The failure of antitrust and regulation to establish competition in long-distance telephone services

With the antitrust decree breaking up the Bell System in 1984, the federal court overseeing the Modification of Final Judgment took on the task of determining how markets for long-distance telephone service would evolve from a regulated public utility structure to an open, competitive one. The Justice Department was to monitor the growth of competition, and the Federal Communications Commission was to regulate entry and prices.

In effect, three regulatory organizations, through daily rulemaking, were to set new conditions that would make further regulation redundant and would effect competitive entry and pricing.

In the decade since the decree, those organizations developed elaborate procedures for specifying the service offerings of actual and potential competitors. Two main thrusts of "transition to competition" policy have emerged - prevention of competition from local carriers that were part of the Bell System and prevention of unauthorized price differences between AT&T and the smaller long-distance carriers.

The resulting effects on competition are the focus of this new monograph in the AEI Studies in Telecommunications Deregulation.

Paul MacAvoy concludes that antitrust and regulation have failed to make long-distance markets competitive, to the detriment of consumers seeking prices in line with the costs of providing long-distance services. MacAvoy assess the competitiveness of the major service providers - AT&T, MCI, and Sprint - in terms of changes in price-cost margins for all important long-distance services since 1984.

He shows that as service provider concentration has decreased, price-cost margins of the three carriers have increased.