The Making of Energy and Telecommunications Policy

By Georgia A. Persons | Go to book overview

Chapter 7
Divestiture and the Debate over Universal Service

THE PROPOSED SETTLEMENT

On January 8, 1982, the U.S. Department of Justice (DOJ) announced a proposed settlement of its long-running antitrust suit against AT&T. At the time, S. 898, the Telecommunications Competition and Deregulation Act of 1981, had passed the Senate by a vote of 90 to 4 and was pending in the House. Congress might well have been finally on the verge of enacting major telecommunications policy, but that opportunity had been usurped by the settlement worked out between the DOJ and AT&T. Competition would prevail in the telecommunications industry and the industry would be restructured, but primarily in accordance with initiatives taken by the FCC and the DOJ.

The DOJ had originally filed an antitrust suit against AT&T in 1949, charging AT&T with monopolizing the manufacture and distribution of telephone equipment in violation of the Sherman Antitrust Act. Part of the complaint was that the DOJ had at that time unsuccessfully sought the divestiture of Western Electric, the equipment manufacturing arm of AT&T. The 1949 suit was settled in a 1956 Consent Decree, which restricted AT&T to engaging in "common carrier communications services" under governmental regulation. Although the Decree protected AT&T's monopoly position, it also effectively meant that AT&T would not be permitted to engage in the provision of competitive services. Under the Decree, Western Electric was restricted to manufacturing solely for use in the Bell system, and Bell was forced to license its patents to other manufacturers, who agreed to make their patents available to Bell. Thus, the restrictions sought to provide assurance that AT&T would not be in a position to subsidize competitive services with revenues derived from its regulated services. However, with the issuance of the Computer II Decision permitting traditional telcos (including AT&T) to sell certain enhanced services and certain equipment without regulation (through a fully separate subsidiary),

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