rests (for the most part) with the sender, not the carrier. For most of the 20th century, federal and state regulation of common carriers has been considered necessary because telecommunications services in any geographic area have been provided by a single carrier.1 Similar thinking and tactics have been applied to providers of other kinds of infrastructure regarded as utilities, such as electric power or water, and historically to transportation, including rail, toll roads, ferries, and the like.

While policy goals are established through laws, regulatory agencies implement the laws through rulemaking. The Federal Communications Commission (FCC) regulates the interstate activities of such carriers,2 and state commissions regulate their intrastate activities.3 Rulemaking and other administrative proceedings follow a set of practices that involve issuing a notice of intent to act, solicitation of comments, and other formalities. These processes have given rise to a cadre of in-house and private-practice lawyers, economists, and lobbyists seeking to promote or discourage certain kinds of decisions by regulators. Depending on one’s perspective, these processes may reflect an open, fair process for implementing regulations or a drag on the telecommunications marketplace.

Regulators were persuaded that local and long distance services were natural monopolies and, consequently, could be provided at the lowest cost through a single firm. Economic regulation, not competition, would constrain the prices and practices of the monopoly carriers. Under this regulatory regime, the Bell System provided local telephone service in virtually all urban areas and gradually extended its reach to many rural areas. Its long distance network interconnected Bell as well as subscribers of the remaining thousand-plus independent telephone companies (each a monopoly in its franchise territory), enabling any subscriber to call any other telephone subscriber. Over time, the Bell System became the envy of the world because of the breadth, price, and quality of its service offerings.


These monopolies were created initially by AT&T’s aggressive acquisition of independent telephone companies in the early 20th century. The regime emerged in the wake of the 1913 agreement between the Bell Telephone system and the U.S. Department of Justice, known as the Kingsbury Commitment. In return for certain concessions, Bell Telephone was permitted to retain the local telephone companies it had acquired since the turn of the century and to maintain its monopoly control over long distance.


Under Title II of the Communications Act of 1934, as amended.


Because AT&T and the independent local telephone companies were permitted to operate as government-protected monopolies, the prices and other terms and conditions of their service offerings were subject to close scrutiny by federal and state regulators to prevent the telephone companies from exercising their market power. If a call originates in one state and terminates in another state or foreign country, that service is subject to the FCC’s jurisdiction. If a call originates and terminates within the same city or within the same state, that service is subject to the state commission’s jurisdiction.

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