2026-02-16
On February 8, 1996, in a festive ceremony in the Main Reading Room of the Library of Congress, President Clinton signed the Telecommunications Act of 1996. The 30th anniversary is an opportunity to reflect on the Act and the state of digital policy. It was the first major overhaul of the Communications Act since 1934. Efforts to overhaul communications law started in the 1970s but by the 1990s the need for reform was tangible. Specific provisions of the Act must be understood in the context of prior regulatory and antitrust policies. Particularly the incremental liberalization of equipment and services markets pursued by the Federal Communications Commission (FCC) and the break-up of the Bell System by the U.S. Department of Justice (DOJ) set the stage. The Act achieved many of its stated goals, but it failed to achieve others and created new policy challenges that await solutions.
Since the late 1950s the FCC had gradually opened slices of telecommunications equipment and services markets. The process was glacially slow with many stakeholder consultations and compromises along the way. Fully opening customer premises equipment markets took place from the late 1950s to the 1980s. Addressing tensions between unregulated computing and regulated telecommunications, such as the regulatory treatment of services that involve both computing and data transmission, kept the FCC and stakeholders busy from the mid-1960s through the late 1980s. Along the way, important progress was made, but the view of the Department of Justice was that the FCC was captured by industry and was moving too slowly. Building on the lessons from the 1956 Consent Decree, the Bell System was ultimately broken up in 1982. The Modification of Final Judgment (MFJ) separated local, long-distance, and manufacturing markets, which created an industry structure that was not aligned with the impacts that digitalization and convergence would soon have on information and communication industries.
The emergence of the Internet, starting in the 1960s and facilitated by FCC liberalization measures, added to the centrifugal forces that undermined the historical organization of the telecommunications sector. Proponents of the Internet shared a utopian view of the direction and social repercussions of digital technology with a strong libertarian bent and considerable skepticism of government regulation. This view resonated with the prevailing political order that embraced open markets, globalization, and deregulation as the most promising recipes for growth and prosperity. Congress and the FCC also resented the pivotal role of Judge Harold Greene, who oversaw the MFJ, in shaping the development of the telecommunications sector. The Clinton Administration sought to reconcile these multiple technological, business, and political forces in the Telecommunications Act of 1996.
While forward-looking and motivated by allowing digital innovation to unfold freely, it could not fully escape the shadows of past telephone debates. The Act established a framework in which competition was envisioned as the overarching organizational model for the vibrant information and communication sector. It established safeguards to guide the expansion of telephone and cable companies into newly opened market segments. The Act adopted a framework to support the continued provision of universal service in a market-driven environment. And it provided a framework to allow the Internet to flourish in an environment “unfettered by Federal or State regulation”. Despite this intent, media hype on cyberporn, based on questionable data, served as a catalyst to add the Communications Decency Act (CDA) to the proposed bill. Whereas most of the CDA was overturned as violating the First Amendment in Reno v. ACLU (1997), the liability shield for interactive computer services established in Section 230 survived.
Overall, the Act achieved many of its goals, particularly by providing a framework for competitive, market-driven information and communication services. Although the Act did not foresee many subsequent developments, it put principles in place to guide the industry through rapid technological change and a future of intermodal competition and convergence. Its design created new policy problems that could have been avoided, and that have not been addressed successfully since. It also did not anticipate the decline in bi-partisan collaboration and the emergence of an administration believing in unified executive power and their effects on pursuing public interest policies. The fact that the FCC and later Congresses failed to address remaining, and new challenges cannot be blamed on the Act, but it set the stage for it.
This is the first of several commentaries on the state of digital policy in the United States and abroad. Today we focus on the state of competition and child safety online. Later comments will focus on broadband universal service, the state of AI policy, media diversity and freedom, and the diminishing role of U.S. leadership in the development of global digital policy.
Turbulent Competition
Moreover, given significant economies of scale, network effects, and vast differences between locations across the country, that marketplace differs markedly from the textbook model in which many suppliers compete on price and consumer surplus is maximized. Rather, it is the messy competition that Joseph A. Schumpeter described in his metaphor for competition as “gales of creative destruction”. In technologically dynamic industries, temporary market power and the ability of suppliers to appropriate rents in compensation for innovation risks are essential to fuel innovation. However, empirical research shows that both too little and too much competition can lead to inefficiencies.
The Telecommunications Act reduces these insights into the simpler view that competition and innovation go hand in hand and therefore sought to intensify competition across all market segments. The FCC added a Schumpeterian touch by signaling a willingness to let players, such as the post-MJF AT&T, experiment with organizational and service innovation and fail in the marketplace. Matters are complicated in digital business ecosystems that offer infrastructure providers opportunities to impede competitors in applications and services markets. The turbulent competitive process in technologically dynamic industries can degenerate and undermine consumer benefits. Some of these issues were not well understood as the Act was designed. Constrained by prior policies, the Act applied a traditional regulatory framework to emerging technologies for which that framework was not well suited.
Although the gradual market liberalization measures underway since the 1960s moved in the right direction, in hindsight they were overly steeped in traditional regulatory thinking. Preceding the Act, the Cable Television Consumer Protection and Competition Act of 1992 had helped create competition from satellite services, and it allowed cable companies to enter broadband Internet access services. By enabling the FCC to conduct spectrum auctions, the 1993 Omnibus Budget Reconciliation Act (OBRA ’93) created the conditions to move beyond the duopoly and intensify competition in cellular markets. Wireless competition is one of the clearest success stories of the Act. Allowing standards competition created friction early on but stimulated innovation and eventually gave the U.S. a lead in 4G and 5G. Spectrum allocations for unlicensed and space communications further facilitated innovation. The Telecommunications Act also created a framework that would eventually allow Regional Bell Operating Companies (RBOCs) to offer in-region long-distance markets. FCC implementation of the transition to full competition was cumbersome, legally contested, and slow.
The new flexibility to enter markets allowed numerous market experiments, successful and failed diversification strategies, and a massive wave of industry consolidation and mergers. Given regional and local variations in economic conditions across the United States, a heterogeneous and differentiated market structure of dominant service providers with competitive fringes emerged in many locations. Digitalization and convergence intensified intermodal competition. Over time, content migrated from over-the-air broadcasting networks to wired connections, and voice services migrated to wireless networks. Large service providers started to offer national service plans, and regional and local providers enriched choice options.
Despite significant market concentration across market segments, such as broadband access markets, cellular services, space communications, and streaming, dynamic competition is intense in many locations and price differentiation is often high. This market structure has generated significant private investment in terrestrial and space infrastructure upgrades and expansion, but at an expense to consumers. Cost conditions and the varied market structures contributed to cellular and broadband access prices that are significantly above prices in other high-income countries. At the same time, price and quality differentiation are high, and the markets are often not very transparent. Lock-in business strategies and opaque discounting strategies create additional friction. None of these observations calls for regulatory intervention, but better monitoring and efforts to increase market transparency are needed, but the current FCC is failing to adopt appropriate policies.
In digital business ecosystems competition unfolds both horizontally among players offering similar services and vertically, with players at different layers of the digital stack offering complementary services. We will return to these issues in comment on digital platform policy and AI policy, but a few brief remarks on net neutrality policy are appropriate. The Act did not amend the Communications Act of 1934 in ways that would have allowed the FCC to devise a sustainable framework to safeguard vertical business relations. Constrained to find a workable policy under Title I or Title II of the Act, the FCC and the courts oscillated between unsustainable approaches. The transparency provisions in the prevailing Restoring Internet Freedom Order are insufficient to safeguard non-discriminatory vertical relations, but common carrier regulation is the wrong tool. Congress could have acted to give the FCC the appropriate tools but failed to do so.
Children and Online Safety
Part of the current policy debate is framed in overly broad claims and resembles the moral panic from the 1990s (and earlier ones, such as the Protect Our Children discussion during the 1970s). For example, the U.S. Surgeon General has warned that social media are a major contributor to youth mental health issues. Vocal researchers have pointed out potential negative effects of smartphone use and social media, at least for vulnerable groups. However, others have rightly pointed out that such assertions often ignore other factors that affect youth mental health and that numerous other studies show broad benefits of smartphone and social media use. However, effects of social media use are often heterogeneous so that positive effects on some groups, even the majority of users, can coexist with negative effects on others.
That detailed social network data is often not available to researchers complicates the problems of conducting robust research. Under these conditions, no one-size-fits-all approach seems feasible, but differentiated policies brush against free speech rights, privacy concerns, and security issues. Expecting parents to protect their children, while a necessary component, is likely not a sufficient solution. It must be supported by appropriate technology and algorithmic design and provider liability, as pursued in several current court cases against Meta, Google, Roblox, and others. Alas, reliance on the court system and forms of liability is a very slow-moving process that would benefit from stronger legislative provisions.
Despite these ambiguities, other countries moved decisively in 2025 to regulate children’s experiences online. In contrast, the United States remained mired in legislative gridlock. Australia became the first country to formally bar users under 16 from accessing major social media platforms, with its landmark law taking effect in December 2025. Aware that this was a strong intervention into free media, Australia put a process in place with the goal to provide a rigorous evaluation of outcomes. Multiple other countries are now considering similar measures. In July 2025, the European Commission published guidelines under the Digital Services Act requiring platforms to implement age verification, set minors’ accounts to private by default, and protect children from grooming, harmful content, and addictive design features. The UK’s Online Safety Act entered its child protection phase in July 2025, requiring platforms to conduct children’s risk assessments and implement age assurance measures.
In contrast, U.S. federal efforts stalled amid partisan disagreements, while other types of interventions in the social media landscape (e.g., issues of TikTok’s ownership) were able to advance in the Trump administration. In December 2025, the House Energy and Commerce Subcommittee advanced 18 children’s online safety bills, including versions of the Kids Online Safety Act (KOSA) and an updated Children’s Online Privacy Protection Act (COPPA 2.0). Yet the brief window of bipartisan support for these protections is splintering already with Democratic lawmakers accusing Republicans of pushing “weak, ineffectual versions” that amount to a “gift to Big Tech” (Lima-Strong, 2025). The House version of KOSA does not include the “duty of care” mandate central to the Senate version that passed 91-3 in 2024, and disagreements over federal preemption of state laws threaten to unravel bipartisan support entirely.
Global divergence is striking. While Australia, the EU, and UK have operationalized comprehensive regulatory frameworks with enforcement mechanisms already in motion, the U.S. has not updated its core children’s online privacy law since COPPA passed in 1998. Meanwhile, half of U.S. states now mandate age verification for accessing adult content or social media. This patchwork approach drives users to less regulated spaces while the federal government fails to establish baseline protections. Whether the current congressional momentum produces meaningful reform or continues the post-Telecomm Act pattern of near misses will depend on resolving fundamental disagreements about enforcement, preemption, and the appropriate balance between federal standards and state innovation.
Beyond policy that is explicitly child-centered, one law that passed in 2025 has potential positive implications for child safety. The TAKE IT DOWN Act criminalizes the publication of non-consensual intimate images, often called deepfakes, and requires social media platforms to remove such content within 48 hours of receiving notice. This law is particularly noteworthy as we see AI rapidly advancing everyday people’s ability to create these images. While there are some concerns from civil liberties groups about potential First Amendment issues, the bigger issue may be compliance, as we have seen very recently with the failure of X (formerly Twitter) to prevent its own AI platform, Grok, from generating these types of images at the request of users.
Reach out with reactions to Johannes M. Bauer (bauerj@msu.edu) and Jean Hardy (jhardy@msu.edu) or email the Quello Center (quello@msu.edu).
To be continued in the coming weeks with comments on universal broadband service, AI policy, the state of media policy, and more.