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Chapter 2 - Background

2.9 The FCC and AT&T Regulation -- 1934-1946

President Franklin Delanor Roosevelt and the “New Deal” Congress were elected into office in 1932 with the mandate to use the power of government to escape the grips of the Great Depression. Corporate capitalism was seen to have run its course, and a new means of creating economic growth was needed. One way was for the Federal Government to exercise its power and pass legislation regulating certain “public service” industries – those where the polity had retained, or was thought needed to have, institutional presence. A Congressional Investigative Committee reported in 1934 on the telephone and telecommunications industries that “at the present time there is little, if any, Federal regulation of the rates, practices, and charges of the several branches of the communications industry.”410

The importance of the (telephone) industry calls for actual and not nominal regulation. Telephone business is a monopoly – it is supposed to be regulated. Thus far regulation, particularly by the Federal Government, has been nominal largely because Congress has not made appropriations sufficient to enable the Interstate Commerce Commission to give effect to existing statutes.411

By early February, various bills to create a new regulatory commission for communications had been proposed in both Houses of Congress.412 After President Roosevelt went public with support for such legislation on February 26, bills were introduced in both Houses the following day. President Gifford of AT&T immediately objected to provisions giving the Federal Communication Commision (FCC) power to void or modify contracts by carriers (“goes almost the whole way toward substituting public management in place of public regulation”), to approve all equipment or service exchanges among parent and subsidiaries, and to require carriers to solicit competitive bids for all equipment and service purchases (“revolutionary”).413] After months of negotiations and behind-door intrigue, the proposal for a Congressional study of communications, read AT&T, was dropped and AT&T stopped protesting. On July 11, Congress passed the Communications Act of 1934 (the Act).414 The two principle objectives were: lower costs, and “universal service” – a phone for everyone.415

The Act did not require extended debate, after all Congress was simply trying to take the historical record of communications regulation and vest it in a dedicated administrative agency. In fact, the agency was not new, but simply an enlarged Federal Radio Commission (FRC); created by the Radio Act of 1927. In essence, the Act took the language and concepts first codified in the ICA of 1887, and as changed over time, merged them with the Radio Act, and gave them to a renamed, and slightly changed, agency – the Federal Communications Commission (FCC): (“..for the purpose of securing a more effective execution of this policy by centralizing authority heretofore granted by law to several agencies..”). Thus did the metaphor of transportation become formally embedded in the language of telecommunications regulation. No longer would communications regulation have to be squeezed into the busy agenda of the ICC.

The FCC consists of commissioners appointed by the President and responsible to Congress.416 The commissioners are supported by a number of bureaus that develop, recommend and perfect regulation on behalf of the commissioners who approve their actions by vote. The Common Carrier Bureau (CCB) is the bureau responsible for telephone, or “common carrier,” regulation – Title II regulation in the Act. A common carrier is “any person engaged as common carrier for hire, in interstate or foreign communications by wire or radio or in interstate or foreign radio transmission of energy” (excluding radio broadcasting).”417 All FCC decisions are subject to appellate review, and the courts can reverse any decision when it thinks the FCC has exceeded the authority granted to it under the Act.

Key provisions of the Act are:

(a) Entry and exit authority (Section 214 Authority);
(b) Tariff filing and reasonable rate requirements;
(c) Nondiscrimination in providing service and interconnection to other carriers upon reasonable request;
(d) Financial reporting, record keeping, and regulatory accounting requirements;
(e) Complaint procedures.418

Legislation had proceeded quickly for many of the thorniest issues had been slated for three FCC investigations: intercompany transactions which might affect services and charges,419 the relationships between and among telephone and telegraph companies, and exclusive contracts by telegraph companies to furnish service in public places.

The first investigation was known as the Special Telephone Investigation (STI) and was led by the newly appointed Commissioner with telephone experience – Paul A. Walker. Walker chose to conduct the investigation as a Congressional investigation, and did not allow AT&T to introduce their own, or to cross-examine any, witnesses.420 After nearly two years of hearings and fact collecting, the STI was concluded in June 1937. Then in 1938, in an unusual move, Walker issued a Proposed Report, one very critical of AT&T and recommending such actions as direct regulation of WE’s prices, and competitive bidding all purchases. The frosty relations between Walker, and to a lesser extent the FCC, and AT&T had just turned considerably colder. AT&T tried to counter Walker’s Proposed Report with a point-by-point public rebuttal, and behind the scenes lobbying with the other Commissioners. The FCC issued its Report on the Investigation of the Telephone Industry in the United States in June 1939; it became known as the Walker Report. It had white-washed the more controversial points and proved to be a dud – no legislation, the ostensible objective, resulted. Neither did it gain much press, as the building drama of World War II had absorbed the public’s attention.

  • [410]

    FCC, p. 571

  • [411]


  • [412]

    For an excellent summary review of the events leading up to the FCA, see Paglin pp. 44-48. A more thorough study is found in Where Water Falls, By Senator Dill 1970.

  • [413]

    Paglin, p. 47

  • [414]

    Licensing and regulation of radio broadcasting stations occupied much more time than did common carrier communications.

  • [415]

    The Federal Government could only regulate interstate service. The States were responsible for intrastate service.

  • [416]

    See Telecommunication and the Law pgs 1-26

  • [417]


  • [418]

    Telecommunication and the Law pgs9

  • [419]

    Paglin, p. 47: It was designed particularly to develop the facts with respect to intercompany transactions and to the relation of holding companies to operating companies. State regulation of communication companies had been greatly handicapped because the State commissions had been unable to get information of the type which the Commission was here directed to obtain.

  • [420]

    Stone, p. 62