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The Modified Final Judgment (MFJ)—the consent decree that broke up the old Bell system—imposes further zoning requirements on the networks of the Bell operating companies.2

Zoning the Airwaves

The federal government began to nationalize the airwaves in 1912, when Congress gave the secretary of commerce authority to license broadcasters.3 But most empty airspace could still be occupied freely. "Homesteaders" simply had to register their claims with the Department of Commerce. No exclusive rights were assigned.4 By the mid-1920s, courts were beginning to affirm private property rights in spectrum.5

The Radio Act of 1927, however, placed almost every aspect of radio broadcasting under the control of the newly created Federal Radio Commission (FRC).6 Seven years later, the provisions of the 1927 act were rolled, largely intact, into the Communications Act of 1934.7 The FRC became the Federal Communications Commission.

The licensing of broadcasters is conceptually straightforward. The FCC first zones the real estate, allocating blocks of spectrum for particular uses such as AM radio, FM radio, VHF TV stations, UHF TV stations, and so on. Within each block, it then assigns licenses to particular users. The commission has virtually unbounded discretion in both regards. The law simply requires distribution of broadcast "licenses, frequencies, hours of operation, and power among the several states and communities so as to provide a fair, efficient and equitable distribution of radio service to each of the same."8

However chosen, licensees do not get a formal property right in their spectrum. The 1927 Radio Act expressly declared that licensees were entitled to the "use of channels, but not [to] the ownership thereof."9 Licenses were to run for only "limited periods of time."10 (Only in 1981 were the original 3-year broadcasting license terms extended to 5 years for television and 7 years for radio.11) Licenses may not be transferred without commission approval.12 The commission may revoke a station license for any reason that would have warranted refusing a license in the first place.13

Zoning of Cellular

The provision of cellular service is zoned in several ways. The allocation of spectrum for cellular services was originally split between telcos and other nonwireline carriers.14 In 1981, the commission decided that two (and only two) cellular carriers would be licensed in every cellular service area.15

A quite different and independent set of zoning requirements has come into existence by way of the MFJ. The MFJ's line of business restrictions preclude Bell cellular affiliates from offering "interexchange" services. Bell cellular affiliates thus may not arrange with a particular interexchange carrier to provide discounted service to their customers.

Wireline Zoning

In contrast to the airwaves, wireline networks are privately owned. But wireline media are zoned even more strictly than the airwaves. Local telephone facilities are still "zoned" to provide mostly voice services. For years, cable television operators were strictly "zoned" to supply simple carriage of broadcast video signals; to this day they still operate under an array of quasi-common-carrier and other zoning obligations that sharply diminish the value of cable networks and greatly reduce economic welfare.