In this part, we apply the framework developed in the earlier chapters to a series of current issues in telecommunications policy. The first issue, discussed in this chapter, is the regulation of local telephone networks. Chapter 9 examines how antitrust law has been applied to the telecommunications industry. Chapter 10 uses the framework we have developed to analyze the regulation of broadband networks. Chapters 11 and 12 examine one of the most high-profile recent issues in telecommunications policy: “network neutrality.”

The History of the Regulation of Local Telephony

Early State and Federal Regulation and the Communications Act of 1934

Under the system of federalism enshrined in the U.S. Constitution, the authority of the federal government is limited to interstate commercial activities. The regulation of intrastate telephone rates fell under the jurisdiction of the states. Although early legislation in five states had authorized some degree of regulation over local telephone companies, state regulation of local telephone service did not begin in earnest until 1907, when states began authorizing their public utility commissions to oversee the reasonableness of local telephone rates. By 1921, all but three states had instituted some form of regulation of local telephone rates (U.S. House 1921).

Federal regulation of interstate telephone service began in 1910 with the enactment of the Mann–Elkins Act, which gave the Interstate Commerce Commission (ICC) the power to review the reasonableness of interstate and international telephone rates (Statutes at Large 1910, pp. 544–46).