What is Behind the Telecommunications Revolution?

The telecommunications revolution the merging of voice, video and other data transmission and the proliferation of new telecommunications products and services has been one of America's leading technological and economic success stories. At bottom, the key reason is that our scientists, engineers and businesses have developed and introduced telecommunications technologies at a faster pace than anywhere else in the world.

Public policies that have promoted competition have been critical to this result. Perhaps nowhere is this more evident than in the case of telephone services, where through the efforts over two decades of the Justice Department and Judge Harold Greene, and the work of the FCC, competition has become the central organizing principle of the industry.

Until the Department sued and eventually broke up AT&T, that company had a monopoly over this nation's telephone market. It was a regulated monopoly, to be sure. But it was also one that thwarted competition and innovation. New companies like MCI that wanted to provide long-distance service could not do so because AT&T's local operating companies refused to provide interconnections to their local loops. Similarly, other manufacturers of telephone equipment wanted to sell equally, if not more, innovative products but were frustrated by AT&T from doing so because of the telephone company's incentives and ability, through its monopoly control of the local loop, to buy such equipment only from its wholly owned subsidiary. Western Electric.

These practices were ended when the Department of Justice, led by my antitrust law professor in law school, William Baxter, obtained a consent decree in 1982. A Modification of Final Judgment (MFJ) has since been administered with remarkable energy and wisdom by Judge Greene, to whom this nation owes enormous gratitude.

By unleashing competition in various segments of the telephone industry, the MFJ has delivered the benefits that competition in other markets routinely guarantees: innovation, better products and services, greater efficiency, and lower prices. Consider that since the MFJ:

Interstate long-distance prices for the average residential customer in real terms (adjusted for inflation) have fallen by more than 50 percent without compromising universal service;

There has been a virtual explosion in the types of telephones and services that consumers can choose from;

Competition has stimulated the development of hundreds of innovative voice and data services (such as call waiting and voice mail);

Spurred by smaller carriers and MCI and Sprint, the three largest long-distance providers (including AT&T) now have laid fiber optic cable throughout much of the country and thus have already built significant portions of the backbone for the Nil; and

Competition in the telephone equipment market has opened whole new markets and spawned the development and sale of new products.

In short, the MFJ has enabled the United States to maintain its technological leadership in telecommunications. Nations that have stuck to the old monopoly model of telephone services have fallen behind. That is why many are now trying to emulate us, rather than the other way around.