Competition in the terminal equipment market after Carterfone

• Published date: 01 September 1983
• Date: 01 September 1983
• DOI: 10.1177/0003603X8302800304
• Subject Matter: Article

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).