Competition in the terminal equipment market after Carterfone

AuthorJoseph P. Fuhr
Published date01 September 1983
Date01 September 1983
DOI10.1177/0003603X8302800304
Subject MatterArticle
The Antitrust Bulletin/Fall
1983
Competition in the terminal
equipment market after Carter/one
BY JOSEPH
P.
FUHR, JR. *
Introduction
669
In 1968, the Federal Communications Commission in the land-
mark Carterfone' decision permitted competition in the terminal
equipment market. Prior to this decision, it was illegal to attach
without the telephone company's approval any devicewhatsoever
to the telephone company's property. The Carter/one decision
voided AT&T's "foreign attachment'? tariff and permitted inter-
connection
of
terminal
equipment-that
is, the connection of
non-telephone company supplied
equipment-to
the telephone
network. Accordingly, before
1968
the entire terminal equipment
market was controlled by the telephone companies and their
nonregulated affiliates.' Since Carter/one, interconnect firms
Assistant Professor, Department of Economics, Widener Univer-
sity, Chester, Pennsylvania.
In re Use of the Carterfone Device in Message Toll Telephone
Service, 13 EC.C.2d 420 (1968).
2M. R. Irwin, The Telecommunications Industry: Integration
~rsus
Competition 90 (New York: Praeger Publishers,
1971).
3Stomberg-Carlson was the only firm not affiliated with a tele-
phone company.
© 1984by Federal Legal Publications. Inc.
670 : The antitrust bulletin
have been able to penetrate less than 5 percent of the market. 4An
examination of the reasons behind these firms' control of so
small a share
of
the market forms the basis of this article.
Besides the recently settled United States v. American
Tele-
phone and Telegraph case, there have been numerous private
antitrust suits concerning AT&T's conduct in the terminal equip-
ment market. Several of these private suits have been settled.5
However, other cases are still pending." For example, in February
1983, Litton was awarded $276.7 million in treble damages from
AT&T.
7AT&T was found liable for using its access monopoly to
monopolize the terminal equipment market. AT&T is in the
process of appealing this decision. Also, in March 1983, Jack
Faucett Associates began a class-action challenge of AT&T's
conduct in the terminal equipment market. Thus, even with the
Justice Department settlement, the conduct of AT&T in the
terminal equipment market remains an important issue. This
article will help clarify some
of
the issues behind the recent AT&T
settlement.
4The level
of
penetration can be measured in various ways. In
1980, the total number of interconnect telephones was 4.45 million. In
the same year, the total number
of
telephone company-supplied tele-
phones was 180.3 million. Thus, only about 2.5 percent
of
all telephones
were interconnected telephones. However, around 20 percent of the
PBX market was controlled by interconnect companies.
5E.g., Essential v.
AT&T,
610 F.2d 114 (3d Cir. 1979); Jarvis v.
AT&T,
481 F. Supp. 120 (D.C.D. 1978); Northeastern Telephone Co. v,
AT&T,
651
F.2d 76 (2d Cir. 1981).
6E.g., Faucett v.
AT&T,
1983-1
Trade Cases (CCH) 165,285, at
69,683 (D.C.D. 1983); Litton v.
AT&T,
700 F.2d 785 (2d Cir,
1983);
Phonetele v.
AT&T,
664 F.2d 716 (9th Cir.
1981);
Sound, Inc. v.
AT&T,
631
F.2d 1324 (8th Cir.
1980).
7Litton v.
AT&T,
700 F.2d 785 (2d Cir.
1983).

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