Learning Team Deliverable: Case Study

Learning Team Deliverable
Russell Mattox, Justin Conaway, Collette Hamilton, Elaina Gatto, Erica Shaw
ECO/ 561
December 15, 2014
Michael Trousdale
Learning Team Deliverable
Introduction
In this week team assignment, we will answer some questions about AT&T phone services. We will provide you with information about the company long distance phone services from the natural monopoly side. Which is what we read this week in our class reading. You will also find satellite increased and reshaped the cost structure of long distance phone services by AT&T. Lastly, we will discuss how we should be a more efficient market when it comes to long distance services as well as regulating monopolies for local phone services.
Why was long- distance phone service originally a natural monopoly?
The original AT&T was the majority owner of most of the phone lines in the country. AT&T limited competition by expanding and adding their structures to areas in need of phone lines. All competitors had to pay AT&T a fee to connect long- distance
calls. The monopolizing effect of long-distance calls was due to a limited amount of competitors. The added regulations and barriers put in place by AT&T made it very difficult for any competition. The lack of other long-distance phone companies forced an imposed usage of AT&T for long- distance use creating a natural monopoly.
How did the increased use of satellites reshape the cost structure of long-distance phone service? The cost structure of long distance phone service has changed significantly over the years.
AT&T once a regulated monopoly, controlled the market and was able to charge regulated high prices for its long distance service. With the increased use of satellite, AT&T 's cost structure has was forced to change. It lifted the cost constraint for consumers due to the competition it created with an increase in satellite usage. The progress and innovation in telecommunications technologies have been rapid since the introduction of satellite and is expected to continue. As a result of the change, the cost conditions shifted causing the market to transform and requires a different cost structure of lower rates. "The technological explosion has accelerated exponentially since the 1970 's and in long distance, service prices were gradually deregulated as the incumbent AT&T lost market share, and new entrants grew." (Hausman, Jerry A; Taylor, William
E)
Why might it be more efficient to have a competitive market for the long-distance phone service and regulated monopolies for local phone service?
In 1996 Telecommunications Act 's disbanded the Ma Bell monopoly and required competition in the local phone service industry. There are several contributing factors as to why it will be more efficient to regulate monopolies for local phone companies and allow competition in the long distance phone market. The primary barrier to entry for a competition in the local phone market is the enormous cost and hassle associated with constructing a new infrastructure, operational and support systems Mills (1997). Cauley (1997) verifies this by stating "would-be rivals can 't afford to build local networks from scratch. Consider: Long-distance companies ' networks cost a total of about $55 billion to build and span 100,000 miles of digital tentacles, while the Bells ' local networks cost $300 billion and cover about four million miles of wire." Governmental regulations require the existing infrastructure to be used by multiple providers and to regulate prices to invite competition. Denniston (1999) explains that the US Supreme "court (at the time) approved broad new power for the Federal Communications Commission to oversee local competition, including authority to select a pricing method for the charges new competitors will pay to use local companies ' existing facilities and services" The existing long-distance phone market has always been one of competition. The three main long-distance providers, AT&T, MCI, and Sprint have competed with each other for market share. Ma Bell has been removed from fighting by federal regulations which require that "only after the Bells and other local phone companies welcome rivals into local service for residential customers will they be allowed to offer long-distance service." (Cauley, 1997) This is another barrier for wanting to enter the local phone service market as it will free up the Bells to compete in the long distance market. Long-distance phone service was initially a natural monopoly because the installation of phone lines across the country meant that one firm 's costs were much lower than if two or more firms did the same thing. With communications satellites, the cost is no different if one company supplies long-distance calls or if many companies do so, so the industry evolved from a natural monopoly to a competitive market. It is efficient to have competition in long-distance phone service and regulated monopolies in local phone service because local phone service remains a natural monopoly (being based on landlines) while long-distance service is a competitive market (being based on satellites) (Monopoly, n.d 2015).
Conclusion
Taking everything into account you see now like we expressed that AT&T was an appropriate telephone organization. It appears that AT&T changed the business for a ton of the more current age telephone administrations down the line. All contenders needed to pay AT&T a charge to unite long- separation calls. The cornering impact of long-distance calls was because of a constrained measure of contenders. The advancement and development in information transfers advances have been fast since the presentation of satellite and is required to proceed. This is an alternate hindrance for needing to enter the neighborhood telephone administration advertised as it will free up the Bells to contend in the long distance market. Long-distance telephone administration was initially a characteristic imposing business model in light of the fact that the establishment of telephone lines the nation over implied that one company 's expenses were considerably lesser than if two or more companies were. The correspondences satellites, expense are the same if any company provide their long-distance service or even numerous companies ensure, so the business advanced from a regular syndication to focus business. Since they have more rivalry than before they work harder at being a pretty much syndication organization. We realize that later down the line the more youthful eras won 't review any of AT&T long separation history. AT&T will dependably be the higher yielding profit stock in the Dow Jones Industrial.

References
A Brief History: The Bell System. (2014). Retrieved from http://www.corp.att.com/history

Cauley, L. (1997, December 15). Open and Closed: Genuine Competition In Local Phone Service Is a Long Distance Off --- To Understand Why, a Visit To South Carolina Helps; It 's a Very Ugly Battle --- `The Dog Ate My Homework '. Wall Street Journal [New York, N.Y.].

Denniston, L. (1999, January 26). Court OKs local phone competition; Long-distance carriers may offer local service to be overseen by FCC; Justices vote 5-3; Ruling is second in week unfavorable to regional companies. The Sun [Washington D.C.].

Hausman, J. A., & Taylor, W. E. (2013). Telecommunication in the US: From regulation to competition (almost). Review of Industrial Organization, 42(2), 203-230. doi: http://dx.doi.org/10.1007/s11151-012-9366-4

Monopoly. (n.d.). Retrieved from http://www.ohio.edu/people/paxton/WebPage/103/Chapter2015-205-ed.htm