Telric vs. Universal Service: A Takings Violation?

Abstract

Local phone companies are trapped between two utterly contradictory pricing systems. At the retail level, they are forced by federal and state law to offer universal service to all customers at relatively equal prices - and often at prices that are inversely related to the cost of service (as when residential users are charged less than business customers, even though they are more expensive to serve). But on the wholesale level, the Federal Telecommunications Act of 1996 forces local phone companies to lease their equipment and lines to their competitors at rates that are based on the cost of service.

This combination of contradictory pricing systems is unwise and potentially disastrous. It allows competitive phone companies to enter markets where customers are relatively over-charged, while leasing the local phone companies' lines at cost. Meanwhile, the local phone companies are left serving the under-charged customers (i.e., those in rural and residential areas) due to their universal service obligations. As a result, local phone companies may have a viable claim that the Takings Clause has been violated.

Keywords: telecommunications, constitutional, Takings, TELRIC, regulation

JEL Classification: K10, K20, K23, K30, L96