he service provided, but averaged the costs of providing service across the entire market (Stahl-Gibney, 1992, p. T-40).
Technology removed the first of the barriers to competition in the telecommunications market. Microwave radio provided a way in which voice signals could be transmitted without having to lay copper wire, thus reducing the capital investment involved in establishing a second nationwide network. 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 anti-trust statutes, and in 1974, the government ruled that AT&T would no longer be able to operate as the sole source of long-distance service.
Because AT&T dominated the long-distance market, new long distance companies were designated Other Common Carriers (OCC) and AT&T was still subject to a large degree of regulation to which the OCCs were not. At the same time that AT&T faced considerable difficulty adjusting prices, its new competitors were able to significantly undercut the larger company's rate structure. Because AT&T's long distance service was used to subsidize local phone service, its rates were artificially high. The new companies, which did not provide local service, were not burdened by this and so could charge significantly less than AT&T for long distance.
The two largest OCCs, US Sprint and MCI, as well as AT&T, have developed fiber optic networks that offer significantly better communication than copper wire. This technology, while providing a high level of customer service, also requires a high level of capital investment: combined capital investment for the three leaders in the long distance market increased from 4.3 billion dollars in 1987 to more than 4.8 billion in 1991 (Stahl-Gibney, 1992, p. T-40). The result is that entry into the long distance market is again difficult to achieve on a...