Academic journal article Federal Communications Law Journal

The AT&T Consent Decree: In Praise of Interconnection Only

Academic journal article Federal Communications Law Journal

The AT&T Consent Decree: In Praise of Interconnection Only

Article excerpt

I.   THE BELL DECREE AND THE CORPORATIST MINDSET
II.  "DEREGULATION" IN A NETWORK INDUSTRY: DO GREENE
     AND BAXTER MIX?
III. STRUCTURAL VERSUS CONDUCT REMEDIES
IV.  CONDUCT AND STRUCTURAL REMEDIES FOR NETWORK
     INDUSTRIES
V.   A SUMMING UP

I. THE BELL DECREE AND THE CORPORATIST MINDSET

In this short Article, I shall return to some of the issues that I addressed in my short book, Antitrust Consent Decrees in Theory and Practice: Why Less is More. (1) The basic theme of that book is that the success of consent decrees, and indeed the resolution of all large antitrust cases, follows a clear pattern. The more ambitious the decree, the worse matters are likely to turn out. The reasonable response therefore is to cut back on ambition in order to execute modest plans well. Perhaps the most vivid illustration of a consent decree process gone wrong is the breakup of AT&T. (2) Therefore, holding a conference that addresses the strengths and weaknesses of that decree twenty-five years later offers a propitious occasion on which to examine this fundamental restructuring of the telecommunications industry.

At the time of its adoption, the 1982 decree was generally lauded as a rebuke to the old corporatist way of doing business. (3) That system of self-conscious industrial policy dominated New Deal thinking. Its operation rested on three legs. The first was a strong government willing to create and preserve monopoly profits. The second was a system of strong labor unions, bolstered by the protections of the Norris-LaGuardia Act (4) and National Labor Relations Act, (5) that shared in those gains. The third was a corporate and antitrust culture that blessed these accommodations. The corporate law did not see shareholder maximization as an exclusive goal, and thus fostered accommodations with labor and other political constituencies. In addition, the antitrust law often punished competitive behavior or insulated anticompetitive behavior from judicial scrutiny. This system offered a cozy comfort to all the participants, and it promised stability in institutional arrangements that could not have been achieved in a competitive market where new entry and exit would quickly erase the monopoly profits for both the firm and its union. (6) But the defenders of the system thought that they had created the vaunted stability long prized by regulators of all stripes, who seek to insulate their own preferred constituents from the vicissitudes that plague the rest of the world.

That so-called stability is in fact an illusion by any system-wide measure. (7) Of course, the regulated industry and its constituents are protected against both price fluctuations and new entry. But the model is not sustainable in the long run for three reasons. First, its ostensible certainties cannot be replicated system-wide. Uncertainty is an inescapable feature of all complex social systems. The only question is who will be forced to bear its consequences. The effort to insulate one group from the uncertainty increases the level of uncertainty borne by everyone else in the system, for all the initial variation is now forced on that fraction of the economy that is denied the protection afforded selectively to the regulated industry. Thus, if economic circumstances move sharply, these parties will be forced to bear the price declines in their own industries and to subsidize the price rigidities in telecommunications. If voluntary markets will tend to equalize uncertainty at the margin for all sectors, regulation tends to force greater risks on certain groups to benefit others. The likely consequence is to prevent the outside groups from making their needed adjustments. They will be on the steep portion of their uncertainty cost curves. Yet, the regulated parties will be spared the initial amounts of uncertainty, which they could probably bear at far lower cost. The result is more uncertainty system-wide, all in the name of price and income stabilization. …

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