ABSTRACT
Given the deficiencies of rate-of-return regulation, the FCC and state regulators have considered alternative approaches. Chief among these are price focused regulations, or price caps. Under price caps, regulators apply rules so that the average price of a basket of services remains the same. Prices of individual services within a basket may rise or fall. There are two features to keep in mind when analyzing price caps. Both encourage efficiency: productivity index and profit sharing. Setting a productivity index is a critical step in price cap regulation. The Communications Act of 1934 (Act) charges this Commission with regulating 'so as to make available to all the people of the United States a rapid, efficient, Nationwide, and worldwide communication service with adequate facilities at reasonable charges'. In the 1950s and 1960s, technological developments began to lower economic barriers to entry into the telephone business and to put pressure on the boundary between telephone companies and other firms.
