Policy-induced competition: the telecommunications experiments

Introduction: Telephony has been the great “natural monopoly” of mid-century America. Early in the twentieth century, the policy of regulated monopoly for telephone was established; state and Federal regulation were based on this paradigm. By the late 1950s, there was some evidence that technology could be undermining the basis of this policy, and the Federal Communications Commission (FCC) began very cautious initiatives to introduce competition into telecommunications. From 1970s onward, we have been involved in a great public policy experiment, to move this monopoly monolith toward the American competitive ideal. First, regulatory actions to introduce competition in customer premises equipment and long distance in the 1970s; second, the Bell System divestiture of 1984 to institutionalize long distance competition. Third, the Telecommunications Act of 1996, which established competition as the model for local competition, brushing aside state and local restrictions to competition in telephone and cable, and putting into place a framework for permitting competitors of the incumbent telephone companies to share their bottleneck facilities: local loop unbundling.