The United States is the only major nation with constituent units of governments regulating the telecommunications industry, apart from Canada. The 50 American states, plus Washington, D.C., all regulate intrastate local and long-distance telecommunications services. Local telecommunications firms retain considerable monopoly power, so some regulation remains necessary to keep consumer rates and services reasonable.
The states began regulating in 1907, when New York and Wisconsin empowered their Public Utilities Commissions (PUCs) to oversee the telephone industry. The federal government regulated interstate telecommunications, initially under the Interstate Commerce Commissions (ICC) in 1914, and after 1934 under the Federal Communications Commissions (FCC).
This intrastate/interstate regulatory separation was relatively clear, and federal and state regulatory interactions were stable from 1934 through 1982, as the industry itself was dominated by a stable monopoly, AT&T, and by technology that allowed for falling prices and improving services. Since 1982, however, competitors, consumers, and other groups have fought many political and legal battles over where and how to draw the jurisdictional boundaries between interstate and intrastate telecommunications, and how to regulate them.
Microwave technology enabled MCI to emerge as a long-distance telephone competitor to AT&T in the 1970s, which led to an antitrust case, resulting in AT&T’s agreement to break up, or divest, its integrated vertical structure in 1982. Divestiture created new firms out of AT&T’s former state-level telephone subsidiaries, the so-called Baby Bells, and the state PUCs faced difficult decisions about how to regulate them, as well as a more complex relationship with federal regulators.
The new competitive environment after divestiture put pressure on all regulators to raise local rates and consider competitive scenarios, and state regulators were forced to make most of the critical decisions. States experimented with policies, with some moving more rapidly toward competition and others clinging to the more stable and familiar monopoly model of the past.
The relationship between the two levels of government intensified after Congress passed the Federal Telecommunications Act (FTA) in 1996, which preempted some state PUC regulatory authority, but left states with continued powers over a range of intrastate issues. The FTA also incorporated several lessons learned about competition from state policy experiments after divestiture. Since 1996, the FCC and PUCs have tried to create a level playing field for emerging competition, at the same time that new technologies—from cellular phones, to the development of the Internet, to cable television competition—have altered the landscape. Even after the FTA, many questions of specific jurisdictional authority have landed in the federal courts, and the federal-state relationship continues to evolve.
Thomas Bonnett, Telewars in the States (Washington, DC: Council of Governors’ Policy Advisors, 1996); Jeffrey Cohen, The Politics of Telecommunications Regulation: The States and the Divestiture of AT&T (Armonk, NY: M. E. Sharpe, 1992); and Paul Teske, ed., American Regulatory Federalism and Telecommunications Infrastructure (Hillsdale, NJ: Lawrence Erlbaum, 1995).