consumers from pricing policies in which natural monopolies can engage. Given the inelasticity of demand for telephone service (basic service has a high level of demand throughout the economy), the government was seeking to protect consumers from AT&T charging what the government considered unfair prices. It is the nature of monopolies which led to this condition. So long as AT&T participated in an environment which was free from competition, it could pursue pricing strategies (theoretically) which would be considered unfair to consumers (Samuelson 89).
Even natural monopolies are not guaranteed a market, however, and this is particularly true in the telecommunications industry. So long as AT&T provided high-quality service and equipment, other companies would be unable to compete with its economies of scale (Samuelson 93). But if AT&T did not continue to innovate and remain a state-of-the market company, other companies could enter the market with better technology and compete effectively with AT&T. The high rate of change in the telecommunications industry since the breakup, including satellite technology and cellular phones, illustrates the opportunities which might have existed for non-AT&T providers.
In 1968, a federal judge ruled that AT&T could no longer prohibit non-AT&T equipment from being used on AT&T networks. MCI, which had been exploring telephone technology, brought suit against AT&T under antitrust statutes, and in 1974, the government ruled that AT&T could no longer operate as the sole source of long-distance service. It is important to note that this ruling was made by a single individual, a federal judge, and was not a shift in government policy at the executive or legislative level. There may have been political factors which the judge took into account, but the break-up of AT&T was a legal interpretation of the relevant statutes.
Because AT&T dominated the long-distance market, new long distance...