The new competitive environment

Abstract

~ re are at the beginning of an important decade in telecommunications, a decade that began in 1988. The year 1968 marked the beginning of the decade of customer premises equipment (CPE). That was the year the Federal Communicat ions Commission (FCC) announced Carterfone. The conventional wisdom at the time, in much of the telephone business--most especially in the Bell Syst e m w a s that competition was economically impossible, or technologically undesirable, in CPE markets. CPE was widely viewed as part of the network, part of that natural monopoly that would never be shattered. Many thought that Carterfone was a regulatory frolic, going nowhere fast. Where are we today? Competition in CPE markets could not be more robust. The Carterfone policy has been an enormous success. Ten years after Carterfone came Execunet II. That was in 1978, the second landmark year. The FCC had been considering competitive long-distance services for some time. Then, in 1978, the D.C. Circuit Court of Appeals handed down its Execunet II decision. That ruling declared that the Bell System companies had to provide MCI and the other common carriers (OCCs) with the interconnection necessary for the OCCs to originate and terminate MTS (measured toll service) and WATS (wide area telephone service) calls. That was the beginning of equal access, and really the beginning of the end of the old Bell System. The breakup that followed four years later was all but inevitable. The central objective of divestiture was to make full equal access for long-distance carriers a reality. It is worth remembering how drastically the accepted wisdom has changed in the intervening decade. In 1978 a great many people were certain that the whole idea of long-distance competition was another piece of regulatory insanity. Some serious economists were confident that the long-distance network was an integral part of the existing telephone system and the natural monopoly. If MCI were going to make any headway at all, it would only be because it had favorable access tariffs and could cream-skim, as the pundits put it. As soon as tariffs equilibrated, MCI and the rest were certain to fold. Those predictions have been proved wrong as well, so far at least. We have growing and apparently viable competition in the long-distance markets. Nobody really talks much about natural monopoly in those areas any more.