Jan. 1 – “Breaking up is hard to do …”

Gay Lynn HillBell Ringers, Economics(BR)

Motorola DynaTAC 8000X Commercial Portable Cellular Phone
Image source: Motorola, Inc. Legacy Archives Collection


On Jan. 1, 1984, the AT&T monopoly was broken up, with the spinoff of local phone service into several companies, the ending of the monopoly of providing telephone equipment, and the changing of a variety of other telephone regulations. In March of the same year, the first cell phone was released for sale. Communications technology has expanded evermore rapidly ever since (although that’s not to say it wouldn’t have happened anyway).


Video Transcript


The monopoly status of AT&T was given a strong push when the federal government nationalized the telephone industry in 1918 on the grounds of national security. When nationalization ended a year later, AT&T benefited from arguments that it was a “natural monopoly” – meaning that people thought the country would be better served by having only one company providing service. In the place of competition, AT&T was regulated by various state and federal laws and regulatory bodies which set standards for service, prices, etc., until it was broken up.

The new competition created by the breakup was followed by huge changes in costs to consumers. For example, a five-minute long distance call from Los Angeles to New York “fell” to $5.27 in 1985. Today, of course, domestic and much international long distance is free.

The telephone industry continues to be regulated, and mergers among communication companies are carefully watched by the government to avoid creation of a new monopoly.


Questions:
  1. How important do you think competition is in keeping prices down on technology like phones? Do you think you would be better off with fewer providers? Or more? Why?
  2. Some people argue that search providers like Google are forming a “natural monopoly” and need to be broken up. Do you agree? Who should decide this? Consumers through their usage behavior? Or the government?