Which problem did the interstate commerce commission have with the railroads?

The Interstate Commerce Act (1887) was signed by President Grover Cleveland on February 4, 1887, while Theodore Roosevelt was ranching in the Dakotas and writing books. Although the act was passed long before he entered the White House, the Interstate Commerce Act is important to Roosevelt. As president, he would use it to regulate America’s railroads.

Railroads were the first “big business” in the United States. They grew at a rapid pace after the Civil War. Farmers and ranchers came to rely on trains to get their goods to market. The federal government exercised a light hand over industry at that time, assisting the expansion of railroads with land grants (until 1871) and little oversight. The railroads gave preferential treatment (in the form of lower rates) to large shippers. Small farmers and businessmen felt this was unfair, and eventually they petitioned Congress to force the railroads to be evenhanded. The result was the Interstate Commerce Act, which attempted to limit corporate power. It regulated the railroads so they had to offer “reasonable and just” transportation rates. Additionally, railroads could no longer provide secret, beneficial rates to certain shippers. In fact, the Interstate Commerce Act required rates to be published so everyone could see them. It also created the Interstate Commerce Commission to make sure the industry complied with the Act. However, weak enforcement ensured that the Interstate Commerce Act languished on the books, nearly forgotten until Theodore Roosevelt became president. 

Monopolistic behavior by the railroads continued unabated, prompting President Roosevelt to seek to reform and regulate the industry. He took the first step by having his administration bring suit in 1902 (decided in 1904) against a railroad monopoly called the Northern Securities Company. Soon after, he signed two important pieces of regulatory legislation, the Elkins Act in 1903 and the Hepburn Act in 1906. Both of these laws strengthened the powers of the Interstate Commerce Commission and acted as a brake on unjust activities by U.S. railroads.

In 1887 Congress passed the Interstate Commerce Act, making the railroads the first industry subject to Federal regulation. Congress passed the law largely in response to public demand that railroad operations be regulated. The act also established a five-member enforcement board known as the Interstate Commerce Commission. In the years following the Civil War, railroads were privately owned and entirely unregulated. The railroad companies held a natural monopoly in the areas that only they serviced.

Monopolies are generally viewed as harmful because they obstruct the free competition that determines the price and quality of products and services offered to the public. The railroad monopolies had the power to set prices, exclude competitors, and control the market in several geographic areas. Although there was competition among railroads for long-haul routes, there was none for short-haul runs. Railroads discriminated in the prices they charged to passengers and shippers in different localities by providing rebates to large shippers or buyers. These practices were especially harmful to American farmers, who lacked the shipment volume necessary to obtain more favorable rates.

Early political action against these railroad monopolies came in the 1870s from “Granger” controlled state legislatures in the West and South. The Granger Movement had started in the 1860s providing various benefits to isolated rural communities. State controls of railroad monopolies were upheld by the Supreme Court inMunn v. Illinois(1877). State regulations and commissions, however, proved to be ineffective, incompetent, and even corrupt. In the 1886Wabashcase, the Supreme Court struck down an Illinois law outlawing long-and-short haul discrimination. Nevertheless, an important result ofWabashwas that the Court clearly established the exclusive power of Congress to regulate interstate commerce. (See Gibbons v. Ogden.)

The Interstate Commerce Act addressed the problem of railroad monopolies by setting guidelines for how the railroads could do business. The act became law with the support of both major political parties and pressure groups from all regions of the country. Applying only to railroads, the law required "just and reasonable" rate changes; prohibited special rates or rebates for individual shippers; prohibited "preference" in rates for any particular localities, shippers, or products; forbade long-haul/short-haul discrimination; prohibited pooling of traffic or markets; and most important, established a five-member Interstate Commerce Commission (ICC).

Years later the ICC would become the model for many other regulatory agencies, but in 1887 it was unique. The Interstate Commerce Act challenged the philosophy of laissez-faire economics by clearly providing the right of Congress to regulate private corporations engaged in interstate commerce. The act, with its provision for the ICC, remains one of America’s most important documents serving as a model for future government regulation of private business.

Interstate Commerce Act, ch. 104, 24 Stat. 379 (1887) (codified as amended throughout 49 U.S.C. (1982)) (Act of February 4, 1887 (Interstate Commerce Act), Public Law 49-41, February 4, 1887; Enrolled Acts and Resolutions of Congress, 1789-; General Records of the United States Government, 1778 - 1992; Record Group 11; National Archives.)

[Red text reflects ]

"Section 1. That the provisions of this Act shall apply to any corporation or any person or persons engaged in the transportation of oil or other commodity, except water and except natural or artificial gas, by means of pipe lines, or partly by pipe lines and partly by railroad, or partly by pipe lines and partly by water, and to telegraph, telephone and cable companies (whether wire or wireless) engaged in sending messages from one State, Territory, or District of the United States, to any other State, Territory or District of the United States, or to any foreign country, who shall be considered to held to be common carriers within the meaning and purpose of this Act, and to any common carrier or carriers engaged in the transportation of passengers or property wholly by railroad (or partly by railroad and partly by water when both are used under a common control, management, or arrangement for a continuous carriage or shipment), from one State or Territory of the United States or District of Columbia, to any other State or Territory of the United States or the District of Columbia, or from one place in a Territory to another place in same Territory, or from any place in the United States to an adjacent foreign country, or from any place in the United States through a foreign country to another place in the United States, and also to the transportation in like manner of property shipped from any place in the United States to a foreign country and carried from such place to a port of transshipment, or shipped from a foreign country to any place in the United States carried to such place from a port of entry either in the United States or an adjacent country: Provided, however, That the provisions of this Act shall not apply to the transportation of passengers or property, or to the receiving, delivery, storage, or handling of property wholly within one State and not shipped to or from a foreign country from or to any State or Territory as aforesaid, nor shall apply to the transmission of messages by telephone, telegraph or cable wholly within one State and not transmitted to or from a foreign country from or to any State or territory as aforesaid.

"All charges made for any service rendered or to be rendered in the transportation of passengers or property for the transmission of messages by telephone, telegraph cable as aforesaid, or any connection therewith, and every unjust and unreasonable charge for such service or any part thereof is prohibited and declared to be unlawful; Provided, that messages by telegraph, telephone or cable, subject to the provisions of this Act, may be classified into day, night, repeated, unrepeated, letters and commercial, press, government and such other classes as are just and reasonable and may be charged for the different classes of messages. And provided further, that nothing in this Act shall be construed to prevent telegraph, telephone and cable companies from entering into contracts with common carriers for the change of services

Sec. 3 "That it shall be unlawful for any common carrier subject to the provisions of this Act, to make, or give any undue to any particular person, company, firm, corporation or locality, or any particular description of traffic in any respect whatsoever, or to subject any particular person, company, firm, corporation or locality, or any particular description of traffic to any undue or unreasonable prejudice or disadvantage in any respect whatsoever,

Section 6: "That every common carrier, subject to the provisions of this Act, shall file with the commission created by this Act, and to print and to keep open to public inspection, schedules showing all the rates, fares and charges for transportation between different points on. its own route and between points on its own route and points on the route of any othr carrier by railroad, by pipe line or by water when a through route and joint rate have been established [#disclosure] [This obligation becomes ][ at 113 (25th Annual Report of the ICC, 1911, concluded that, because of the word transportation, Sec. 6 did not apply to telegraph and telephone carriers, recommending to Congress that the Act be amended so that Sec. 6 did apply)]

[ at 112 ("A hearing had December 7, 1910, and as a result the Commission that telegraph and telephone companies doing an interstate ness were subject tO the provisions of Sections 1, 3, 15 and 20 Act. It -will be remembered that s 1 provides that charges be just and reasonable; s 3 forbids discrimination; s 15 provides machinery for the enforcement of ss 1 and 3, and relates to the method of keeping accounts and making It had previously been decided 41 that paragraph 5 of s 15, giving a shipper the right to route his shipments by the carrier, not apply to telegraph companies" citing Conf. Rul. No. 305 of March 13, 1911)]

Gives ICC oversight of compliance with the Pacific Railway Act by telegraph (and railroad) service. This applied only to telegraph companies given land grants to build telegraph lines (that's essentially all of them); includes interconnection and non discrimination obligations.

1906 Hepburn Act :: Limitation Liability

Gave ICC the power to set maximum railroad rates, institute "just and reasonable" maximum rates and abolished rebates and free rides to "loyal shippers." [Mann-Elkins Act, Laws] [ at 105 ("It has been repeatedly held that this part of the Commerce Act manifests the intention of Congress to assume legislative charge of the carrier's liability under its interstate shipments and, consequently, invalidates all legislation on that subject.")

Mann-Elkins Act of 1910

"In the Mann-Elkins Act of 1910 [enacted June 18, signed by Pres. William Taft], Congress classified interstate telephone and telegraph operations as common carrier activities and empowered the ICC to regulate their rates [i.e., receive complaints and determine whether rates were "unjust" and "unreasonable."]. [See , 256 U.S. at 571 (The Act "broadened the scope of the Act to Regulate Commerce to include 'telegraph, telephone and cable companies (whether wire or wireless)'")]

The basis for the legislation, reflected in the legislation history, was Congressional concern about the monopoly characteristics of these telecommunications industries. The advocates of the legislation states:

"Now the telegraph line and the telephone line are becoming rapidly as much a part of the instruments of commerce and as much a necessity of commercial life as the railroad. One of the greatest monopolies in this country today is a system of telephone and telegraph lines; and if it is right and proper to regulate the great railroad systems of this country in the interest of commerce, it is equally right to limit the telegraph and telephone companies.

Why should not these necessary instrumentalities which the citizens have to use, which are monopolies in their particular lines of business, be required to make reasonable charges; and if they are [Jones A-78] unreasonable, why should not the citizen be permitted to appeal to the Interstate Commerce Commission to have it determined whether the charges are or are not reasonable?"

William Jones, The Common Carrier Concept as Applied to Telecommunications. See also [ p 18] [ p 11] [ p. 10] [ 9]

The impact of the Manns Elkins Act was to transform common law obligations into statutory obligations (which meant carriers could not engage in individualized contractual negotiations), and established uniform rates. [, 256 U.S. at 572 ("Before the Act [of 1910], the companies had a common law liability... Thereafter, for all messages sent in interstate and foreign commerce, the outstanding consideration became that of uniformity and equity of rates [tariffs]... The rate became not, as before, a matter of contract by which a legal liability could be modified, but a matter of law by which a uniform liability was imposed. Assent to the terms of the rate was rendered immaterial because, when the rate is used, dissent is without effect.")] [ at 11 ("Government regulation of the accounting practices of wire communication carriers began with the Mann-Elkins Act of 1910. That act authorized the ICC to establish uniform systems of accounts for telegraph and telephone carriers, to make valuation studies of certain wire telegraph companies, and to be informed of extensions and improvements in order to keep these valuation studies up to date.")]

References

• Mann-Elkins Act, Pub. L. No. 218, ch. 309, � 7, 36 Stat. 544-45 (1910) (provisions relating to telegraph, telephone and cable companies repealed 1934)
• Commerce Court (Mann-Elkins) Act, Pub. L. No. 218, ch. 309, � 7, 36 Stat. 544 (1910) (amending Interstate Commerce Act of 1887, ch. 104, � 1, 24 Stat. 379 (1887)) (provisions relating to telegraph, telephone and cable companies repealed 1934).
• 24th Annual Report of the Interstate Commerce Commission (reviewing the Mann-Elkins Act, "the Commission expresses doubt whether Congress intended to place the numerous telephone companies, with provisions for interstate communication, under the regulation of the Commission ") (See Ch. Ajit Pai, FCC, 2017, arguing that he does not believe that Congress intended to place Internet service providers under the regulation of the Commission)

Telephone Companies Consolidation Act of 1921

"The Telephone Companies Consolidation Act of 1921 permitted the merger of telephone companies following ICC approval. The statute was premised on the conviction that the telephone industry was a 'natural monopoly.'" [Jones A-78]

In 1934 the ICC's jurisdiction over communications carriers was transferred to the newly created Federal Communications Commission. - the recommendation to transfer jurisdiction from the ICC to the FCC was based in part on the ICC's preoccupation with regulating railroads, the need for a specialized agency to deal with communications, and the growing power and skill of AT&T to influence governments.

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