Learning Team Deliverable
Russell Mattox, Justin Conaway, Collette Hamilton, Elaina Gatto, Erica Shaw ECO/ 561
December 15, 2014
Learning Team Deliverable
In this week team assignment, we will answer some questions about AT&T phone services. We will provide you with information about the company long distance phone services from the natural monopoly side. Which is what we read this week in our class reading. You will also find satellite increased and reshaped the cost structure of long distance phone services by AT&T. Lastly, we will discuss how we should be a more efficient market when it comes to long distance services as well as regulating monopolies for local phone services. Why was long- distance phone service originally a natural monopoly? The original AT&T was the majority owner of most of the phone lines in the country. AT&T limited competition by expanding and adding their structures to areas in need of phone lines. All competitors had to pay AT&T a fee to connect long- distance calls. The monopolizing effect of long-distance calls was due to a limited amount of competitors. The added regulations and barriers put in place by AT&T made it very difficult for any competition. The lack of other long-distance phone companies forced an imposed usage of AT&T for long- distance use creating a natural monopoly. How did the increased use of satellites reshape the cost structure of long-distance phone service?
The cost structure of long distance phone service has changed significantly over the years. AT&T once a regulated monopoly, controlled the market and was able to charge regulated high prices for its long distance service. With the increased use of satellite, AT&T's cost structure has was forced to change. It lifted the cost constraint for consumers due to the competition it created with an increase in satellite usage. The progress and innovation in telecommunications technologies have been rapid since the introduction of satellite and is expected to continue. As a result of the change, the cost conditions shifted causing the market to transform and requires a different cost structure of lower rates. "The technological explosion has accelerated exponentially since the 1970's and in long distance, service prices were gradually deregulated as the incumbent AT&T lost market share, and new entrants grew." (Hausman, Jerry A; Taylor, William E) Why might it be more efficient to have a competitive market for the long-distance phone service and regulated monopolies for local phone service? In 1996 Telecommunications Act's disbanded the Ma Bell monopoly and required competition in the local phone service industry. There are several contributing factors as to why it will be more efficient to regulate monopolies for local phone companies and allow competition in the long distance phone market. The primary barrier to entry for a competition in the local phone market is the enormous cost and hassle associated with constructing a new infrastructure, operational and support systems Mills (1997). Cauley (1997) verifies this by stating "would-be rivals can't afford to build local networks from scratch. Consider: Long-distance companies' networks cost a total of about $55 billion to build and span 100,000 miles of digital tentacles, while the Bells' local networks cost $300 billion and cover about four million miles of wire." Governmental regulations require the existing infrastructure to be used by multiple providers and to regulate prices to invite competition. Denniston (1999) explains that the US Supreme "court (at the time) approved broad new power for the Federal Communications Commission to oversee local competition, including authority to select a pricing method for the charges new competitors will pay to use local companies' existing facilities and services"
The existing long-distance phone market has always been one of competition. The three main long-distance providers,...
References: A Brief History: The Bell System. (2014). Retrieved from http://www.corp.att.com/history
Cauley, L. (1997, December 15). Open and Closed: Genuine Competition In Local Phone Service Is a Long Distance Off --- To Understand Why, a Visit To South Carolina Helps; It 's a Very Ugly Battle --- `The Dog Ate My Homework '. Wall Street Journal [New York, N.Y.].
Denniston, L. (1999, January 26). Court OKs local phone competition; Long-distance carriers may offer local service to be overseen by FCC; Justices vote 5-3; Ruling is second in week unfavorable to regional companies. The Sun [Washington D.C.].
Hausman, J. A., & Taylor, W. E. (2013). Telecommunication in the US: From regulation to competition (almost). Review of Industrial Organization, 42(2), 203-230. doi: http://dx.doi.org/10.1007/s11151-012-9366-4
Monopoly. (n.d.). Retrieved from http://www.ohio.edu/people/paxton/WebPage/103/Chapter2015-205-ed.htm
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