Regulation, deregulation, and antitrust in the telecommunications industry

• Date: 01 March 1983
• Author: John R. Woodbury,Stanley M. Besen
• Published date: 01 March 1983
• DOI: 10.1177/0003603X8302800102
• Subject Matter: Article

The Antitrust Bulletin/Spring

1983

39

Regulation, deregulation, and antitrust

in the telecommunications industry

BY STANLEY M. BESEN* and

JOHN

R. WOODBURY**

Introduction

Two decades ago, the U.S. domestic telecommunications market!

was a relatively simple place. A single vertically integrated firm,

the American Telephone and Telegraph Company (AT&T), pro-

vided, without competition, virtually all long-distance telephone

service, produced the vast majority

of

all telephone equipment,

and marketed that equipment and local and long-distance service

through a series

of

more or less wholly owned franchised local

monopolies reaching almost the entire U.S. population. What

little competition AT&T faced came in the form

of

the Western

Union Company, which, along with

AT&T,

provided private line

service to large commercial and industrial customers.'

• Senior Economist, The Rand Corporation .

•• Economist, Federal Trade Commission.

1This article does not treat the market for international telecom-

munications, nor is it concerned with developments that affect primarily

the television industry.

2This article does not address issues

of

federal-state jurisdiction.

Throughout, the terms that we use refer solely to those aspects

of

AUTHORS' NOTE: The views in this article are the authors' own and do

not reflect those

of

The Rand Corporation or the Federal

Trade

Commission. We are grateful to William Reece

for

his helpful com-

ments.

©1983by Federal LegalPublications, Inc.

40 The antitrust bulletin

In 1959, however, in a decision

that

turned

out

to be the first

of

a long series

of

developments

that

would profoundly affect the

structure

of

domestic telecommunications, the Federal Communi-

cations Commission (FCC) allocated aportion

of

the

radio

frequency spectrum to users desiring to construct their own

private microwave communications systems.' Now, more

than

two decades later, the shape

of

the industry is far different from

what it was then; the changes

that

occur in the next decade are

likely to be even more significant. The monopoly possessed by

AT&T in long-distance service is, even now, being slowly eroded

by firms offering both long-distance

and

private line services.

And

greater changes have occurred in the terminal equipment

market, where a veritable flood

of

suppliers compete with AT&T

in the provision

of

products ranging from sophisticated customer

switching equipment to ordinary telephone handsets. Moreover,

there are those who believe

that

even local exchange monopolies

are threatened by cable television systems, digital termination

systems, multipoint distribution services,

and

cellular radio sys-

tems. At the same time, arecent

FCC

decision will permit AT&T

to

provide many new services on an unregulated basis, so long as

it does so through separate subsidiaries.

And

last,

but

certainly

not

least, the settlement

of

agovernment antitrust suit will sever

the

local operating companies from

AT&T,

thus removing what

many have contended was the source

of

that

company's power in

the

interexchange

and

terminal equipment markets.

telecommunications

services

that are or

will

be provided within the

jurisdiction of federal regulatory authorities. "Long-distance services"

are ordinary telephone calls that require payments in addition to those

for local

service.

"Private line"

services

are communications channels

reserved

exclusively

for particular uses or users, such as connecting the

various geographically dispersed offices of a firm. "Interexchange

communications" are communication paths

between

two local exchange

areas and can refer either to private line or long-distance

services.

"Switched"

services

are those that permit the user of a channel to

communicate with one of any number of other users. Thus, ordinary

long-distance

service

is a

switched

service,

while

private line

services

mayor may not be.

3Allocation of

Microwave

Frequencies Above 890 Me (Above

890), 27

EC.C.

359 (1959), on reconsideration, 29

EC.C.

825 (1960).