1 Telecom in the US in 1960 AT&T had Operated as an Integrated Monopoly for Over 50 Years New Technologies – Large and Small – Now Provided Competitive Opportunities –Microwave Radio Systems for Transmission –Semiconductor Devices for Switching Systems –Miniature Connectors for Terminal Equipment –Tone Signaling

2 Regulatory Environment – AT&T was very Large and Growing Fast FCC Exploited New Technology to Slow Growth –Allowed private use of microwave radio (over 880) –Allowed connections to the network (Carterfone) –New Entrants (MCI) offered Long Distance service –Deregulated Terminal Equipment –Constrained the Provision of Information Services (Computer Inquiries) AT&T Resisted all these Initiatives DOJ Filed an Antitrust Suit in 1973

3 The Settlement In Mid- 1981, Judge Greene Signaled that AT&T would probably Lose Various Injunctive Relied Options were Explored but no agreement was reached Several Divestiture Options were Explored –Divest Part of Western –Separate Competitive (Long Distance Terminal Equipment and Manufacturing) from Monopoly (Local Service)

4 Pros and Cons of Divestiture Pros –AT&T Kept Bell Labs and could Enter the Computer Business –It was a “clean” solution – resolving both long distance and manufacturing issues Cons –Extremely Complex and Costly –Effects on Service were Unclear

5 Implementation Issues Technically, Administratively and Operationally Complex –Where was the Point of Interconnection? –How big were the local service areas (LATAs)? –How was equipment to be allocated? –Local switches had to be reprogrammed –Billing and Private Line Provisioning –Equal Access for All Long Distance Carriers

6 Short Term Effects (Three to Five Years) Monopoly/Competitive Distinction was soon Abandoned Service Levels were Maintained (except for Private Line Provisioning) LD Competition Increased, but AT&T Maintained its Dominance Local Telcos Pressed for Entry into LD Markets

7 Medium Term Effects (15 Years) Telecom Act 0f 1996 –Divestiture Restrictions on BOCs lifted –Local to become Competitive AT&T No Longer Dominant in LD AT&T was Unable to Penetrate the Computer Market Telecom Bubble Grew and Collapsed

8 Current Situation Telcos just one provider of Telecom LD Carriers absorbed by local Telcos Industry Dominated by Wireless, Internet and Cable – All Markets are Competitive Telephone Equipment Business Overtaken by IP Technology

9 Lessons to be Learned Industry Forms may Be Influenced more by Technology than by Regulation/Legal Action Industry Changes Spawned by Litigation are Expensive and Disruptive, and may have Unexpected Results