11
Local Telephone Service
A Complex Dance of Technology, Regulation, and Competition

Ingo Vogelsang and Glenn Woroch

Soon after the expiration of Alexander Graham Bell's basic telephone patents in 1894, competing local phone companies sprang up by the hundreds all across the United States. Then and now, no other single market offered a more lucrative opportunity than New York City. New York Telephone, the local operating company licensed by American Telephone and Telegraph (AT&T), was the dominant local exchange company in that city. Its customers were far from happy with its service or its rates, however, and this opened up a market opportunity for competing carriers.

While several independent phone companies made deliberate attempts at breaking into the New York market, none was successful. New York Electric Lines, Peoples Telephone Company, and the Atlantic Telephone Company were among the most serious contenders. Their efforts were defeated by New York Telephone, local regulators, and economic conditions. To enter this market, these companies required underground conduits to string their lines. These conduits were owned by Empire City Subway Company, which, oddly enough, was a subsidiary of AT&T.1 Empire City repeatedly claimed that there was insufficient space in subway tunnels and demanded high fees when they were made available.2 AT&T also applied pressure to New York Telephone not to interconnect with entrants, a policy it pursued throughout the country. Frustrated by these tactics, the entrants abandoned their attempts to enter the New York City market and either dissolved or provided service elsewhere.

If we now fast-forward in time, many of the same events that took place in New York City were repeated nearly a century later. In 1982, Merrill Lynch and Western Union formed a joint venture to build a "satellite park" on Staten Island, one of the five boroughs of New York City. This was a response to the explosion of telecommunications traffic, especially international financial transactions, and the severe congestion of microwave transmissions that ensued. A couple of years later, the venture became a private corporation under the name Teleport Communications and began to install fiber-optic cables linking Staten Island to Manhattan. It also began to lay cables in lower Manhattan using the rights of way of none other than the Empire City Subway Company.

Teleport grew rapidly, responding to the sophisticated needs of large New York businesses by deploying advanced, highly reliable networks

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