Labor Negotiations with Regional Monopolies: The Telecommunications Industry

Wallace Hendricks

Working Papers from University of Illinois at Urbana-Champaign

Abstract: The primary motivating factors in the divestiture of the Bell Operating Companies (BOCs) from AT&T in 1984 centered on the difficulty of regulating the monopoly segments of the industry while other segments were open to substantial competition. Other long distance providers were relatively successful in claiming that AT&T could use their monopoly power in local service as a competitive advantage in dealing with rivals in other areas. AT&T was less successful in arguing that entry by competitors was cream skimming rather than efficient entry that would benefit customers in the long run. Logic dictated that those markets that were essentially competitive should be separated from the markets that were better served by a single monopolist. Although the definition of competitive versus monopoly markets tended to blur at the margins, there was general agreement that divestiture was the correct method of dealing with the impossibility of regulating all the diverse markets served by AT&T. The resulting change in the long distance market in the United States was impressive. At the time of the divestiture in 1984, AT&T had 96% of the business; by 1994 that share had fallen to 61% (Business Week, 1995). Prices fell, but the overall value of long distance service rose from $34B in 1984 to $64B in 1994. Profits were generally up for most of the old Bell companies. Since this appeared to be a win-win situation, many other countries of the world followed the U.S. example by also deregulating their long distance sector [...].

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