DOMINANT/NONDOMINANT CARRIERS; FORBEARANCE
The public utility model can be used to apply to all competitors in a market. Yet as we have seen, there are considerable administrative costs involved in rate regulation, even when cost-of-service regulation works, which it does not always. Alternatives to traditional regulation for a carrier with market power, such as price caps and flexible regulation, discussed in Chapter 6, can make the process more rational for that carrier. But how should one regulate a competitive carrier, who does not possess market power and whose existence in the market provides a check, in addition to the regulator's oversight, on the prices charged to customers?
As competition developed in the 1970s and beyond, the FCC faced the challenge of wanting to promote competitive entry while at the same time having to condition all such entry on compliance with the 1934 Act, which had been written with a dominant provider like the old Western Union or AT&T in mind. The solution, of course, was a change in the federal statute that would allow the FCC to take into account in its regulations the variation in market power among the different companies desirous of providing service. Comprehensive rewrites of the Communications Act were attempted. But with the heavy stakes attached to such an effort, especially for the pre- break-up AT&T, and the likelihood that once rewritten, Congress would not soon address the issues again, the 1970s and 1980s saw no retooling of Title II.
Meanwhile, in a series of decisions beginning in 1979, the FCC reinterpreted congressional intent underlying the Communications Act in light of the structure of the modern telecommunications industry, giving less consideration to traditional statutory or common law definitions of common carriers. Instead, the FCC focused on a firm's competitive impact on its relevant market as the factor determining whether or not to regulate.
In Competitive Common Carrier Service, First Report and Order, 85 F.C.C.2d 1 ( 1980) ( First Report) , the Commission classified carriers in terms of "market power"--that is, each firm's ability to restrict output and increase unit price above cost, or artificially below cost, in its market. The FCC defined firms