Developing a Domestic Common Carrier Telecommunications Policy: What Are the Issues?

The Communications Act of 1934 created the Federal Communications Commission to regulate interstate and foreign common carriers and established the Nation's policy goal of making communications services available to all people of the United States (referred to as the Universal Service Mandate). The carriers have interpreted this mandate to mean that other telecommunications services should cross subsidize local telephone service. To achieve this, the American Telephone and Telegraph Company and the independent telephone companies adopted specific pricing policies and methods of distributing common costs which they assert subsidize the cost of local service and, therefore, widen its availability. The carriers believe that the goal of universal service is in jeopardy and that competition threatens the subsidies to local service. This, in turn, threatens to raise the cost of local service, contrary to the Universal Service Mandate. However, studies conducted by FCC, the industry, and other experts cannot provide a definitive answer on exactly which subsidies exist, how large the subsidies are, and what competition's effect will be. Despite this controversy, industry observers and the carriers agree that the goal of universal service has been satisfied. While only about one-third of the Nation's households had telephone service at the time the act was passed in 1934, 95 percent have it today. Consequently, in evaluating future policy goals the Congress faces the issues of what amount of industry regulation is needed, what type of industry structure should be adopted (monopoly or competitive), and what domestic telecommunications policy goals the Nation should pursue.

The Communications Act of 1934 created the Federal Communications Commission to regulate interstate and foreign common carriers and established the Nation's policy goal of making communications services available to all people of the United States (referred to as the Universal Service Mandate). The carriers have interpreted this mandate to mean that other telecommunications services should cross subsidize local telephone service. To achieve this, the American Telephone and Telegraph Company and the independent telephone companies adopted specific pricing policies and methods of distributing common costs which they assert subsidize the cost of local service and, therefore, widen its availability. The carriers believe that the goal of universal service is in jeopardy and that competition threatens the subsidies to local service. This, in turn, threatens to raise the cost of local service, contrary to the Universal Service Mandate. However, studies conducted by FCC, the industry, and other experts cannot provide a definitive answer on exactly which subsidies exist, how large the subsidies are, and what competition's effect will be. Despite this controversy, industry observers and the carriers agree that the goal of universal service has been satisfied. While only about one-third of the Nation's households had telephone service at the time the act was passed in 1934, 95 percent have it today. Consequently, in evaluating future policy goals the Congress faces the issues of what amount of industry regulation is needed, what type of industry structure should be adopted (monopoly or competitive), and what domestic telecommunications policy goals the Nation should pursue.