"Let Them Make Toll Calls": A State Regulator's Lament

By 1980, the policy of the Federal Communications Commission (FCC) was to promote competition in telecommunications. The FCC adopted several policies in 1982 to facilitate divestiture; these policies are based largely on economics and are widely despised by state regulators. The economics and politics of state resistance to federal policies are briefly analyzed. The root of the conflict lies in the methods that states employ to regulate telecommunications. The most important features of state ratemaking are: 1. allowable cost estimation, 2. interjurisdictional revenue sharing, 3. rate averaging, and 4. residual pricing. The process by which policy conflicts between state and federal regulators are revealed and resolved is a jurisdiction war. For economic, technical, and political reasons, the states seem likely to lose the war on all fronts. The longer state regulators delay moving toward less regulation and more efficient prices, the more costly will be the change when it occurs.