Sometime in the next, oh, one to fifty years, our telecommunications infrastructure will evolve to the point that the Internet will reach its potential as a reliable source of entertainment, knowledge, and commercial opportunities for the majority of all Americans. I stake my name on the fact that the above time frame will be kept.

Unfortunately, neither my name, nor logic, nor commercial appropriateness is likely to keep the government from slowing down widespread access to broadband. And as long as it does, Americans who commit the crime of not living in wealthy suburbs will continue to have subpar Internet access.

In another display of the immutable law of unintended consequences, Congress managed to throw a monkey wrench into the spread of broadband even before such a word existed. Back in 1996, President Clinton signed the Telecommunications Act of (appropriately enough) 1996, which was supposed to open up local phone service to competition. It succeeded in doing so at the exact time that companies couldn't make much money on voice communications.

After AT&T (NYSE: T) was broken up in 1984, its "Baby Bell" offspring inherited Ma Bell's monopoly rights to provide local phone service in their geographical regions. These monopolies were granted for a reason: The capital expense of developing a network was so high that the only way to achieve efficiency was to allow a single provider of these services to control an area, but sacrifice pricing power.

Look at it this way: Before the monopolies in electricity were granted, there would be dozens of companies competing in each town. That means each one would have to provide its own link from its generation facility to its customer. This created a transmission nightmare.

Communications was little different, and up until the advent of digital signaling, a monopoly made sense. When it ceased to make sense, Congress acted to open up competition, forcing the Baby Bells to make their facilities -- particularly the distribution links to those millions of end customers -- available to competitors. In order to give the Baby Bells incentive to open up their local networks, the 1996 Act promised to allow them to compete in long distance.

Compete in voice? No thank you
There's one problem: Long distance is a poor business. Local service is not much better. The big prize is the Internet, which was but an afterthought when the "gummint" put its stamp on the business in 1996. (For more on the telecommunications industry, visit our InDepth page on the subject.)

Essentially, it opened the floodgates into two business segments that were dying. Needless to say, competition in these arenas came with a whimper, not a bang. The competition that did show up came to play in the new sandbox, providing broadband services to companies and consumers. The best part for these new competitive carriers was that the 1996 Act mandated that the Baby Bells allow equal access into their distribution networks -- the proverbial "last mile" -- because of their monopoly access to the home.

Ah, but do they? I think not. The 1996 Act has, in the end, helped investors and companies waste billions of dollars, all for the end result of having less than 7% of American homes with access to true broadband. But the local telephone company doesn't really have the only communications access into the home. We can connect using cable, wireless, and satellite -- which is to say that even though the Baby Bells hold sway over the copper piped into the home, in terms of access they've got no monopoly at all. Plus, these alternative technologies offer both speed and reach benefits over copper. They've got a monopoly on method, but not on access.

It's the same with cable providers, which are granted monopoly rights by local governments. But are they monopolies? Not with satellite television around, although Hughes (NYSE: GMH) and EchoStar (Nasdaq: DISH) have to deal with some fairly goofy restrictions on providing local channels. Regardless of whether the satellite technology is better -- and this is a discussion I'd prefer not to have -- the limitation on service is regulatory. This is the stupidity of the whole situation: In the name of "equal access," or "consumer protection," the government has stifled innovation.

Oh, sure, we had the rise of the Competitive Local Exchange Carriers (CLECs) after the 1996 Act, but they were entering the market in the name of competition, not in the name of doing anything particularly innovative. As one friend of mine who used to work for a CLEC said, "I knew we were in trouble when our best innovative ideas revolved around entering new geographic areas."

The problem, once again, was a "carrot and stick" issue. The Baby Bells, against whom the CLECs were to compete, had no incentive whatsoever to improve their copper networks, as the investment to do so is massive, and they had to automatically grant access to their competitors. And with the Baby Bells being barred from participating in high-speed data provision, and with a lock on local provision of cable service, they've got precious little motivation to improve their networks. It's called an uncertain return on investment, and unfortunately, Baby Bells are being responsible to their shareholders by not making these investments.

But if these companies and the cable companies are natural monopolies, they are the weakest ones in the history of mankind. Between them, Qwest (NYSE: Q), BellSouth (NYSE: BLS), Verizon (NYSE: VZ) and SBC Communications (NYSE: SBC) control almost all of the copper wires connected to houses. But so what? Copper is only effective for broadband, the true prize, for customers within two miles of a company switch. New technologies in cable and wireless may not only provide faster connections, but also achieve a wider reach. Sprint (NYSE: FON) has rolled out in several markets, including Phoenix and Silicon Valley, a wireless broadband service that provides Internet access at speeds well above that which is considered "broadband," 384 Kbps.

Wanted: Free-flowing information
These are not mere philosophical musings. The market values of telecom companies, fiber optic component makers, and equipment providers have been shattered over the last year due to an economic collapse in demand for their services. The economic collapse is caused by the fact that the "killer apps" -- the drivers of real innovation in communications -- are forcefully kept separate for obsolete reasons. 

Think about it: Given the fact that television broadcasts can be provided on a direct-to-consumer basis by either satellite or by cable (and, one would think, wireless and copper), is there any reason at all for the limitation of cabled television to a single provider? Not really. Where broadband can take off is where it allows consumers to upload videos on demand, and other services for which people are willing to pay.

Ah, but for now, for regulatory reasons, it is verboten. Let AOL Time Warner (NYSE: AOL) and AT&T provide these services on their broadband facilities in competition with other providers, and you've got a built-in economic rationale to get as many people connected as soon as possible.

People keep looking for someone to blame for the current economic slowdown. In communications, I think that we can squarely blame bad regulation. Seeing as hundreds of billions of dollars must be further invested to bring broadband to the masses, it makes sense that the companies that will make the investments have a chance to gain a return thereon.

Ask any professional in the broadband business and he or she will tell you that the last mile remains the most crucial bottleneck to making this economic engine turn again. The last mile issue is going to get solved in several different ways, including copper wire, but does it make sense to have regulations in place that reduce companies' incentive to aggressively solve this problem?

I think not.

Bill Mann would like to remind readers that paint is not for drinking. At time of publishing, Bill held beneficial interest in Qwest. The Motley Fool is investors writing for investors.