Discussion Papers

Ingo Vogelsang

Federal Versus State Regulation in U.S. Telecommunications
Nr. 134 / Oktober 1994


Telecommunications is one of the most successful service sectors in the U.S., both in absolute terms and relative to other countries. While the regulatory governance of the sector cannot claim to be the cause of this success, it certainly has been compatible with it and may claim to be one of its major contributing factors. This study analyses the U.S. regulatory system in telecommunications with special emphasis on the interaction between federal and state regulation. This interaction is illustrated and evaluated for six examples from the recent history after the AT&T divestiture.

The distinguishing features of U.S. telecommunications regulation are (a) distinct regulatory authority at the federal and state levels, (b) the possibility of federal preemption of state regulation, (c) a broad regulatory mandate for the federal regulator, and (d) strong implementable rules for the legality of the regulatory process. The examples show how these features complement each other in helping to choose the right level for regulatory intervention and the best approach to its execution. The main strengths of the dual regulatory system in U.S. telecommunications are (a) the regulatory innovations created by the various jurisdictions and implemented nation-wide through imitation and federal preemption, (b) the adaptability to new situations through broad regulatory mandates, (c) the policy of favoring interstate communications and universal service through federal preemption. Federal preemption was applied, in particular, in favor of market competition. The drawbacks of the dual system include crude cost separations and protracted legal disputes between jurisdictions. Overall, we find that improvements in detail of the dual regulatory system in U.S. telecommunications are possible, but that the specific combination of features forms a successful institution from which associations of other countries may want to learn.

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