Is the Theory behind U.S. v. AT&T Applicable Today?

• Author: Timothy J. Brennan
• Published date: 01 September 1995
• DOI: 10.1177/0003603X9504000301
• Date: 01 September 1995
• Subject Matter: Vertical Integration by Local Telephone Companies: Economics, Law and Politics

The Antitrust Bulletin/Fall 1995

Is the theory behind U.S. v.

AT&T

applicable today?

BY

TIMOTHY

J. BRENNAN*

1.

Introduction

455

Ever since it was announced in 1982 and enacted in 1984, the

Modified Final Judgment (MFJ) adopted to settle the Department

of Justice's 8-year antitrust suit against AT&T has been the sub-

ject

of intense scrutiny and debate among lawyers, economists,

policy makers, industry participants, and the public at large. Deci-

sions by the Department of Justice and the courts narrowed the

*Policy Sciences Graduate Program and Department

of

Economics,

University

of

Maryland, Baltimore, MD.

AUTHOR'S NOTE: This article was written while the author was a Gilbert

White Fellow at Resources

for

the Future; RFF's support is gratefully

appreciated. The author also has consulted with the Antitrust Division

of

the Department

of

Justice on telecommunications policy matters. Nothing

here represents the position

of

RFF, the Department

of

Justice, or any

of

their officials or personnel. The author appreciates very much the com-

ments

of

Robert Thorpe, Molly Macauley, David Loomis, Arthur McGrath,

and participants in the 14th Annual Rutgers Advanced Workshop in Regu-

lation and Public Utility Economics. All opinions and errors remain the

author's responsibility.

©1995 by Federal Legal Publications, Inc.

456

The antitrust bulletin

scope of these restrictions, only to intensify the decibel level from

their proponents, who asserted greater vulnerability to assorted

anticompetitive

threats,

and

their

opponents,

primarily

the

regional

Bell

operating

companies

(RBOCs).

Technological

changes, primarily through the digitization of wireline networks,

explosion in data communications, development of switched wire-

less systems, and plunging prices for complementary computers

and multimedia equipment have made the telephone industry even

more prominent. Among the policy responses, as I write, include

court petitions from some of the RBOCs to vacate the MFJ and

legislative proposals to eliminate the line-of-business restrictions.

Lost in the rush to reform is the idea that there were some rea-

sons to force AT&T to divest its local telephone operations. These

reasons may have been primarily theoretical, backed by interpreta-

tions of AT&T's predivestiture conduct rather than econometric

evidence that keeping local telephone exchange companies from

operating in other related markets would improve economic per-

formance.

One

can

debate whether

these

reasons

caused

the

divestiture, or whether they served as an intellectual rationale for

apolitical and legal decision. Nevertheless, unless one adopts a

completely deterministic view of the policy process, there is some

merit in asking the forgotten question:

If

the divestiture made

sense in 1984, why would it not make sense in 19951

The heated rhetoric surrounding this question is one com-

pelling motivation for a systematic assessment

of

whether the

"old" theory currently applies. Moreover, the conventional indica-

tors of whether antitrust complaints are justified are mixed in this

situation. The so-called first theorem of

antitrust-If

acompetitor

complains about X, X must be

good-is

not helpful. The tele-

phone companies whose practices are currently circumscribed by

the MFJ stand as both input suppliers and as potential competitors

to the complaining firms.

It

may

be

useful

to

look

at

the

leading

examples.

The

economist's instinct would be to treat AT&T's or MCl's opposi-

tion to allowing local telephone companies to provide interex-

change

service

as

yet

another

example

of

using

antitrust,