Question

For more than 50 years, AT&T (long distance calls) and Bell (local calls) were regulated by the Federal Communications Commission under cost-of-service ratemaking. AT&T sought out this type of regulation by the FCC. One of your readings concludes: “Regulation is acquired by the industry and is designed and operated mainly for its benefit.” Describe two ways in which AT&T used FCC regulation for its benefit (before the 1984 breakup of AT&T).

Answer 1

First, the AT&T monopoly was a creation of government regulation that forbade and discouraged competition and innovation in numerous ways. Monopoly was a great benefit to AT&T.

Secondly, the FCC unified telephone rental rates for the next two years, after which AT&T became free to charge whatever it wants or get out of the leasing business altogether.

Also, as AT&T began purchasing competitors, it attracted the attention of antitrust regulators. To avoid antitrust action, Vail agreed to the Kingsbury Commitment of 1913 deal with the government. One of the three terms of the agreement forbade AT&T from acquiring any more independent phone companies without the approval of the Interstate Commerce Commission.Also included in the Kingsbury Commitment was the requirement that AT&T allow competitors to connect through its phone lines, which reduced the incentive of these companies to build competing long-distance lines.