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Working Paper

Deregulation After Divestiture: The Effect of the AT&T Settlement on Competition

Daniel Kelley.  

OSP Working Paper 8 (April 1982) discusses the likely effect of the settlement of the Justice Department's 1974 monopolization suit against the American Telephone and Telegraph Co.  That settlement will allow substantial deregulation of interexchange telecom markets. It requires AT&T to restructure itself into two separate businesses. AT&T will own Western Electric, Bell Telephone Laboratories, and the entire long distance business now provided by the AT&T long lines division and the Bell Operating Companies (BOCs). The BOCs will offer local telephone service only.

Kelley notes that deregulation of interexchange services becomes feasible after restructuring because AT&T control of bottleneck local distribution facilities had been the primary barrier to increased competition in telecommunications markets.  After restructuring, however, AT&T will continue to control over 90 percent of the interexchange telecommunications market.

Due to that 90 percent concentration, Kelley argues that the telecom industry differs substantially from other recent candidates for deregulation such as airlines, trucking, and energy.  Kelley therefore discusses the economics of the industry, considers the costs and benefits of deregulation, and places the issues in the context of the general deregulatory trend of the 1970s and early 1980s.

Issued: April 1982
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