Academic journal article The Journal of Consumer Affairs

Consumer Response to Telecommunications Deregulation: The Equal Access Decision

Academic journal article The Journal of Consumer Affairs

Consumer Response to Telecommunications Deregulation: The Equal Access Decision

Article excerpt

Consumer Response to Telecommunications Deregulation: The Equal Access Decision

The court-ordered divestiture of AT&T, effective January 1, 1984, has affected all of America's millions of telephone users. Many consumers have made numerous decisions about their telephone services and equipment. The vast majority have been unprepared to respond with informed judgments.

One major decision that over 50 million Americans (U.S. House of Representatives 1986, p. 294) have made is the "equal access" decision. Equal access - the choice of which long-distance carrier is reached by using "1 plus" dialing - is probably the most publicized result of divestiture. Its intent is to put AT&T's competitors on a more equal footing in their quest for customer patronage. [Enis and Sullivan (1985) present a detailed analysis of the divestiture agreement.]

While consumers may benefit from a greater number of choices, many people are confused about the impact of deregulation. In a 1985 Gallup poll of over 1,200 households, 33 percent reported that they did not understand very well why the breakup of AT&T occurred, and 12 percent did not understand the breakup at all (U.S. House of Representatives 1986, p. 135). In Hyman's (1985) survey of 500 Pennsylvania consumers, over 50 percent did not know or had not thought about the causes of the breakup. Fewer than 50 percent could even name the companies providing their local and long-distance services.

Moreover, results from areas where equal access has been implemented also indicate consumer confusion. When equal access reaches an area, consumers receive two opportunities to select a primary long-distance carrier. (1) Nationwide, only 33 percent of Bell customers in the first exchanges to convert to equal access chose a primary carrier (U.S. House of Representatives 1986, p. 580).

The equal access decision provides an unprecedented opportunity to examine consumers' responses to deregulation of an industry. The situation is unique in that it is one for which most consumers have little or no background information or experience from which to draw. Therefore, the purposes of this research were

(1) to assess the extent of consumers' search for information in the equal access decision,

(2) to identify the types of information acquired in prepurchase search and the perceived inadequacies of the information available, and

(3) to examine the relationship between the intensity of search for information and selected demographic characteristics.

CONCEPTUAL BACKGROUND

A vast body of literature examines consumers' prepurchase search for information. Much of this work is based on Stigler's (1961) classic article. He postulated that consumers determine the optimal amount of search for information about the price of a good by equating the savings expected to result from a given search to the expected costs. Stigler suggested that, to maximize the expected utility, a person searches until the expected cost of an additional attempt to acquire information exceeds the expected return.

In the case of long-distance telephone services, the expected savings are primarily in the form of lower rates. Compared with AT&T, the other long-distance companies (other common carriers or OCCs) held a major price advantage prior to divestiture. However, AT&T's long-distance rates have decreased by an average of 30 percent since divestiture (Nation's Business 1987), and costs for the OCCs have increased. By 1986, the OCCs paid the same price as AT&T for connections to the networks of local phone companies; before the breakup, they enjoyed a 55 percent discount over AT&T (U.S. House of Representatives 1986, pp. 323-325). Therefore, the potential savings from choosing an OCC rather than AT&T have been estimated to be as low as five to twelve percent (Consumer Reports 1986; Business Week 1987; Wall Street Journal 1986). …

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