ECON101: Principles of Microeconomics (2021.A.01)

Back in the olden days - before 1984 - to use a telephone in the United States almost certainly meant being a customer of AT&T. Ma Bell, as the company was known, provided local and long-distance service to virtually every U.S. household. AT&T was clearly a monopoly.

The Justice Department began its battle with AT&T in the 1970s, charging it with monopolizing the industry. The case culminated in a landmark 1984 ruling that broke the company up into seven so-called "Baby Bells" that would provide local telephone service. AT&T would continue to provide long-distance service.

In effect, the ruling replaced a single national monopoly with seven regional monopolies in local telephone service. AT&T maintained its monopoly position in long-distance service - for a while. The turmoil that has followed illustrates the fragility of monopoly power.

Technological developments in the industry have brought dramatic changes. Companies found ways to challenge AT&T's monopoly position in long-distance telephone service. Cable operators sprang up, typically developing monopoly power over the provision of cable television in their regional markets, but also offering phone service. Mobile phone service, provided by AT&T, and others such as Verizon and Sprint, has led many consumers to do without land-line phone service entirely. Companies that had traditionally been telephone companies have begun providing cable services as well as Internet access. The ready availability of video services on the Internet threatens to make cable providers outmoded middlemen.

What is the status of AT&T today? While no longer a monopoly, it is a major player in all of the areas related to telecommunications and larger than all of its competitors in the United States. In 2011, it began the process of buying T-Mobile USA, a mobile service provider focused on the youth market. By the end of that year, however, in the face of strong opposition from the Department of Justice and the Federal Communications Commission on the grounds that the merger would stifle competition in the industry, AT&T announced that it was dropping the deal. Does AT&T have market power today? Undoubtedly. Is it a monopoly? Not anymore.