I could understand in a small town where people could come in and use the phone, especially when it didn't cost anything. But small town life is different than city life. In the downtown of a large city there were too many people going by and you needed some controls. If you allowed anyone to come in and use the phone it would be always tied up and you'd pay a fortune for it.
While I agree that a "vast part of the U.S. had flat rate service", I wonder if that's more a function of land size rather than population. I'm not sure how big a city had to be to get measured services. In other words, I suspect a much larger part of the population of the country, esp postwar, was served by measured rate lines.
Smaller towns may have had flat rate service, but they were also party line oriented. I remember seeing old small town directories and almost all lines -- business and residential -- had a party line code on them. That meant sharing the line and the need to keep it open for other parties to use it.
Another factor in small towns was that the local area -- your free calling option -- was very small. Anywhere beyond was long distance. The toll might be only a dime or 15c, but still a toll. In contrast, the local zone in a city could encompass a million people.
That was part of it, but the cost and tie-up of a line was a big part of it. It was common for companies to have pay phones in hallways of each floor for employees to use. That meant an employee had to leave their work station to use the phone which was a longer loss of worktime than making a call from their desk.
In constant dollars, the cost of a local city call would be about $1.00 today back in the early 1960s and more before. If many employees are making calls frequently, that would add up to some serious money plus tie up lines and trunks which weren't as plentiful as today. (Many companies had internal private intercoms or PABX within the workplace.)
In Philadelphia, a separate phone company, Keystone, offered businesses flat rate lines and was popular for that reason.
As discussed here, the cost of too many phone calls as late as 1971 warranted a plot line in a TV sitcom where the parents put in a payphone for the gabbing kids. That plot line would be mysterious today since every kid has his own cell phone with hundreds of hours of talk time. But back then message units added up to serious money, and even more so as you go backward. Local phone rates did go up over time, but not as much as inflation.
In the early days of manual phones, according to the NYT, there was an moderately enforced 5 minute limit to calls. Somewhere they developed timed message units to go on the meters. Of course toll calls, even short distance ones, were timed.
I wonder how long talkers were handled in the older days. I don't know what the tarffis were. Manual operators in small towns would see it quickly. In automated offices, if trunking was a problem they'd be watching and catch it. Trunks were expensive in those days and limited.