The Economics of Innovation in the Telecommunications Industry

By John R. McNamara | Go to book overview
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The Telecommunications Industry Since 1984

AT&T had successfully fought antitrust litigation for almost a century, arguing that, as a natural monopoly, it was properly treated as a fully regulated public utility and that it was therefore immune from prosecution under antitrust legislation. The Department of Justice had filed an antitrust complaint against AT&T in 1949, but the company was successfully defended by the FCC, which argued that it had effective control over all aspects of AT&T's pricing ( Henck and Strassburg 1988, 190-191).

By the early 1970s, the emergence of economically viable competitors, the prospect of rapid technological advances under competition and the growing evidence that much of the telecommunications industry did not have the characteristics of a natural monopoly, had all weakened AT&T's case.

The final series of events leading up to the divestiture of the Bell operating companies (BOCS) from AT&T began on November 20, 1974, with the filing of an antitrust suit by the Department of Justice, many private lawsuits alleging illegal business practices having already been filed against the company. The Justice Department charged that AT&T used its market dominance and control of local service "bottlenecks" to suppress competition and increase its monopoly power. Justice sought the divestiture of the BOCs and Western Electric from AT&T.

AT&T responded to the federal suit with its traditional argument that it was immune from antitrust suits because it was pervasively regulated at the state and federal levels, and requested that the suit be dismissed. The suit was not dismissed, and preparations for trial began. The Justice


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The Economics of Innovation in the Telecommunications Industry


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