Second Wave of Competitors            

In 1968, a company called Carter Electronics of Texas gained permission to interconnect mobile radios to the telephone network. The FCC ruling stipulated that could connect to the network if a protective coupler was installed. This opened the doors for many manufacturers to start manufacturing products for the AT&T network. Many foreign manufacturers quickly started manufacturing PBX and terminal equipment for the AT&T network. It remained a problem that customers with non-AT&T products were required to rent protective couplers from AT&T at a recurring monthly cost, rendering it unattractive to purchase competing products. In 1975, after many complaints to of unfair competition, The FCC ruled that devices could be connected to the AT&T network after being registered with the FCC.              

At about the same time, a small company called MCI was constructing microwave networks to provide alternate communications networks in high traffic areas. MCI asked the courts to force AT&T to allow interconnection with MCI networks, and eventually won. These legal actions almost put MCI out of business, but their success changed American telecommunications forever.

The Breakup of the Telephone Monopoly            

In early 1974, the Department of Justice began to pursue the complete breakup of the AT&T monopoly. In 1982, the suit was dropped when an agreement was reached between the DOJ and AT&T. The government allowed AT&T to enter unregulated telephone markets. In return for this, the DOJ demanded that AT&T be broken up but would remain regulated until “effective competition” existed in the national market. The local dial tone service market would remain a monopoly, and would be operated by Local Exchange Carriers (LECs). AT&T would operate in the long distance market, equipment manufacturing, and computer equipment market, competing with the wave of newcomers attempting to emulate the success of MCI.           

Interexchange calls were to be handed off to an interchange carrier (IEC) by the LECs. To define the boundaries of the different calling areas and decide on who would get to share the revenues, local access and transport areas (LATAs) were created. Calls that were made within the LATA were handled by the LEC and calls that reached beyond the LATA were handed off to the IEC. Many objected that the telephone network would fail and that callers and other network users would experience outages. This never occurred to any significant degree and customers continued getting the same level of service. The breakup of the AT&T system ushered in a new era of competition, technological advances, and lower prices.  

Telecom Act of 1996            

The Clinton Administration signed into law the Telecom Act of 1996, opening the doors for many new companies to enter the local telephone market. Because this allowed long distance and cable companies to enter the local telephone market, customers now had many different providers from which to choose.           

The Telecom Act of 1996 allowed long distance and CATV companies to enter the market of local dial tone, cable TV, high-speed Internet access, and two-way video communication service capabilities. The local telephone companies responded by offering long distance services, cable and satellite TV services, and high-speed internet connection. In doing so, telcos have had to deal with technical limitations imposed by their original “twisted pair” voice lines. These companies are developing new ways of offering high-speed communications as the result of investing billions of dollars into updated infrastructure.            

One of the problems of deregulation for the local telephone carriers is they are required to rent their network capacity to new telecom companies entering the business. The “resellers” argue that local telephone companies are unjustifiably raising access rates, making it harder for them to survive.            

In 1999, AT&T purchased two cable TV companies (TCI and Media One) to gain access to local consumers. Immediately after acquiring these two local cable companies, AT&T was challenged to offer access to competitors at reduced rates. AT&T went to the FCC to challenge the idea of having to provide access to competitors because at the same time, the local utilities commissions were ruling that they should provide access for local cable lines.           

Since the Telecom Act of 1996, hundreds of CLECs have been formed to enter the telecommunications industry. Many have entered the markets offering cable service, as well as local and long distance telephone service. Some new players have taken the route of leasing lines from the ILEC (incumbent local exchange carrier) or building their own fiber networks to bypass the ILECs. This has resulted in increased competition and startling new advances in the telecom industry.