Telecommunications Deregulation

The history of the telecommunications industry provides a good illustration of the power of technological change. Throughout it, the emergence of new technology has been the driving force that has brought dramatic change to everyday life. The force of technological change has led to reorganization of the industry and has persistently improved the range and quality of communication services available to consumers. The increasing ease with which we can communicate with others to exchange ideas and information has fundamentally transformed the lives of people around the world, economically, politically and socially.

The word telecommunications has its etymology from Greek and Latin. Tele, the Greek for far, combines with communicare, the Latin for to make common. Telecommunications networks are the means through which we interact with other institutions and individuals to provide effective information services. In order to achieve effective communication, the choice of a proper mean of transport for the signal has played and still plays a fundamental role. In the years following the invention of the telephone by Alexander Graham Bell (1847-1922) in 1876, local service gradually spread to the major population centers of the United States. American Telephone and Telegraph (AT&T) undertook the formation of a nationwide long-distance telephone network early in the 20th century and effectively promoted the goal of universal service. Even though the extent and quality of telephone service continued to improve, the overriding public interest in accessible telephone service led to both federal and state regulation during the early 1900s.

With the Great Depression of the 1930s came calls for greater governmental oversight of business practices, leading in this instance to the formation of the Federal Communications Commission (FCC) in 1934. The FCC fostered an approach to regulation that favored equity over efficiency as its primary objective. Federal and state regulators developed rate-making policies that would ensure widespread access to inexpensive local residential service. Continued advances in technology, most notably in wireless service, soon made it increasingly difficult for AT&T to deter encroachment by new entrants offering specialized long-distance service.

The Justice Department filed monopolization charges in 1974, seeking divestiture of AT&T's operating companies in order to reduce entry barriers in long-distance markets and increase competition in the provision of telecommunications equipment. Settlement of the case in 1982 resulted in the most dramatic restructuring in the history of the industry, with AT&T spinning off seven regional operating companies on January 1, 1984. Predictably, AT&T's long-distance competitors multiplied after this and grew to such an extent that by 1995 the FCC had declared that AT&T was no longer the dominant provider.

It could be said that deregulation came in two sweeping stages, starting in 1984 when a court effectively ended AT&T's telephone monopoly, forcing it to spin off regional subsidiaries. AT&T continued to hold a substantial share of the long-distance telephone business but competitors managed to win some of the business, showing in the process that competition could bring lower prices and improved service. A decade later, pressure grew to break up AT&T's monopoly over local telephone service. New technologies - including cable television, cellular, or wireless service and the Internet - offered alternatives to local phone companies. Economists said the enormous power of the regional monopolies inhibited the development of these alternatives. In particular, they argued, competitors would have no chance of surviving unless they could connect, at least temporarily, to the established companies' networks - something the Baby Bells, AT&T's regional subsidiaries, resisted.

In 1996, Congress responded by passing the Telecommunications Act of 1996. The law allowed long-distance telephone companies such as AT&T, as well as cable television and other start-up companies, to begin entering the local telephone business. It said the regional monopolies had to allow new competitors to link with their networks. To encourage the regional firms to welcome competition, the law said they could enter the long-distance business once new competition was established in their domains. By the end of the 1990s, numerous smaller companies had begun offering local telephone service, especially in urban areas where they could reach large numbers of customers at low cost. The number of cellular telephone subscribers soared. Countless Internet service providers sprung up to link households to the Internet. However, for some consumers, especially residential telephone users and people in rural areas whose service previously had been subsidized by business and urban customers, deregulation was bringing higher, not lower, prices.

Telecommunications Deregulation: Selected full-text books and articles

Talk Is Cheap: The Promise of Regulatory Reform in North American Telecommunications By Robert W. Crandall; Leonard Waverman The Brookings Institution, 1995
Librarian's tip: Chap. Seven "Local-Access Competition from Other Technologies"
The FCC's Implementation of the 1996 Act: Agency Litigation Strategies and Delay By Beynon, Rebecca Federal Communications Law Journal, Vol. 53, No. 1, December 2000
Telecommunications in the Pacific Basin: An Evolutionary Approach By Eli Noam; Seisuke Komatsuzaki; Douglas A. Conn Oxford US, 1994
Librarian's tip: Chap. 2 "A Comparison of Deregulation Policies"
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