The Bell Doctrine: Applications in Telecommunications, Electricity, and Other Network Industries

By Joskow, Paul L.; Noll, Roger G. | Stanford Law Review, May 1999 | Go to article overview

The Bell Doctrine: Applications in Telecommunications, Electricity, and Other Network Industries


Joskow, Paul L., Noll, Roger G., Stanford Law Review


In this article, Professors Paul Joskow and Roger Noll examine Professor Baxter's most "visible" contribution to antitrust policy: the Bell Doctrine. The Bell Doctrine, so named because it underpins the 1983 break up of AT&T into the Baby Bells, can theoretically be applied to other network industries where regulated monopolies control both monopoly segments and potentially competitive segments of the industry. The primary purpose of the article is to examine the economic theory of the Bell Doctrine and to evaluate the current applicability of the Bell Doctrine in light of changes that have taken place in regulated infrastructure industries. After describing the development of the Bell Doctrine and reviewing its application in the U.S telecommunications industry, the authors survey reforms in other industries and in other countries. The recent reforms in the electric power industry are closely examined as a case study. Professors Joskow and Noll conclude that the Bell Doctrine continues to dominate the policy analysis of reforms in network industries across the globe, even if easy application of the Bell Doctrine's principles and proposed remedies is no longer possible.

William Baxter's contributions to antitrust analysis and policy are numerous and impressive, but none is more visible than the divestiture of the American Telephone and Telegraph Company (AT&T) in the settlement that terminated United States v. AT&T.(1) The fundamental theory underpinning the Modification of Final Judgement (MFJ), a theory named the "Bell Doctrine" by Professor Baxter,(2) is that regulated monopolies have the incentive and opportunity to monopolize related markets in which their monopolized service is an input, and that the most effective solution to this problem is to "quarantine" the regulated monopoly segment of the industry by separating its ownership and control from the ownership and control of firms that operate in potentially competitive segments of the industry.

At the time of AT&T's divestiture, the vast majority of telephone subscribers had no reasonable alternative to monopoly local telephone companies for obtaining access to the national telecommunications network and for acquiring most telecommunications equipment and services, including ordinary direct dial long distance. According to the Bell Doctrine, local access monopoly permitted the only fully integrated telecommunications companies, AT&T and GTE, to monopolize long distance service, information services, and equipment that is used by telephone companies (e.g., switches) and customers (e.g., telephones). The point of the AT&T divestiture was to eliminate the incentive and opportunity of Bell Operating Companies (BOCs) to use their control over local access to monopolize these other potentially competitive markets. The expansion and enhanced enforcement of regulatory rules requiring AT&T to give competing suppliers of long distance service access to its local networks was viewed as an ineffective public policy alternative to full separation of the ownership and control of potentially competitive segments from what were then thought to be durably monopolized segments. Moreover, the benefits of enhancing competition by requiring divestiture were assumed to be significantly greater than any economies of vertical and horizontal integration that AT&T argued would be lost as a consequence of vertical and horizontal divestiture.

The Bell Doctrine theoretically applies to a variety of other industries where incumbent, vertically integrated, regulated monopolies control both monopoly segments and potentially competitive segments. Among these industries are electricity, natural gas, railroads, and other transportation sectors. Although each is unique in some important ways, all have several significant similarities. Each industry is constructed as a large (sometimes national) network for transporting its fundamental product (information, energy, cargo) between any two feasible points of origin and destination. …

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The Bell Doctrine: Applications in Telecommunications, Electricity, and Other Network Industries
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