Competition in long-distance and telecommunications equipment markets: Effects of the MFJ

The Modification of Final Judgement (MJF) is now 10 years old. The MFJ was a historic change in US antitrust policy and in telecommunications policy. Pre-divestiture AT&T was divided into a single company, AT&T, which was allowed to compete in long-distance markets, telecommunications equipment markets and (with some delay) information service markets. Seven regional Bell Operating Companies (RBOCs) were permitted to provide local service and nearby long-distance service. However, the BOCs were not permitted to enter the three markets reserved for AT&T. In 1991 the Information Services restriction was eliminated for the BOCs. However, the ban on provision of (interLATA) long distance and equipment remains. The policy experiment was quite interesting since no other nation has followed the USA, despite numerous other countries ending the formerly monopoly status of their telecommunications provider. In this paper I evaluate how competitive the remaining markets reserved for AT&T, and from which the BOCS are banned, have become. I conclude that (interLATA) long-distance market for residential and small business users, by far the largest fraction of users of long distance is currently uncompetitive. AT&Ts prices are constrained by FCC regulation, not by competition. AT&T has market power and is exercising market power. For equipment markets, I find a good deal more competition. However, I conclude that the BOCs could not impede competition in long distance and that removal of the MFJ restrictions would be pro-competitive. Thus, I conclude that removal of the MFJ estrictions on the BOCs would be pro-competitive, would increase economic efficiency, and would improve consumer welfare.