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Working Paper

Loosening the Ties that Bind: Regulating the Interstate Telecommunications Market for the 1990's

Kathleen Levitz.  

OSP Working Paper 23 (Feb 1987) examines Haring and Kwerel's proposal (OSP Working Paper 22) that the FCC replace its rate-of-return regulation of AT&T with a system of price caps on a limited set of “core” services.  Under that proposal, the FCC would not only abandon rate-of-return regulation as the touchstone for determining whether AT&T’s interstate earnings overall are reasonable but also would no longer require service-by-service analysis of costs for determining whether individual rates are lawful.  The FCC would replace traditional cost-of-service tariff reviews with the “core” concept, directly regulating rate levels for some services and indirectly regulating these levels for others.  It would prescribe no explicit cap on overall earnings, however.

Levitz argues that two principal questions must be answered in the affirmative for this or a similar proposal to withstand legal scrutiny.  These are (1) whether, consistent with its obligations under the Communications Act as amended, the FCC may “abandon” rate-of-return regulation for AT&T and (2) whether the alternative form of regulation proposed by Haring and Kwerel complies with the requirements of Title II of the Communications Act and relevant case law.  She concludes that both questions are answered in the affirmative and, hence, the proposal should be given serious consideration.

Issued: February 1987

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