a rulemaking. 

What did the FCC do? 

Although the FCC had set the AMPS 

standard for analog cellular in 1979, by the 

mid-1980s the FCC favored a more flexible 

approach.112 

Thus, the FCC declined in 1988 to adopt a 

single standard; instead letting market forces 

determine which standard to adopt.113 

In its 1988 decision, the FCC stated: 

 “We believe it would be premature for 

the Commission to intervene in the 

standard setting process. Industry is in a 

better position to evaluate the technical 

advantages and disadvantages of the 

various advanced cellular technologies 

and develop approaches to 

compatibility.”114

The FCC also did not want to engage in the 

delays that may have occurred in a 

rulemaking, and believed that industry was 

best suited for developing a standard.115

111 Jacques Pelkmans, “The GSM Standard: 

Explaining a European Success Story, Journal of 

European Public Policy (2001) at 448. 112 See N.Gandal et al, Standards in Wireless 

Networks, Telecommunications Policy at 327. 113 Amendment of Parts 2 and 22 of the 

Commission’s rules, 3 FCC Rcd at 7040. 

114 Amendment of Parts 2 and 22 of the 

Commission’s rules, 3 FCC Rcd at ¶ 51. 

115 Amendment of Parts 2 and 22 of the 

Commission’s rules, 3 FCC Rcd at 7040. 

FCC Staff Working Paper 

18
In 1992, in the PCS docket, the FCC 

affirmed that it would not set a single 

standard, stating that: 

“Although we do not propose to require 

specific standards at this time, 

commenters are free to suggest areas in 

which specific standards may be 

beneficial and ways to expedite this 

process should it become necessary in 

the future.”116

Impact of the decision: the long view 

* The US and Europe took very different 

paths: a market-oriented approach in the US 

and a centrally mandated solution in 

Europe.117 Business Week described this as, 

“The Cowboys vs. the Committee.”118

* In the U.S., there are three incompatible 

systems vying for leadership: GSM, TDMA 

(a “close cousin” of GSM) and CDMA.119

They are incompatible in this sense: 

“Consumers buying a phone for one 

system will not be able to switch to 

another without buying an expensive 

new phone. However, they are 

compatible in the sense that users of one 

system can make calls to users on 

another system.”120

* There is a widespread perception that the 

European decision was a tremendous 

success: 

 “In retrospect, no one can doubt that 

[the European] decision was inspired. 

After all, it has become a main 

 

 

116 Amendment of the Commission's Rules to 

Establish New Personal Communications 

Services, 7 FCC Rcd 5676 (1992) at ¶108, n.79. 

117 Shapiro and Varian, Information Rules, at 

264. 

118 “Cell Phones: Europe Made the Right Call,” 

Business Week, 9/7/98 at 107-110. 

119 Shapiro and Varian, Information Rules, at 

265. See David Horne, Market Oriented 

Spectrum Policy Evolution in the United States, 

Intel Corp. (2009) at 18. 

120 Shapiro and Varian, Information Rules, at 

265. 

European strength, so that nowadays 

GSM is the most extended standard in 

the world (with the main exception of 

the United States).”121

* Business Week noted in 1998 that: 

“For the US, the costs of playing 

second fiddle are now painfully 

obvious. Dataquest, Inc. figures that 

cellular subscribers worldwide spent 

upwards of $37 billion on handsets last 

year. That number will shoot past $55 

billion in 2001. Washington-based 

market researcher Strategis Group says 

most of that growth will be in phones 

built to Europe’s GSM specs—further 

enriching Nokia and Ericsson. Of the 

98.6 million digital cell phones 

produced last year, 58% were GSM, 

according to Dataquest.”122

* Even in North America, American 

equipment suppliers took a beating: 

121 Lucio Fuentelsaz et al, “The Evolution of 

mobile communications in Europe: The 

Transition from the second to the third 

generation,” Telecommunications Policy 32 

(2008) at 437. See N.Gandal et al, Standards in 

Wireless Networks, Telecommunications Policy,

at 326 (many have argued that Europe’s decision 

was a great success and the US decision was a 

great failure); Jacques Pelkmans, “The GSM 

Standard: Explaining a European Success Story, 

Journal of European Public Policy at 449 (“Far 

from being a disaster, the US approach could, 

nonetheless, be regarded as mistaken.”). See 

also Shapiro and Varian, Information Rules, at 

263-264 (Europe adopted new digital wireless 

technology more rapidly than in the US.); T.R. 

Reid, The United States of Europe: the New 

Superpower and the End of American Supremacy

92004) at 126 (“the Europeans, with their GSM 

technology, had sprinted ahead of the American 

leader.”); Walter Mossberg, “Free my Phone, 

Wall Street Journal,

http://mossblog.allthingsd.com/20071021/freemy-phone (“Because the federal government 

failed to set a standard for wireless technology 

years ago, we have two major, incompatible 

technologies in the U.S.”). 122 Business Week, 9/7/98 at 107-110. 

FCC Staff Working Paper 

19
Motorola’s share of the US market fell from 

60% in 1994 to 34% in 1998.123

* GSM’s global dominance is further 

suggested by the fact that 675 operators in 

210 countries have adopted the GSM 

standard.124

* However, the picture is not as bleak from 

the American perspective. When comparing 

economies of scale (which is one of the 

presumed benefits of a uniform standard), 

the European advantage diminishes over 

time: the semiconductor costs of TDMA and 

GSM handsets have fallen in unison. Thus, 

one analyst argues that: “This indicates that 

the actual benefits of economies of scale 

reach the point of diminishing return well 

below the level implied as an advantage via 

the single market homogeneity 

approach.”125 In other words, US 

manufacturers may be able to achieve the 

same economies of scale even if their sa

volumes (60 million subscribers for TDMA

are well below the GSM volume (273 

126

les 

) 

illion subscribers).

nger than either Europeans or Japanese: 

utes venu

m

* By other indicators as well, the data show 

that American consumers pay less on a per

minute basis and use their cell phones for 

lo

 Min of use/ Re e per minute

U.S. 812 $0.06 

 

apan 138 $0.26 

ncluded 

l 

ern 

Europe and comparable Asia-Pacific 

 

 

 

 

W. Europe 161 $0.20 

J

Based on these numbers, the FCC co

in January, 2009, that “U.S. mobile 

subscribers continue to fare extremely wel

relative to mobile subscribers in West

 

123 Business Week, 9/7/98 at 107-110. 124 Lucio Fuentelsaz et al, The Evolution of 

mobile communications in Europe, 

Telecommunications Policy at 439. 125 David Horne, Market Oriented Spectrum 

Policy Evolution in the United States at 22. 126 David Horne, Market Oriented Spectrum 

Policy Evolution in the United States at 22. 

countries.” 127 The FCC also noted that 

mobile penetration in Europe was very high 

“due in part to greater use of prepaid service 

plans and ownership of multiple devices or 

subscriber identity module (“SIM”) 

cards.”128 The SIM option was included in 

the GSM standard adopted by European 

regulators but is not freely available to most 

U.S. consumers. 

* CDMA may also have technical 

advantages over GSM, such as increased 

efficiency (meaning that the carrier can 

serve more subscribers), lower power 

requirements, and the need for fewer cell 

towers (because less cell-to-cell 

coordination is needed by operators).129

* The European advantage, if any, did not 

last even through the transition from the 

second to the third generation of wireless 

services.130

127 Annual Report and Analysis of Competitive 

Market Conditions with Respect to Commercial 

Mobile Services, Thirteenth Report, -- FCC Rcd 

---- (2009), 

http://hraunfoss.fcc.gov/edocs_public/attachmatc

h/DA-09-54A1.pdf , at ¶¶ 218-220. 

128 Thirteenth Report, supra. at ¶ 221. A 

SIM card or Subscriber Identity Module is a 

portable memory chip used in some models of 

cellular telephones. The SIM card makes it easy 

to switch to a new phone by simply sliding the 

SIM out of the old phone and into the new one. 

The SIM holds personal identity information, 

cell phone number, phone book, text messages 

and other data. http://www.wisegeek.com/whatis-a-sim-card.htm

129 Ed Sutherland, “GSM vs. CDMA,” 

http://www.m-indya.com/gsm/CDMA-vsGSM.htm. See generally Marc Delprat and 

Vinod Kumar, “Second Generation Systems,” in 

Jerry D. Gibson, editor, The Mobile 

Communications Handbook (1996). 130 See Lucio Fuentelsaz et al, “The Evolution of 

mobile communications in Europe: The 

Transition from the second to the third 

generation,” Telecommunications Policy at 447 

(global success of GSM led to prediction of 

similar success for UMTS, which has not 

materialized). 

FCC Staff Working Paper 

20
High Definition and 

Digital Television 

 (1987-1997) 

At the outset, it is worth noting the 

differences between high-definition 

television and digital television. HDTV 

refers to a level of picture quality. Digital 

television (DTV) refers to a type of 

transmission. HDTV can be analog or digital 

and DTV can be high-definition or standard 

definition. Broadcasters can send HDTV or 

DTV signals, and so can cable and satellite 

operators. 131 

In terms of policy, too, there are several 

issues at play. “Repacking” is the freeing up 

spectrum from one use and designating it for 

a different use, e.g., broadcast to wireless 

services. “Multicasting” enables 

broadcasters to choose to use the available 

spectrum to offer multiple viewing channels 

rather than a single HD channel. 

Over a period of several years, the FCC 

became the battleground for a major, highstakes showdown involving spectrum, 

technical standards, and global trade. 

Stakeholders

In the late 1980s, land mobile operators had 

almost persuaded the FCC to reallocate 

unused broadcast spectrum for law 

enforcement and other purposes, but 

broadcasters fought to preserve their stake in 

the spectrum by arguing the spectrum was 

needed to provide HDTV.132 

FCC Chairman Dennis Patrick created the 

Advisory Committee on Advanced 

Television Standards in 1988 and appointed 

former FCC Chairman Richard Wiley as its 

Chairman.133 Wiley challenged innovators 

 

d 

131 Stuart Minor Benjamin et al., 

Telecommunications Law and Policy, at 332. 132 Joel Brinkley, Defining Vision: The Battle for 

the Future of Television (1997) at 25-27. 133 Brinkley, Defining Vision, at 30-31. 

to develop the best technical standards an

equipment and to submit them for testing by 

the FCC’s Advisory Panel, which would 

declare a winner. 

The standards battle pitted four main teams 

of engineers and innovators: (1) NHK, the 

Japanese public broadcasting company; (2) 

Zenith and AT&T; (3) General Instrument 

and MIT; and (4) Philips, Sarnoff Research 

Labs, NBC and Thomson, working together 

as the Advanced Television Research 

Consortium. In May 1993, NHK, which had 

proposed the only non-digital HDTV 

system, dropped out, and the remaining 3 

teams formed a “Grand Alliance” in which 

they agreed to merge their technologies and 

engage in cross-licensing.134 

Computer companies and movie studios, 

also joined the standards battle, insisting that 

any HDTV standard should include a 

progressive scanning industry specification 

(rather than interlacing), in order to facilitate 

convergence between the television and 

personal computer industries.135 

The NAB opposed any requirement that 

broadcasters must use the second channel 

for HDTV, but the Big 3 networks and some 

programmers supported requiring a 

minimum amount of HDTV 

programming.136 

Options 

Allocations: 

i. Allocate unused broadcast spectrum for 

Land Mobile; or 

 

134 Shapiro and Varian, Information Rules, at 

221; Brinkley, Defining Vision, at 225-244, 247-

263. 

135 Shapiro and Varian, Information Rules, at 

221; Brinkley, Defining Vision, at 278. 136 Advanced Telecommunications Services, 

Fifth Report and Order, April 3, 1997 at ¶¶ 38-

39. 

FCC Staff Working Paper 

21
ii. Permit broadcasters to use the second 

channel to provide HDTV (or any digital 

services). 

Standards: 

i. Accept the existing Japanese analog 

standard for HDTV on 8 MHz channels as 

the world standard [as suggested initially by 

the industry standards body, ATSC, and the 

State Department];

ii. Follow the European example by 

spending hundreds of millions of dollars of 

government funding to develop the best 

technological solution [as some in Congress 

were advocating, though without support 

from the Administration];

iii. Let industry develop a standard, working 

through an Advisory Committee appointed 

by the FCC. 

Mandate HDTV?

i. Require all broadcasters to offer HDTV 

programming on the second channel. 

ii. Permit broadcasters to decide whether 

and how much HDTV to offer, while 

requiring they offer digital TV. 

What did the FCC do? 

Allocating spectrum: The FCC backed off 

from proposals to allocate unused broadcast 

spectrum for Land Mobile, after being 

persuaded by broadcasters they needed the 

spectrum for HDTV.137 

HDTV standards: From 1988-1992, the FCC 

generally supported the efforts of the 

 

 

137 In re Further Sharing of the UHF Television 

Band by Private Land Mobile Radio Operators, 

Notice of Proposed Rulemaking, 101 F.C.C. 2d 

852 (1985) (proposing to move spectrum for 

land mobile use in New York City, Los Angeles, 

Chicago, Philadelphia, San Francisco, 

Washington D.C., Houston and Dallas); In re 

Further Sharing of the UHF Television Band by 

Private Land Mobile Radio Operators, Order, 2 

FCC Rcd 6441 (1987) (deferring action on 

sharing UHF spectrum between TV stations and 

private land mobile until HDTV issues are 

resolved). See Brinkley, Defining Vision, at 27. 

Advisory Committee to challenge the 

private sector to develop an HDTV standard. 

The FCC also adopted a series of key orders: 

* In 1988, the FCC set forth the general 

principles for guiding its decisions on 

advanced television, including that spectrum 

would be allocated from the spectrum 

currently allocated for broadcast; analog 

service must continue during the 

transition.138

* In 1990, the FCC decided to require 

“simulcasting” of the analog and advanced 

services on 6 MHZ channels.139

* In 1991, the FCC proposed that only 

current broadcast licensees would be eligible 

to receive licenses for the new service, and 

that the NTSC license should be surrendered 

after the conversion.140 In 1996, Congress 

instructed the Commission to restrict 

eligibility to those who held a broadcast 

license (or those who had filed applications 

for construction permits) as of October 24, 

1991.141

* In 1996, the FCC approved the “Grand 

Alliance” standards that combined the best 

technical innovations of its members.142

Specifically, the FCC adopted the ATSC 

DTV standard, except with respect to the 

video format layer, which remained 

optional.143 The FCC noted that the DTV 

138 Advanced Telecommunications Systems,

Second Inquiry, 3 FCC Rcd 6520, 6525, 6530 

(1988). 

139 Advanced Telecommunications Systems,

First Order, 5 FCC Rcd 5627, 5627-5629 

(1990). 

140 Advanced Telecommunications Systems,

Notice of Proposed Rulemaking, 6 FCC Rcd 

7024 (1991). 

141 47 U.S.C. Sec. 336 (a)(1). 142 Advanced Telecommunications Systems, 

Fourth R&O, 11 FCC Rcd 17771 (1996) at ¶ 31. 

Shapiro and Varian, Information Rules, at 220-

221; Brinkley, Defining Vision, at 247-263. 

143 Sterling and Kittross, Stay Tuned, at 604, 

give details of the ATSC standard: 

FCC Staff Working Paper 

22
standard “is flexible and extensible and 

permits data broadcasting as well as new 

services.”144

* In 1997, the FCC declined to require 

broadcasters to use the second channel for 

HDTV but instead let broadcasters decide to 

offer HDTV based on their own assessment 

of consumer demand.145

Keeping Spectrum for Broadcast Use

 “[B]y scaring Congress with the 

prospect of the Japanese beating out the 

United States in HDTV, broadcasters 

were able to preserve for themselves 

vacant channel space in the UHF portion 

of the spectrum that was in danger of 

being reassigned to uses other than 

television. Remember this key point as 

the HDTV story unfolds: the 

broadcasters have long lusted after more 

free spectrum space but never had much 

appetite for HDTV itself.” 

Shapiro and Varian, Information Rules, at 220 

 “The FCC’s 1996 decision, which was 

quite detailed with respect to channel 

allotment, audio, and such details as 

aspect ratio (adopting a widescreen ratio 

of 16:9 rather than the familiar 4:3) 

allowed up to 18 different video 

formats, some providing 1080 lines of 

vertical definition (as contrasted to the 

525-line NTSC standard adopted in 

1941), but some supplying only 480 

lines—which since they are digital, still 

provided a sharper picture than analog 

sets. To complicate things further, some 

broadcasters planned to use interlaced 

scanning (i), and others the progressive 

(p) scanning used for most computer 

monitors.” 144 Advanced Telecommunications Systems, 

Fourth R&O, 11 FCC Rcd at 17789. 145 Advanced Telecommunications Systems, 

Fifth R&O, 12 FCC Rcd 12809 (1997) at 12826-

12827. 

The FCC’s rationale for its actions 

Allocations: The FCC backed away from 

requiring broadcasters to share the spectrum 

with land mobile operators after concluding 

that broadcasters may need the spectrum for 

HDTV, which was emerging as a trade war 

issue for the US against perceived Japanese 

dominance.146 There was strong 

congressional support for HDTV and the 

broadcasters’ position.147 

 Standards: Twice previously, in 1950 

with respect to color TV and in 1982 with 

respect to AM stereo, FCC attempts to 

mandate technical standards had resulted in 

failure.148 Those experiences may have led 

the FCC, at least initially, to step aside and 

let industry develop the HDTV standard. 

After the Advisory Committee proposed the 

“Grand Alliance” standard to the FCC, there 

was an additional debate about whether the 

Commission should mandate the standard or 

permit industry to choose. Broadcasters, 

equipment manufacturers, and consumer 

groups argued that the Commission should 

mandate standards because “startup, 

coordination and splintering problems are 

more severe than those of other 

industries.”149 Cable operators and computer 

 

146 Further Sharing of the UHF Television Band 

by Private Land Mobile Radio Services, Order, 2 

FCC Rcd 6441(1987) (Deferring action on a 

proposal to reallocate unassigned UHF television 

channels to the private mobile services pending 

resolution of an ongoing proceeding before the 

advisory committee on advanced television 

systems). 

147 Brinkley, Defining Vision, at 37-42. 148 See e.g., Joseph Farrell and Carl Shapiro, 

“Standard Setting in High Definition 

Television,” Brookings Papers (1992) at 

21(“FCC appears to be painfully aware of the 

AM stereo debacle ...”), 52 (“Despite the FCC’s 

endorsement of the CBS system, there was 

virtually no development of the color television 

industry using it.”). 

149 Advanced Telecommunications Systems, 

Fourth R&O, 11 FCC Rcd at 17777. “Startup” 

refers to the situation where everyone would be 

better off adopting a new technology but no one 

has the incentive to move first. “Coordination” 

FCC Staff Working Paper 

23
companies argued that all the parties had a 

strong incentive to reach a consensus on a 

standard without a governmental mandate. 

The FCC decided to mandate a standard to 

provide “reliability” and “certainty” as 

broadcasting entered the digital era.150

Impact of the decision: the long view 

* When the FCC took up the repacking issue 

in 1987, it faced a zero-sum choice: 

broadcasters or wireless services. In the 

early 1990s, as part of the FCC-sponsored 

competition to develop HDTV, General 

Instruments proposed an all-digital system 

that later became adopted by all the 

participants. 

With digital, the FCC no longer had to make 

a zero-sum choice. Spectrum was available 

for broadcast as well as other wireless uses. 

Thus, in 1992, the Commission allocated 

220 MHz for “broadband PCS” in the 1.85-

2.20 GHz band.151

* The FCC also made additional spectrum 

available for wireless services by allowing 

broadcasters to choose between HDTV and 

multicasting, rather than mandating that 

broadcasters offer HDTV. Thus, in 1997, the 

FCC reallocated 108 MHZ of the 402 MHz 

that had been allocated for terrestrial 

television broadcasting, leaving 294 MHz 

for TV. 

Of the 108 MHz, 24 MHz was allocated for 

public safety, 6 MHz for guard bands, and 

the balance for flexible use—30 MHz in the 

upper 700 MHz band (746-806 MHz, 

channels 60-69) and 48 MHz in the lower 

700 MHz band (698-746 MHz, channels 52-

 

refers to collaborative efforts by the parties. 

“Splintering” refers to the breakdown of 

consensus. Id. 150 Advanced Telecommunications Systems, 

Fourth R&O, 11 FCC Rcd at 17787-17791. 151 Redevelopment of Spectrum to Encourage 

Innovation in the Use of New 

Telecommunications Technologies, First Report 

and Order, 7 FCC Rcd 6886 (1992).

59).152 These spectrum bands may not have 

been available if the FCC had required 

broadcasters to transmit only HDTV 

programming.153 

* The FCC’s decision to not require HDTV 

carriage satisfied economists who were 

puzzled that broadcasters would use 

valuable spectrum for a service for which 

there was, at that time, little consumer 

demand, given the high cost of HDTV sets 

and the paucity of HDTV programming.154

* Overall, these developments, along with a 

series of later decisions by the FCC, helped 

speed up the transition to digital TV but may 

not have done much for promoting sales of 

HDTV sets, at least for another decade.155 

* In terms of global trade, the gains for the 

U.S. may not have materialized, as 

described below: 

“The real winner of the Grand Alliance 

technology is not the United States or 

U.S. companies—which will only 

collect royalty fees, but Thomson of 

France and Philips of the Netherlands—

which will manufacture the product for 

consumer use.”156

 

152 Evan Kwerel, and Jonathan Levy, “The DTV 

Transition in the U.S.,” in Martin Cave and 

Kyoshi Nakamura, Editors, Digital 

Broadcasting: Policy and Practice in the 

Americas, Europe and Japan (2006) at 25. 153 See Reed Hundt, You Say You Want a 

Revolution: A Story of Information Age Politics

(2000) at 63-64, 210. 

154 See e.g., Farrell and Shapiro, “Standard 

Setting in High Definition Television” at 80-81 

(comments of Roger Noll). 

155 Shapiro and Varian, Information Rules, at 

223. 

156 Michael Dupagne and Peter B. Seel, HDTV: 

A Global Perspective, at 165. 

FCC Staff Working Paper 

24
Lessons Learned 

 

“As so often had been the case in 

communications, the path of 

development was not easily diverted 

from familiar channels....Change would 

come, but it would come slowly. Even 

today much of the system of power 

established by the early decisions 

remains with us—and the media those 

decisions helped to create is now 

ubiquitous and inescapable.” 

Starr, The Creation of the Media, at 384 

(emphasis added).

The following is a summary of the main 

lessons learned from a review of the FCC 

decisions discussed in the previous sections: 

Radio: The charm of early radio was that 

“experimentation, spontaneity and content 

aimed at small audiences were common.”157

The FRC disfavored this type of content as 

narrowly-focused propaganda, and instead 

adopted rules that resulted in the growth of 

commercial radio financed by advertising 

revenues. Although commercial radio 

produced a Golden Age of programming in 

the late 1930s,158 the question remains 

whether the FRC’s decision to favor 

corporate-sponsored networks—rather than 

the multiplicity of diverse non-commercial 

stations-- best served the public interest. The 

FRC performed a valuable service by 

helping to create commercial networks but 

did so at the cost of achieving diversity. Yet, 

today, there is a strong push to see just such 

diversity in broadcast programming on radio 

and television.159

 

 

157 Berresford, “How Government Can Bring 

New Communications to All Americans,” at 14 

(noting that early radio content was “talk, ethnic 

nationality hours, labor news, church news, and 

vaudeville-type musical entertainment by 

hometown, often ethnic talent”). 

158 Sterling and Kittross, Stay Tuned, at 181-200. 

159 See e.g., Eric Klinenberg, Fighting for Air: 

The Battle to Control America’s Media (2007), 

esp. ch.8 (‘Fighting for Air”), ch. 9 (“The Media 

Also, as we will see, the focus on 

developing national networks for radio 

contrasts with the focus on achieving 

localism for broadcast television. Here, too, 

there are mixed results. As Starr notes, while 

the FRC did succeed in creating national 

radio networks, there was an implicit 

tradeoff: “more equal access to listening 

meant more concentrated control of 

broadcasting.”160 

Broadcast Television: Unlike the decisions 

concerning radio, the FCC’s decisions on 

broadcast television did not as easily achieve 

the desired results. For example, although 

FM radio gained more channels in the 1945 

allocations, the number of stations shrank 

and the creator of FM radio, Edwin 

Armstrong, lost, as the FCC decision 

rendered obsolete 400,000-500,000 radio 

sets. FM radio did not start to grow again 

until the 1960s. 

Additionally, though the FCC approved 

CBS’ color standard in 1950, the company 

did not make many sets because the sets 

were unable to receive black and white 

transmissions which consumers continued to 

want. As late as 1963, only 3% of 

households had color sets. Yet, it is not just 

the decisions concerning FM radio or color 

TV but the entire package of decisions 

concerning broadcast television that is justly 

criticized. Overall, the result for most 

Americans was less choice: fewer on-air 

stations and confusion resulting from the 

failures of the FCC’s intermixture policy. 

With the benefit of hindsight, it appears that 

a better outcome could have been achieved 

by delaying the 1945 allocation decision 

until enough information was available to 

set the color standard (as CBS had urged), 

and later assigning channels in the UHF 

and Democracy”) and ch. 10 (“Low Power to the 

People”). 

160 Starr, The Creation of the Media, at 350. 

FCC Staff Working Paper 

25
band for TV.161 A better alternative for FM 

may have been for the FCC to adopt the 

compromise 50-68 MHz allocation (rather 

than moving FM to 88-108 MHz), which the 

industry believed “will not cripple FM.”162

This would have enabled FM radio to 

continue its growth without a decades-long 

interruption, produced better quality color 

TV (including in higher definition), and 

avoided the engineering hassles and delay 

that lasted through the 1950s to determine 

whether communities should receive TV 

broadcasts from VHF or UHF stations or 

some mixture of the two. 

In addition, the Commission may have 

missed an opportunity to create 6-7 national 

TV channels, rather than the 3-4 that finally 

emerged. An increase in the number of 

channels would likely have meant more 

program diversity.163 As noted with regard 

to radio, national licenses may also have 

resulted in greater ownership concentration. 

These tradeoffs present complex policy 

choices that warrant further study. 

Cable Television: In the early 1960s, cable 

TV showed promise as an alternative 

distribution mechanism to broadcast TV. In 

the preceding decade, new cable systems 

were introduced at an annual rate of 24.9 

percent and subscriber growth was about 40 

percent annually. More than 1 million 

homes out of 60 million received cable, and 

 

 

161 See e.g., Slotten, Radio and Television 

Regulation, at 229 (“Without falling into the 

fallacy of counterfactual history, we can 

conclude that CBS’ system might have been 

successful had it received more support from 

industry and the FCC. It probably stood the best 

chance of success in 1947, before monochrome 

television became completely entrenched.”). 

162 Slotten, Radio and Television Regulation, at 

132 (quoting the President of Zenith Radio). This 

presumes that the concerns about interference 

could have been resolved. Supra, p.8, n.36. 163 Noll et al, Economic Aspects of Television 

Regulation, at 101. (“[A]n increase in the 

number of channels ... would enable minority 

tastes to be met with less loss of conventional 

fare.”). 

more than 1,200 systems were operating. 

However, this rapid growth dropped 

dramatically as a result of the Commission’s 

1966 regulation of the cable industry. 

Beginning in 1966, off-air broadcasters 

gained protection from a Commission 

hostile to cable operators. Had the 

Commission continued with its policies, 

especially hostility to pay TV, cable TV 

would have been put out of business or left 

to serve only remote locations unable to 

receive broadcast signals. Instead, as 

“evidence accumulated that the FCC 

rationale for regulating cable was 

flawed,”164 the Commission shifted course. 

For the next two decades, cable was 

progressively deregulated, with a key boost 

from the FCC’s Open Skies policies that 

facilitated cheaper distribution of video 

programming and the Home Box Office

decision that paved the way for pay TV on 

cable.165 

A postscript is worth noting: as cable TV 

grew and prospered and demonstrated 

market power from its monopoly position in 

some communities, Congress, the FCC, and 

local jurisdictions responded by imposing 

rate regulation and other restrictions.166

Carterfone: The Commission long resisted 

innovators’ efforts to attach devices to 

AT&T’s phone lines. If not for Carterfone, 

rotary-dial telephone handsets (in black) 

may have been the only available option for 

consumers, instead of the multiplicity of 

choice consumers now have. However, 

although Carterfone opened the door in 

1968, consumers did not benefit from 

164 Besen et al,” The Deregulation of Cable 

Television,” 44 Law and Contemporary 

Problems, at 122. 165 Sterling and Kittross, Stay Tuned, at 468. 

See generally, Daniel Brenner et al, Cable 

Television and Other Nonbroadcast Video: Law 

and Policy (2004) at 2-10 to 2-22 (discussing the 

1992 Cable Act and its precedents). 

166 Sterling and Kittross, Stay Tuned, at 417-418; 

Crawford, "Cable Regulation in the Satellite 

Era," at 6-11. 

FCC Staff Working Paper 

26
When Should the FCC Set Technical 

Standards?

Should the FCC let carriers decide which 

standard to adopt (as it did for digital 

cellular) or mandate the standard (as it 

did by approving the ATSC standard 

proposed by industry for HDTV)? Which 

is a “better” course of action? 

There is no easy answer. The “market” 

approach may be appropriate for 

telecommunications issues as long as 

firms are required to interconnect. In 

such a case, there is no “collective 

action” problem, i.e., firms are able to 

take the risk of adopting a standard on 

their own without needing other firms to 

adopt the same standard. 

Government action may have been 

necessary for HDTV, however, because 

it is unlikely that the multiple players 

with divergent interests (e.g., 

broadcasters, cable and satellite 

operators, content providers, computer 

companies, equipment manufacturers) 

would have been able to agree on a 

single standard (the “collective action” 

problem). 

Failure to set a standard may result in a 

standards war that may prevent industry 

from making a successful transition to a 

new technology. But, there is also a risk 

that regulators may lack the technical 

expertise to pick the best standard or 

may be better off letting the market 

assess risks. In each case, there are tradeoffs that must be assessed and judgments 

made. 

The bottom line: there are “no neat 

formulas” for deciding when 

governmental intervention is appropriate.

See generally, Nuechterlein and Weiser, 

Digital Crossroads at 392-395. 

having a choice of telephone handsets for 

many years, because it took the FCC another 

7 years to develop the Part 68 rules and even 

longer for the “separate subsidiaries” 

requirement that led to the growth of a 

competitive market for telephone handsets 

and other equipment. 

In addition, without Carterfone, the result 

may have been an Internet that would have 

taken much longer to develop because 

telephone users were prohibited from 

attaching devices to their telephone. Instead, 

the decision led to rules permitting modems 

for Internet access over phone lines—in 

addition to its significant pre-Internet 

contribution towards creating a robust and 

competitive data communications market. 

Direct-Broadcast Satellite (DBS): The 

DBS story offers a clear example of 

effective governmental action to encourage 

entry into monopoly markets by awarding 

government franchises to new entrants.167

However, as demonstrated by the initial 

failure of DBS operators in the years 

immediately following the franchise awards, 

additional help was needed: access to the 

programming carried by cable operators. 

DBS, though authorized in 1982, reemerged 

as a commercial service only in 1994, six 

years after Congress passed program access 

legislation. 

With the benefit of ongoing regulatory and 

legislative support, the result is a service that 

now has 25-30 million subscribers and has 

emerged as a strong competitor in the 

market for video services. 

Digital cell phones: The FCC did not adopt 

any transmission standards but let carriers 

decide which standard to adopt. In the U.S. 

that resulted in three different standards: 

TDMA, GSM, and CDMA. The “market” 

approach was faulted by those who argued 

the U.S. lost ground to Europe, which 

mandated GSM as the standard for digital 

cellular. Yet, for both consumers and U.S. 

firms, the FCC’s decision to give carriers the 

 

167 See Shapiro and Varian, Information Rules,

at 313.

FCC Staff Working Paper 

27
flexibility to develop their own standards 

may turn out to be a good decision in the 

long run. 

Overall, American consumers are benefiting 

from lower prices and greater usage, so it 

may mean little whether the U.S. should 

have mandated a standard or let the market 

set it. European consumers, however, have 

an advantage in being able to use SIM cards 

to switch carriers to obtain the best service. 

The SIM option was included in the GSM 

standard adopted by European regulators but 

is not freely available to most U.S. 

consumers. 

From a trade perspective, because this is not 

a winner-take-all market, U.S. companies, as 

well as those from Europe, have been able to 

achieve significant gains. 

High Definition (HDTV) and Digital 

Television (DTV): 

 

The race to develop HDTV produced a 

major technological breakthrough (i.e., 

digitization of HDTV) and consumer gains 

such as a better quality television picture. 

Overall, these developments, along with a 

series of later decisions by the FCC, helped 

speed up the transition to digital TV. 

With the fundamental shift to an all-digital 

system, the FCC was also able, in effect, to 

“have its cake and eat it, too,” i.e., permit 

broadcasters to use the spectrum for HDTV 

and allocate spectrum for wireless services. 

The additional spectrum enabled the FCC to 

at least in part meet the growing demand 

(continuing even today) for spectrum to 

offer advanced wireless services, such as 

high speed access to the Internet. 

However, the trade benefits of adopting an 

ATSC standard are not clear. Policymakers 

were initially motivated to focus on the 

value of HDTV by the possibility of losing 

to Japan in a trade war. Today, after the 

FCC did its part by adopting the ATSC 

standard, European and Japanese companies 

are among the world’s leading 

manufacturers of HDTV sets. It is perhaps 

ironic that although the US “won” the 

HDTV standards war, American companies 

gained little: they only get royalty fees while 

the Europeans and Japanese captured the 

market to sell TV sets to consumers. 

Further research: The case studies 

discussed in this paper illustrate several 

successful efforts by the FCC to promote 

new entrants, e.g., commercial radio, cable 

deregulation, DBS entry. In Starr’s 

formulation, “change would come ... 

slowly,” but, when the Commission makes 

the right call the results can be truly 

transformative. 

However, these examples may not be 

sufficient to establish that the decade of the 

1970s marks a decisive turning point in 

favor of promoting new entrants at the 

expense of incumbents. There are as many 

counter examples where the FCC favored 

new entrants before the 1970s, such as the 

decision to promote commercial radio in 

1928, and Carterfone, decided in 1968. 

Other efforts by the FCC to promote 

competitive entry (e.g., video dialtone, open 

video systems) may not have been as 

successful.168 Additionally, though not 

discussed here, policies that favor 

incumbents have also been adopted since the 

1970’s.169 

More research is needed in order to 

determine whether FCC decision-making 

falls into a pattern favoring incumbents or 

new entrants. 

 

168 Daniel L. Brenner, “Creating Effective 

Broadband Network Regulation, Federal 

Communications Law Journal, Vol. 62, #1, at 

13, 32-34 (2010). 

169See e.g., Susan P. Crawford, “The Radio and 

the Internet,” Berkeley Tech. L.J. 23, no. 2 

(2008) at 933, 989 (“At the conclusion of the 

Commission’s work during the summer of 2007 

on the 700 MHz auctions, the FCC emerged 

from the brawl with negotiated arrangements that 

largely served incumbents’ interests.”). 

FCC Staff Working Paper 

28
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30
FCC Staff Working Paper 

31

Other Recent Staff Papers 

All Titles Can Be Downloaded at 

http://www.fcc.gov/papers/

“Maximum Impact for Minimum Subsidy: 

Reverse Auctions for Universal Access in 

Chile and India,” Irene S. Wu, FCC Staff 

Working Paper 2, October 2010. 

“A Market-Based Approach to Establishing 

Licensing Rules: Licensed versus 

Unlicensed Use of Spectrum,” Mark 

Bykowsky, Mark Olson, and William 

Sharkey, OSP Working Paper 43, February 

2008 

 

 “Modeling the Efficiency of Spectrum 

Designated to License Use and Unlicensed 

Operations,” Mark Bykowsky, Mark Olson, 

and William Sharkey, OSP Working Paper 

42, February 2008. 

“Enhancing Spectrum's Value via MarketInformed Congestion Etiquettes,” Mark 

Bykowsky, Kenneth Carter, Mark Olson, 

and William Sharkey, OSP Working Paper 

41, February 2008. 

“Competition Between Cable Television and 

Direct Broadcast Satellite - It's More 

Complicated Than You Think,” Andrew S. 

Wise and Kiran Duwadi, Media and 

International Bureaus, January 2005. 

“The Scarcity Rationale for Regulating 

Traditional Broadcasting: An Idea Whose 

Time Has Passed,” John W. Berresford, 

Media Bureau, March 2005. 

“A Survival Analysis of Cable Networks,” 

Keith S. Brown, Media Bureau, December 

2004. 

"Traits of an Independent Communications 

Regulator: a Search for Indicators," by Irene 

Wu, International Bureau, June 2004. 

"The Limits of Economic Regulation: The 

U.S. Experience," Peyton L. Wynns, 

International Bureau, June 2004.