The Making of Energy and Telecommunications Policy

By Georgia A. Persons | Go to book overview

Chapter 5
Defining the Public Interest in Telecommunications

THE BELL SYSTEM MONOPOLY AND THE STRUCTURE OF THE TELECOMMUNICATIONS INDUSTRY

In the mid- 1970s, at the behest of AT&T, Congress began to explore the implications of a series of decisions rendered by the Federal Communications Commission (FCC) which promoted competition in an industry which had long been characterized by monopoly control and governmental regulation. Telecommunications had been regulated as a monopoly since passage of the Communication Act of 1934 in an industry overwhelmingly dominated by the Bell system. Historically the Bell system had operated with competitors upon the expiration of the original Bell system patents in 1893. Access to the Bell patents and legal prohibitions in most states against the granting of exclusive franchises enabled Bell competitors to build and operate competing telephone companies. However, Bell was successful in purchasing many of its early competitors. Otherwise, competition succumbed to the economic hazards of building duplicative facilities. In the early days, some cities were briefly served by as many as four competing telephone companies whose lines were not interconnected. This rendered the telephone service of any one company severely restricted in its benefits. This situation led to public demands for an integrated system, with a single provider if need be. The demise of Bell competitors was also hastened by state PUCs' adoption of the economic theory of the efficiency of natural monopolies based on the observed tendency of direct, duplicative competition to produce inferior results, leading to the failure of numerous businesses in a given industry. Due to economies of scale, the ability of one firm to supply the entire market at decreasing per-unit costs leads to a natural monopoly. In the case of services vital to the public wellbeing (which, due to their nature, cannot readily be obtained except from a sole provider), government intervenes with active regulation. This premise became part of the rationale or

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