Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 29, 1994 TAG: 9403300140
SECTION: EDITORIAL PAGE: A4 EDITION: METRO
SOURCE: LETHIA C. FISHER
DATELINE: LENGTH: Medium
It's this same line of thinking on Capitol Hill that serves as a barrier to true competition and, ultimately, the lowest possible prices, highest quality phone service and enhanced choices for consumers.
In 1949, the Justice Department filed a lawsuit against AT&T alleging that AT&T illegally monopolized telephone manufacturing. Because Bell companies, then owned by AT&T, bought all their telephone equipment from Western Electric, also owned by AT&T, the department charged that this practice prevented other manufacturers from competing, thus violating the Sherman Antitrust Act. The department asked the court to divest Western Electric from AT&T.
Before the case went to trial, AT&T and the Eisenhower administration, influenced by federal and state regulators who thought that U.S. telephone service was too good to sacrifice to an excessively narrow antitrust policy, agreed to the 1956 consent decree. Under the decree, AT&T was allowed to keep Western Electric in exchange for agreeing to provide only ordinary telephone service. As a result, AT&T was prevented from entering the computer business.
Ironically, the one U.S. company positioned to become a world leader in the computer industry (in 1956, three scientists from Bell labs won the Nobel prize for their discovery of the transistor) was forced to sit on the sidelines. The 1982 decision to divest AT&T from Baby Bells was a ready concession, on behalf of AT&T, to allow it to enter into the computer market. It was also a ready admission by the Justice Department that the 1956 agreement was an artificial, harmful barrier to competition.
Despite the department's recognition of its error regarding the 1956 decision, William Baxter, head of the antitrust division, believed that by banning Bell competition in manufacturing and long distance, the Federal Communications Commission would be prevented from regulating these markets. His plan limited FCC regulation to local telephone markets, and, thus, he reasoned, would remove a layer of government regulation and prevent another from developing.
The 1982 divestiture decision wasn't based upon preventing abuse or addressing the Bells' situation. Rather, it was to prevent competition subject to regulation. The decision to limit Bell markets to local service was made without ever responding to the FCC's many detailed objections and, by Baxter's own admission, without the benefit of econometric data. Sadly, this flawed decision still prevents true competition in today's marketplace.
As Smith notes, increased competition and productivity in the long-distance arena have improved service quality and dramatically lowered prices. However, seven additional companies with expertise in such areas as video-conferencing, 800 services and data networks will only increase competition and productivity, thus ensuring lower prices, higher quality, more consumer choice and enhanced productivity. His notion that the competition added by seven companies in the long-distance market (where more than 400 others are currently positioned) will somehow return consumers to a past ``marked by higher prices and fewer choices'' is absurd. Instead, allowing true competition will take the United States to the forefront of the telecommunications industry, providing more opportunities and jobs for Americans.
To argue, as he does, that local companies could somehow subsidize their long-distance markets demonstrates a lack of understanding about the realities of local phone-service regulation. Local phone service has traditionally been a low-profit venture because local rates are subsidized. This is necessary to ensure everyone basic telephone service at a low rate, a requirement placed upon local phone companies by state and federal regulators. Since local phone companies generally charge less for residential service than it costs to provide, it's difficult to see how they could use local residential-service revenues to underwrite competitive ventures.
Contrary to Smith's assertion, true competition between local and long-distance service, not extensive regulation, is the most effective way to ensure reliable, efficient phone service, provide consumers freedom of choice, and ensure the lowest prices and highest quality phone service available.
Lethia C. Fisher is director of the Virginia Citizens for a Sound Economy Foundation in Charlottesville.
by CNB