The Rise of Shadow Common Carriers: A Legacy of Deregulatory Broadband Policies

This paper expands upon my prior research devoted to correcting misconceptions and mischaracterizations of the law of common carriage that unfortunately misinform debates of important telecommunications policies such as network neutrality (Cherry, 2006, 2008a, 2008b, 2010a). This prior research shows that these misconceptions and mischaracterizations have been created by factual and analytical errors arising from analyses that either totally ignore or improperly frame temporal dimensions of the evolution of the law of common carriage. By contrast, analyses based on a proper framing of the temporal dimensions in the evolution of common carriage and its relationship to other bodies of law show how the U.S. policy trajectory for broadband Internet access services is a radical one (Cherry, 2008b, 2010b) that creates legal gaps not filled by antitrust or general consumer protection laws (Cherry, 2010a). The radical nature of U.S. deregulatory broadband policy is clear when viewed in light of deregulatory policies adopted for transportation common carriers in the U.S. (Cherry, 2008b). In many ways, deregulatory telecommunications policies have followed a trajectory similar to that of deregulatory transportation policies. For this reason, in some ways experience under deregulatory policies in transportation industries is being replicated in telecommunications, such as recurring sustainability problems for universal service mechanisms, conflicting court decisions related to the effects of detariffing, and uncertainty regarding the scope of other federal and state causes of action outside of the industry specific regulatory regime. However, there are important limitations on what can be learned from deregulatory transportation policies – unlike broadband policy – that did not eliminate the legal status of the service providers as common carriers. Instead, we need to look at experience from other industries vital to the U.S. economy for insights as to the consequences of deregulatory policies that create shadow versions of regulated activities. This paper explores lessons learned from deregulatory banking policies, under which shadow banking activities have not only negatively affected certain classes of individuals but also created or exacerbated systemic risks for the financial sector. In the context of the recent financial crisis, Paul Krugman, a Nobel Laureate in economics, asserts “[w]hat ended the era of U.S. stability was the rise of ‘shadow banking’: institutions that carried out banking functions but operated without a safety net and with minimal regulation” (2010, emphasis added). Due in part to banking deregulation since 1980, “institutions and practices [of shadow banks] … recreated the risks of old-fashioned banking but weren’t covered either by guarantees or by regulation. The result, by 2007, was a financial system as vulnerable to severe crisis as the system of 1930. And the crisis came” (Krugman: Punks and Plutocrats, 2010). Recognizing that FCC classification of broadband Internet access services as Title I information services (with no Title II common carriage service component) has created shadow common carriers facilitates our understanding of systemic risk introduced by deregulatory telecommunications policies. Acknowledging the rise of shadow common carriers complements insights from prior analyses, applying a complexity theory perspective to examine the consequences of deregulatory telecommunications policies, that reveal a growth of systemic risks. Insights from these analyses include: the legal gap created between an industry-specific Title I regime for broadband and the general business regime of antitrust and consumer protection law (Cherry, 2010a); the unsustainability of a communications infrastructure with the desired emergent properties of widespread availability, affordability and reliability (Cherry, 2008a); and negative inter-infrastructure effects, such as the increased threat to the sustainability of the U.S. postal system (Cherry, 2006). Moreover, through federal preemption and elevation of free speech rights of broadband shadow common carriers (Cherry, 2011), deregulatory policies have also diminished the capacity of the U.S. policymaking system to further adapt its policies. In this way, deregulatory policies compound systemic risks, increasing the systemic risk that the U.S. policymaking system will be unable to respond to the systemic risks arising from the creation of shadow common carriers.