The enduring lessons of the breakup of AT&T: a twenty-five year retrospective.

• Author: Yoo, Christopher S.
• Position: Introduction

1. LOOKING BACK AT DIVESTITURE: WHAT WORKED? WHAT DIDN'T? II. EQUAL ACCESS AS THE NEW REGULATORY PARADIGM: THE TRANSITION FROM RATE REGULATION TO ACCESS REGULATION III. KEYNOTE ADDRESS BY THE HONORABLE RICHARD A. POSNER IV. STRUCTURAL SEPARATION IN DYNAMIC MARKETS: LESSONS FOR THE INTERNET, LESSONS FOR EUROPE V. FROM THE MFJ TO TRINKO: THE ESSENTIAL FACILITIES DOCTRINE AND THE PROPER PROVINCES OF ANTITRUST AND REGULATION VI. REGULATION BY CONSENT DECREE: LESSONS FOR MICROSOFT AND BEYOND VII. THE FUTURE OF INTERCARRIER COMPENSATION On April 18-19, 2008, the University of Pennsylvania Law School hosted a landmark conference entitled "The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective." (1) This Conference was the first major event for Penn's newly established Center for Technology, Innovation, and Competition (CTIC), a research institute committed to promoting basic research into foundational frameworks that will shape the way policymakers think about technology-related issues in the future.

   The breakup of AT&T represents an ideal starting point for examining the major threads of telecommunications policy that have emerged over the past quarter century. Although the Federal Communications Commission (FCC) had already begun implementing many of the measures eventually incorporated into the consent decree that settled the case, commonly known as the Modification of Final Judgment (MFJ), (2) the divestiture of AT&T's local operating companies and the accompanying mandate to provide equal access to all long-distance and information service providers (ISPs) nonetheless represents the major milestone in the attempt to promote greater competition in the telecommunications industry.

   The Conference brought together what one attendee called "the most distinguished group of telecommunications scholars ever assembled in one room." The final conference lineup included two former FCC Commissioners, six former FCC Chief Economists, and four former Heads of Economic Analysis of either the Justice Department's Antitrust Division or the Federal Trade Commission (FTC). Many of the panelists and moderators played key roles in shaping the policy either as members of the Justice Department staff that litigated the case or of the FCC staff charged with implementing the decree and integrating it into the regulatory regime governing telecommunications. The conference was attended by distinguished scholars as well as staff from the FCC and the FTC interested in telecommunications and antitrust policy. This unique combination of subject matter, presentations, and audience made for a very memorable event.

1. LOOKING BACK AT DIVESTITURE: WHAT WORKED.'? WHAT DIDN'T?

   The initial panel brought together a distinguished group of people who played key roles in the AT&T litigation. Their presentations offered differing opinions about whether the breakup of AT&T represented a policy success or a policy failure, as well as which aspects of the breakup played out as expected and which aspects emerged as surprises.

   Roger Noll, who helped develop the government's case against AT&T, noted how that case sharpened the debate between, and improved the quality of research into, the optimistic and pessimistic visions of the perfectibility of regulation and whether antitrust can compensate for regulation's shortcomings. In addition, the experience implementing the breakup of AT&T revealed that antitrust courts were no better at dealing with anticompetitive behavior than were regulators. Noll nonetheless suggested that the emergence of a competitive Internet and wireless industry would have been delayed if the court had not mandated equal access to and interconnection with the local telephone network.

   Paul MacAvoy, who was one of the defense experts in the government's case against AT&T, focuses on an anomaly of divestiture: the price of long-distance service relative to marginal cost (also known as the Lemer Index) surprisingly increased after divestiture and increased still further following the enactment of the Telecommunications Act of 1996 (1996 Act). This fact suggests that these measures may not have been as successful in promoting meaningful competition in the telephone industry as generally thought.

   Alfred Kahn, who served on AT&T's National Advisory Board during the early stages of the case, observed that the vision of promoting competition through vertical disintegration underlying the breakup of AT&T was not realized until after the enactment of the 1996 Act. He believes this has been unfairly maligned. Kahn found the same issues are being replayed in the debates over network neutrality, which he called a "terrifying abomination." The better solution, in Kahn's opinion, is to promote the emergence of a third independent Internet access provider, most likely in the form of wireless.

   Joseph Weber was the Director of Network Architecture Planning for AT&T. He helped craft the MFJ's technical appendix, oversaw much of the actual implementation of the divestiture, and provided an...