Rent-Seeking in Our Time, Part 2

Rent-seeking described the process of leveraging government regulations to one’s own business advantage. It exploits laws that limit or prohibit competitive entry on artificial grounds. For years, the U.S. telephone industry was one giant rent-seeking hotbed. For almost a century, AT&T was guaranteed a monopoly. It alone owned the phones and everything in the national network. Regulations barred any other company from providing competitive telecommunications services or introducing any piece of equipment into the network without AT&T’s approval. And AT&T never approved the attachment of any device made by anyone other than AT&T. That rule was struck down in 1968 by the landmark Carterfone decision, which said that as long as a terminal device met certain basic standards, AT&T must allow it to connect. It is because of that decision we can plug modems, PCs, fax machines and phones of all types into the phone jack in our wall. Now comes Skype, which is invoking the Carterfone decision in an effort to get Congress and the FCC to regulate the way wireless phones and services can be sold and packaged. The company, which made its name by creating a discounted PC-to-PC phone service using peer-to-peer techniques, wants to expand into wireless services with what apparently are low-cost, scaled-down wireless phones and terminal devices that can tap into any wireless network.

Steven Titch served as a policy analyst at Reason Foundation from 2004 to 2013.