The Post Roads Act of 1866: The Story of the Dawn of Communications Regulatory Policy

Abstract

The beginning of federal communications regulatory policy was the Post Roads Act of 1886. So spoke the Federal Communications Commission on its Silver Anniversary. It's 1866. The Civil War is over. Western Union has won. Southern telegraph competition had been turned into tree tinsel. A grateful U.S. Government gave Western Union 15,000 miles of telegraph line. A few years earlier, the largest telegraph companies formed the North American Telegraph Association and agreed to divide the market. When the U.S. Government asked for bids for the transcontinental telegraph line, the Association made sure that Western Union was the only bidder and that Western Union bid the maximum price. When the line was completed, Western Union acquired all of its rivals. A transcontinental telegraph line which had promised to unite the nation in fact united the telegraph industry. Sen. John Sherman (R-OH) was displeased. He did not like excessive telegraph rates, Western Union's monopoly, or the lack of universal service. Sherman introduced the Post Roads Act in order to provide open access to public land and post roads, lowering barriers to market entry, fostering competition, and mitigating Western Union's market power. Sen. Sherman wanted to ensure that new entrants were on the same playing field as Western Union. Did the Post Roads Act work? Nope. It backfired. Jay Gould took advantage of the Act in a hostile take-over of Western Union. Western Union took advantage of the Act to expand its market and to railroad any authority that attempted to get in its way. Any insignificant rival who challenged Western Union was soon neutralized and acquired. The result was market consolidation, not competition. Sen. Sherman had at his disposal remedies that would not work. Either telegraph service could be owned and operated by the government, like the Postal Service, or it could be an unregulated private industry. Technological innovation and market evolution had disrupted legacy policy implementation. Sen. Sherman would have to evolve policy implementation to respond to new circumstances, harms, and challenges. Communications regulatory policy begins with disruption. Was the Post Roads Act the beginning of communications regulatory policy? Yes. It was the first time Congress enacted legislation to generally restrain the private communications industry. It was incorporated as the first section of the Communications Act of 1934. In that nascent moment, so much of today's policy discourse was present.