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State Regulation of Telephone Companies and Services

State law regulates intrastate telephone services that do not substantially affect interstate commerce. It is the policy of each state to protect the public interest in having adequate and efficient telecommunications services available to every state resident at a just, fair, and reasonable rate. To carry out this policy and to regulate rates, operations, and services, state public utility commissions (PUCs) have the general power to regulate and supervise the business of each public utility within its jurisdiction and to do anything that is necessary and convenient in the exercise of its power. For example, state PUCs are typically given exclusive jurisdiction to determine whether a telephone utility should be permitted to close a business office in a given community.

PUCs are also commonly charged with the exclusive responsibility to enhance competition by adjusting regulation to match the degree of competition in the marketplace so that costs associated with running a utility do not deter new telephone service providers from entering the market. State PUCs must ensure that telephone rates are not unreasonably preferential, prejudicial, predatory, or discriminatory and are applied equitably and consistently throughout its jurisdiction. Additionally, PUCs may supplement federal law by enacting their own rules and regulations governing pay-per-call services, unsolicited advertisements, automatic dial announcing devices, or any other feature of local telephone service that might adversely affect consumers.

An individual, partnership, or corporation may not normally offer local telephone service without complying with PUC rules and regulations. In most states, the PUC requires that before a telephone company may provide local service each company must obtain (1) a certificate of convenience and necessity; (2) a certificate of operating authority; or (3) a service provider certificate of operating authority. PUCs may revoke or amend a certificate of convenience and necessity, a certificate of operating authority, or a service provider certificate of operating authority after notice and hearing if it finds that the certificate holder has never provided or is no longer providing service in all or any part of the certificated area. PUCs may also require one or more public utilities to provide service in an area affected by the revocation or amendment of a certificate held by a public utility.

Organized for public purposes to more efficiently serve its customers, telephone companies are usually granted special privileges and powers in addition to those that they possess as private corporations. For example, telephone corporations, telephone cooperatives, and foreign telephone companies are often given the power of eminent domain, which gives these entities a right-of-way to erect, construct, and maintain necessary stations, plants, equipment, or lines upon, through, or over private land. The delegation of the state’s power of eminent domain has been held valid because of the public good derived from installing telecommunications systems on private property.

On the other hand, local telephone companies have no absolute right to use city streets to erect telephone poles or configure their facilities and networks. Instead, telephone companies must first obtain consent from the municipal authorities of the city in which they are seeking to provide telephone service. This consent is commonly manifested by the grant of a franchise from the governing municipal authority, and PUCs should not unreasonably restrict the rights and powers of municipalities in granting or refusing a telephone company the right to use city streets. However, cities, towns, and villages have no right to deny telephone companies all use of their streets, and when a municipal corporation unlawfully rejects a telephone company’s application to erect poles and string wires along certain public streets, it abandons the right to prescribe the streets on which the line will be constructed.

Inside State Regulation of Telephone Companies and Services