Regulation and Deregulation Both Make Sense, at Different Times in an Industry's Lifecycle

In 1948, the Supreme Court ruled that five studios had monopolized the American film industry. Paramount, Warner Bros., MGM, RKO, and Fox owned the theaters that showed their own movies.

The court ordered them to sell.

For the next 72 years, the Paramount Consent Decrees kept the studios apart.

In August 2020, a federal judge terminated the decrees. The reasoning was that the market had changed beyond recognition.

Streaming had replaced theaters as the primary distribution channel. The studios were no longer dangerous monopolists. They were struggling incumbents.

Six years later, Paramount and Warner Bros. are merging. The deal is worth $111 billion including debt. The Justice Department approved it on June 12, 2026.

Two of the five studios that the Supreme Court forced apart are coming back together voluntarily. Not because they are too powerful, but because they are too weak to survive alone.

It’s a familiar story. Regulation is often designed to solve a specific market structure problem (monopoly power, natural monopoly characteristics, or high barriers to entry). 

Over time, technology, globalization, new business models, and substitute products can eliminate the original source of market power. Regulations that once made sense may then become unnecessary, counterproductive, or even protective of incumbents.

Industry	Original Monopoly Concern	Regulatory Response	What Changed?	Why Regulation Became Less Necessary
Railroads (1880s)	Railroads often held local transportation monopolies	Interstate Commerce Act of 1887 and creation of the ICC	Trucks, highways, pipelines, barges, airlines emerged	Railroads lost their transportation monopoly and faced extensive intermodal competition. The ICC was ultimately abolished in 1996. (PBS)
Airlines (1938–1978)	Fear that airlines would become monopolies and require centralized route and fare control	Civil Aeronautics Board regulated routes, prices, and entry	Industry matured; economists found regulation often restricted competition rather than promoting it	Congress passed the Airline Deregulation Act of 1978, eliminating most economic regulation. (Congress.gov)
Long-distance telephone service	AT&T dominance in national telephony	Rate regulation, entry restrictions, antitrust oversight	Fiber optics, microwave transmission, wireless networks, internet communications	Long-distance became highly competitive and prices collapsed. (Investopedia)
Telephone equipment	AT&T controlled devices connected to the network	FCC restrictions and later interoperability rules	Standardized interfaces and competitive equipment markets	Consumers now freely purchase phones and network devices from many suppliers. (WIRED)
Telegraph	Western Union's dominance	State and federal oversight of messaging services	Telephone, fax, email, messaging apps	Telegraph market essentially disappeared; monopoly concerns vanished with the technology itself.
Trucking (mid-20th century)	Concern about destructive competition and market concentration	ICC regulation of routes and pricing	Improved logistics, highways, nationwide competition	Most economic regulation was removed in the late 1970s and early 1980s. (LegalClarity)
Natural gas transportation	Pipeline monopolies in some regions	Extensive price and transportation regulation	Competitive gas production, spot markets, interstate trading hubs	Many pricing controls were relaxed as markets became more competitive.
Stock trading commissions	Dominant exchanges could maintain fixed commissions	SEC oversight and fixed-rate structures	Electronic trading and competing exchanges	Fixed commissions were abolished in 1975 ("May Day"), leading to intense competition.
Broadcast television	Scarce spectrum created limited competition	FCC ownership and content regulations	Cable TV, satellite TV, streaming services, internet video	The original scarcity rationale weakened substantially.
Local newspapers	Dominant local print monopolies	Special antitrust accommodations and ownership rules	Internet advertising, social media, digital news	Many newspaper monopolies disappeared due to competition from digital substitutes.

In the case of the studios, massive changes in the video and movie business make older restrictions unnecessary. 

Television was an alternative to “going to the movies, and therefore a threat. But studios discovered:

• TV licensing created new revenue

• Old film libraries became valuable assets

• Syndication emerged as a lucrative business. 

The additional changes in distribution (cable TV, home video, streaming) likewise emphasized the role of content ownership and creation for studios, even as new distributors emerged to capture value. 

Era	Largest Value Capture
Theater	Studios + theaters
Broadcast TV	Networks
Cable TV	Cable operators
DVD	Studios
Streaming	Platforms

Among the new issues with streaming is the importance of distribution versus “discovery,” as “scarcity value” migrates. 

Era	Scarce Resource
Theaters	Screens
Broadcast TV	Spectrum
Cable TV	Channel capacity
DVD	Shelf space
Streaming	Consumer attention

Frequently, the substitute products and competitors come from “outside” an industry’s chosen domain. 

Perhaps the classic example is railroads believing they were in the trains business, when they were actually in the transportation business. The substitutes did not come from inside the “railroad” business but from outside. 

Product	Apparent Monopoly	Important Substitute
Railroads	Railroads	Trucks, barges, airlines
Long-distance calls	AT&T	Mobile, VoIP, messaging apps
Broadcast TV	Local stations	Cable, satellite, streaming
Newspapers	Local newspaper	Internet and social media
Taxi medallions	Local taxis	Ride-sharing platforms
Video rental stores	Blockbuster	Streaming services

Each major distribution innovation created new winners, weakened existing gatekeepers, and shifted where revenue accumulated:

• broadcast television

• cable television

• home video

• DVD

• streaming. 

Era	Dominant Distribution	Key Gatekeeper	Main Revenue Source
1920s–1950s	Movie theaters	Theater chains	Ticket sales
1950s–1980s	Broadcast TV	TV networks	Advertising
1980s–2000s	Cable TV	Cable operators	Subscription fees + advertising
1980s–2010s	VHS/DVD	Retailers & studios	Unit sales/rentals
2010s–present	Streaming	Streaming platforms	Subscriptions
Emerging	AI-assisted distribution	Platforms & recommendation engines	Subscription + advertising + commerce

The point is that “where” monopoly danger exists will shift with time. And so must the regulatory concern.  Emerging industries might need one pattern. Declining industries virtually always need another: preventing concentration early; encouraging it in the industry decline phase.

Electricity Business Can Learn from Telecom Evolution

Oddly enough, local electricity generation by businesses and homeowners exposes a key problem for electricity supplier economics. Traditional pricing assumes energy consumption is equal to grid usage. 

But distributed generation breaks that assumption. Essentially, customers remove themselves, at least partially, from the system, but retain the optionality of using the grid for reliability, backup, and peak load balancing. 

But fixed costs stay embedded in the price of per-kiloWatt hour charges, so rates will rise as sales fall. At the same time, new demand driven by high-performance computing and associated data centers increases the need for new investments in transmission infrastructure as well as generation, increasing the fixed costs. 

The basic problem is a combination of high fixed costs; low marginal costs per additional kWh and the impact on ability to cover fixed costs when demand is reduced by local generation. 

Since fixed costs do not decline proportionally with local generation, all remaining sales must cover more fixed cost per kWh consumed. 

This pushes per-kWh rates upward for customers who still rely heavily on the grid. 

But the network still must be designed for peak load, sized to serve customers when solar output drops (night, winter, clouds). So self-generation reduces energy delivered, not the need for the grid.

Share of Customers with On-Site Generation	Utility Retail Sales (as % of original)	Fixed Cost Recovery per kWh	Average Retail Rate Impact for Non-Solar Customers
0% (baseline)	100%	$0.10/kWh	Baseline
10%	93%	$0.108/kWh	+8%
25%	82%	$0.122/kWh	+22%
40%	68%	$0.147/kWh	+47%
60%	52%	$0.192/kWh	+92%

What’s really happening is a decoupling of value from volume, something that also happens in other infrastructure contexts. 

The grid’s value is optionality and insurance, but it’s priced like a commodity pipeline. Distributed generation exposes that mismatch.

So what might be done to fix this problem? Fixed monthly connection charges are one way of “socializing” grid costs. Time-of-use pricing and demand charges also can help. But as with mobile and fixed telecom networks, “access” to the network might be more important than usage charges. 

So reframing the product might be conceptually necessary. The “product” electrical utilities sell is reliability, capacity, and load balancing, not just energy. 

Energy is a commodity that is part of the service, but grid access becomes the actual “product.” 

Beyond all that, perhaps more explicitly cross subsidies are needed, as once was the case for communications services, where business user profits subsidized consumer usage. Perhaps business customers and self-generators must subsidize customers unable (for financial or physical reasons) to participate in self generation. 

Until pricing reflects capacity and availability, not just kWh, rising self-generation will continue to raise rates for those most dependent on the grid.

This reminds me very much of how economics of the “telecom” business changed with competition. 

Both electrical grids and telecom networks have the same core traits:

• Extremely high fixed costs

• Very low marginal cost per additional unit of usage

• Peak demand, not average usage, drives capital investment

• Universal-service expectations layered on top of commercial economics

Historically, both industries solved this with implicit cross-subsidies. But widespread technology changes and deregulation changed the telecom business model. 

Traditionally, high prices for business customers (especially long distance calling) provided the profits that allowed affordable service for consumers. 

This worked as long as high-margin users couldn’t easily bypass the network and suppliers had pricing power. 

Self generation in the electricity business has the same dynamics. When high-value customers (commercial, industrial, affluent residential) can self-generate, electricity providers lose the profits that allow them to serve mass-market customers reliant on the grid with affordable rates.

The cross-subsidy that once flowed invisibly is exposed. The analogy with telecom after deregulation, mobile substitution for fixed voice, embrace of internet protocol and reliance on internet access as a core service for the fixed network illustrate the issues. 

Dimension	Traditional Telecom Access	Electric Grid (Emerging)
Core asset	Nationwide access network	Transmission & distribution grid
Cost structure	High fixed / low marginal	High fixed / low marginal
What drives capex	Peak simultaneous usage	Peak demand & reliability
Primary pricing unit	Minutes / lines	kWh
Implicit subsidy source	Business & long-distance margins	High-usage / high-income customers
Subsidy recipient	Residential & rural users	Low-income & non-solar customers
Bypass mechanism	VoIP, wireless, OTT apps	Rooftop solar, storage, microgrids
Resulting problem	Access prices no longer cover costs	Volumetric rates no longer recover fixed costs
Regulatory response	Access charges, USF fees	Grid access charges, demand charges (emerging)
Political constraint	Universal service obligation	Universal service + decarbonization goals

The problems are similar. Neither industry can simultaneously have volume-based pricing; high fixed costs; widespread abandonment of the core network and stable rates for mass-market customers. 

The telecom industry adapted by shifting its revenue model. Today,  customers do not primarily pay for minutes or megabytes anymore. They pay for “access to the network.” Think of it like Wi-Fi access. One pays to be connected, not for usage (bytes consumed or time connected or bandwidth provided). 

The analogy is a mobile phone service plan offered at a flat fee per month that includes “unlimited” data usage; “unlimited” national calling and text message. 

The customer pays for the ability to use the network, not consumption in a strict sense. 

Today’s electrical energy service problem is that self generation reduced kWh sales while fixed costs remain. As rates rise to cover fixed costs borne by fewer customers, there is more incentive to defect. 

So an access-fee model more effectively recovers shared fixed costs. So self generation no longer erodes fixed cost recovery. And the grid stays healthy.