Abstract
The current status of the law upholding limited liability tariff provisions for telephone companies, as espoused by the courts and agencies, is based on various justifications which have, for the most part, been asserted since the Interstate Commerce Act was amended in 1910 to apply to telegraph and telephone companies. These justifications are described first. Then, utilizing the historical background provided in chapter 2, the flaws and inadequacies embedded in these justifications, as well as how to correct them in order to develop appropriate prospective liability rules, are discussed. The repetition of these flaws in the context of the recent FCC order on mandatory detariffing or by continued application of the traditional regulatory contract theory are described in the concluding section.
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Notes
The relationship between public utilities and common carriers will be explained in chapter 4.
Although economists would likely argue that the rate approved by the commission inherently reflects the level of risk (lower liability) faced by the utility, PUCO’s assertion is historically accurate in that the lesser degree of liability predated the existence of PUCO and necessarily any of its orders setting rates. Therefore, the lesser liability could not have been given in exchange for lower rates. In any event, it is clear that, in the leading case proposing the regulatory contract theory, the alleged contractual quid pro quo by the regulatory commission is factually inaccurate.
In this regard, it should be recalled that the common law rule set forth in Union Pacific R.R. Co. v. Burke elaborated upon the presumptive rule of unlimited common carrier liability by further specifying the conditions under which the carrier can limit its liability with customers. The impact of this rule, due to its effect on transaction costs, may also be less economically efficient than a rule of presumptive limited liability. However, such a justification has not been used in prior cases upholding telephone companies’ limited liability provisions.
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© 1999 Springer Science+Business Media New York
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Cherry, B.A. (1999). Traditional Justifications and Their Flaws. In: The Crisis in Telecommunications Carrier Liability. Topics in Regulatory Economics and Policy Series, vol 32. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4993-2_3
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DOI: https://doi.org/10.1007/978-1-4615-4993-2_3
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-7267-7
Online ISBN: 978-1-4615-4993-2
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