FREE ESSAY ON AT&T LONG-DISTANCE MONOPOOY

AT&T LONG-DISTANCE MONOPOOY

AT&T Long-distance Monopoly
Is a monopoly a good thing? From the standpoint of economists, monopolies are anything
but good. Economists believe that the perfect economy would be one that has many
competitors with significantly low barriers to entry. Such an economy would greatly
benefit the consumer due to the lower prices of the products. From a businessman's
standpoint though, a monopoly is not so bad. The biggest threat to a company or firm is
competition. Competition drives prices down resulting in less profit. The main goal of a
businessman is to make a profit, which is hindered by competition. Generally, economists
and businessmen do not see eye to eye on the subject of monopolies for this reason. The
question is, is a monopoly a good thing? The answer to this question will be attempted
through the outcome of this paper.
Before exploring the qualities of a monopoly, it must first be defined. A monopoly is
simply "a market structure characterized by a single seller of a well-defined product for
which there are no good substitutes and there are high barriers to entry for any other
firm into the market for that product". In other words, a monopoly exists when only one
firm in the market is selling a product, and entry into the market by other competitors
is difficult. For this reason, a monopoly is not the best form of structure according to
an economist's standpoint. 
Can a monopoly be good? The answer to this question has been widely negotiated. In some
instances, a monopoly is essential. The post office and utilities companies are two
examples of when a monopoly is necessary. Some argue that the long-distance phone
company, should also be a monopoly as well. 
AT&T (American Telephone and Telegraph) is "the largest telecommunications company in the
United states, and a worldwide leader in communications services." It was the parent
company of the Bell System until January 1, 1984. The deregulation of AT&T was primarily
based on the principle that "low-volume, local exchange service is a natural monopoly; 
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while, high-volume long-distance service fit the competitive model. Because of the
technological change from micro-wave to fiber optic technology, the phone service would
be better served as a monopoly. Microwave technology dominated the long-distance industry
between the years 1950 to the early 1980s.
"The base component of the micro-wave technology is a transceiver that can hold up to 12
voice phone calls. The demand for long-distance calls at any one time was clearly greater
than 12 calls, which means that multiple links would have to exist. Under this
technology, the transmission cost increases with the volume of calls and the average cost
per call was generally constant as volume increased. Sub-additivity cannot hold in an
industry with constant average costs, so the industry was naturally competitive…" 
Due to the nature of microwave technology, competition was essential in the market
structure. For this reason AT&T, accused of being a monopoly, was forced into
deregulation. The Bell monopoly was forced to break up to make room for competition in
the micro-wave technology. While the government was tending to the micro-wave technology,
fiber optic technology started to emerge and take over as the means of long-distance
transmission. This great technological change proved government intervention in
regulating micro-wave technology futile. 
As the market of telecommunications was undergoing a face-lift, so was the telephone
giant AT&T. An anti-trust suit was filed against the company in 1974, and settled in
January of 1982. AT&T then entered the divestiture stage on January 1, 1984. The company
agreed to the guidelines set by the Federal Communications Commission (FCC), to remove
itself from the Bell companies completely, and have nothing to do with local telephone
service. This move to divestiture may look like a downfall for AT&T, but do not be
fooled. Divestiture could be more of a blessing than a curse.
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When looking at just the surface layer of the outcome of AT&T's divestiture, it may
looking alarmingly like the company suffered a loss. Further investigation shows that the
company actually experienced gains due to divestiture. "At the time of the divestiture in
1984, AT&T had 96% of the business; by 1994 that share had fallen to 61%." Prices
appeared to be falling, but the overall value of long distance service rose dramatically.
"Long-distance service rose from $34 billion in 1984 to $64 billion in 1994." As
demonstrated by the figures provided, business took off after divestiture for AT&T. While
profits for long-distance services were rising profits for local service was also rising.
"The seven Regional Bell Operating Companies (RBOCs) that formed from the BOCs at
divestiture still controlled 98% of all local service…" Therefore, divestiture
seemed to be a 'win-win' situation for everyone. 
Not only did profits increase, but jobs also increased. As a result of divestiture, the
demand for installers, manager, linespersons, and operators rose. In other words, not
only did the company benefit from divestiture, but the employees also benefited. If
employees benefit from divestiture, then would the converse of this statement also be
true? Would no regulation actually hurt the firm? Not necessarily, though divestiture
does seem to display increased gaining. Extensive studies have predicted that regulation
of a firm will increase profit by almost $300 billion in real GDP and create almost 3.6
million new jobs by the year 2005. 
The future looks much better for AT&T since deregulation in 1984. The company could look
at its deregulation as an opportunity to expand. After deregulation, AT&T was faced with
the dilemma of transforming itself. It was during this time of transition that the
company developed a partnership with Y&R Inc. This partnership has proven to be
successful for AT&T. Along with Y&R Inc., the team has cooperated in promoting AT&T's
growth in several businesses including: AT&T Wireless Services, AT&T Worldnet Service,
and other personal on-line services as well. It cannot be totally believed that
divestiture will automatically lead to such vast improvements of a company, but in the
case of AT&T, divestiture proved to be advantageous.
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The 1984 divestiture proved to be a turning point for the telecommunications giant, AT&T.
Profits increased during post-divestiture, more jobs were available, and company
expansion became an opportunity. All of these factors proved to be great advantages for
the company. Therefore, in AT&T's case, a monopoly is not the best form of market
structure.