This blog is the first of a two part series on regulated or "special access" for copper. This discussion is particular to the US, especially regarding the breakup of the Bell System. However, there are similar regulatory considerations worldwide, especially regarding shared access to new fiber facilities.
Before we get to the details of special access, it's worth taking a look at how we got to the current situation. For those who came in late (and as a reminder for the rest of us), let's fire up the WABAC machine and revisit the composition and breakup of the Bell System and the original AT&T, along with the beginnings of the CLECs.
Ma Bell - 107 years in the making, 8 years in the breaking
The Bell Telephone company was born in 1877 and was the parent of what became the Bell System [1]. There was an initial breakup in 1956 when some international holdings were divested, including some other international companies such as Bell Canada, Nortel, NTT and NEC.In 1984 the Bell System had four main constituents in the US:
- AT&T Long Lines: The long distance business
- Western Electric: The equipment manufacturing business
- Bell Labs: the R&D arm
- The Bell Operating Companies (BOCs): the 21 regulated utility monopolies providing local phone service.
The BOCs or "Baby Bells" are essential to part 2 regarding special access. Like other regulated utilities, the BOCs made significant investments in capital, building out the copper infrastructure that would eventually provide universal access. The local access fees charged by the BOCs were augmented by universal access subsidies from the government along with subsidies from the very high long distance fees.
Over time some there was some competition to AT&T, including some equipment manufacturers and innovations such as modems for transporting data. Overall, the competitive pressures on AT&T were low, as would be expected from a regulated monopoly.
The Bell System had been in place for over 100 years when the US DOJ filed an antitrust suit against AT&T in 1974 [2]. The suit ground on for 8 years until a settlement was reached on January 8, 1982. Under the settlement the Bell System agreed to divest its BOCs, and received the right to go into the computer business in return. The breakup became effective January 1, 1984 [2].
As a result of the breakup there was increased competition in the long distance market from companies like MCI and Sprint. In addition, there emerged a new class of company - the Competitive Local Exchange Carrier or CLEC. These new CLECs were enabled by the rules for special access, which will be discussed in part 2. However, the local access market was still dominated by the BOCs.
Back to the Future
Over time the BOCs started to re-coalesce into larger companies. The figure below was adapted from [3] and [4] to show the evolution after the breakup.
What was once two entities (AT&T Long Lines and the collection of BOCs) went to eight (AT&T and the seven BOCs) and has now shrunk back to three (AT&T, Verizon and CenturyLink). Are we back where we started? Not exactly. Changes from 1984 include much stronger competition in the local markets from cable and wireless providers, as well as from new facilities-based carriers. However, the copper infrastructure built during the regulated monopoly phase is still critical for reaching business subscribers. In fact, only about 30% of business locations are reachable by fiber.
Part 2 of this discussion will discuss the topic of special access in more detail.
References
[1] Wikipedia, "Bell System," http://en.wikipedia.org/wiki/Bell_System[2] Wikipedia, "Breakup of AT&T," http://en.wikipedia.org/wiki/Breakup_of_AT%26T
[3] Wall Street Journal, "A tangled family tree," http://online.wsj.com/article/SB10001424052748704471904576229250860034510.html?mod=WSJ_hp_LEFTTopStories#articleTabs%3Dinteractive
[4] Long or Short Capital, "The Regulatory Inefficiency Theorem," http://longorshortcapital.com/regulatory-efficiency-theorem.htm
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