 in excess of marginal cost for long distance service. AT&T's Long Lines Division then shared the take with the local telephone companies via the separations and settle- ments process. While the rules for this were arcane, they generally involved dividing the fixed cost of local service between interstate and intrastate jurisdic- tions. The interstate portion was covered via long distance settlements. The local companies' share of the long distance bill was calculated based on both the proportion of line usage that was interstate and the company's relative invest- ment: A local telephone company with higher average costs, like most of the independents, would thus get a higher percentage of the toll-it could even exceed 100%. Urban Bell System subscribers were, in effect, paying part of rural subscribers' bills. This system dated back to a pivotal decision by the U.S. Supreme Court in 1930, Smith V. Illinois Bell. That ruling held that local telephone lines were, in part, subject to federal jurisdiction because they carried a mix of interstate and intrastate traffic. The net result was to move some of the cost of local service onto the monthly toll bill. This decision has remained the law of the land. The FCC eventually decided to recover much of this fixed cost on a fixed basis, rather than from usage charges, thus resulting in the "FCC line charge" on mod- ern phone bills. Ma Bell and Her "Natural Monopoly, 1876-1969 Less widely discussed is the private benefit that AT&T received from the policy of universal service. The value of a network is in large part a function of the number of users [5]. If the telephone were a luxury, then certain tasks would have to be left to other media, such as letter post. Universal service, among other things, allowed businesses to count on their customers' having a telephone, thus making business lines more valuable. By enthusiastically embracing universal service as a policy goal, AT&T both protected its monopoly and grew its busi- ness. Regulation of its prices was an acceptable