Telephone Deregulation

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Telephone Deregulation Review
According to Temin, the AT&T break-up was motivated by the effort by the US department of justice to eliminate the possibility of cross-subsidies. This was meant to level the cost across all regions and avoid customer misuse. While the AT&T only increased subsidies for the interstate calls, the government felt that it was abusing the monopoly to hike prices and gain more profit. The judge believed that the company was interchanging its services from the local revenues. However, since the divestiture, the department has been unable to contain the flow of the cross-subsides into the local telecommunication service providers. There still are cross subsidies in the telephone and mobile networks, a situation that the government cannot control.
By the MFJ alleging that the AT&T subsiding its services was wrong, it based the allegation on misconceptions that led to the reverse process where private companies started imposing their cross subsidies to the local services. The argument that the move could have caused post-divestiture in the AT&T was profoundly correct in that, by forcing the company not to level its incomes by providing a cheaper local service, then they would only compromise the primary market and end up incurring more losses. As a result, the access charges in the local market would be raised else the company closes down some of the branches. As of late, the international prices have considerably increased although cross-subsidies have been lowered.

It is notable that cross-subsidization could bring anticompetitive practices like greedy pricing and welfare losses. However, the government should have employed better methods to ensure that AT&T revenue was not the cause of increased monopoly and further consider the effect of introducing private service providers. As noted by Temin, it is unlikely that the eight companies that AT&T was divided into have brought all charges in services with cost. Rather, the cross-subsides within the companies has brought more confusion. Historically, the fundamental essence of FCC preventing the interstate telephone traffics was to reduce the profits accrued from the long lines and discourage use of mobile networks to facilitate the war. The move to distribute the long line operations to other companies was worthwhile but only is the FCC very thorough to control the charges. The move, although good, could create additional costs for providing the long call services hence the charges would rise above those for AT&T, a situation that occurred after a short time. Although reducing the cross-subsidies is good, using different companies to supply long distance services at higher costs, others supplying private telephone network services and the other providing cheaper local services would only burden some of the companies as it happened between TELPAK and the other companies. This would not level costs as the companies are different entities. Rather having a single company provide all the services could help manage the costs, level their income and provide reasonable cheaper but efficient call costs across all networks.
Basing the calculations of cross-subsidies purely on cost is detrimental for complex public service firms like the telephone companies. Cost is bound to change for these companies due to the variations in the stand-alone costs and the production costs but what poses a larger challenge is the introduction of politics and personalities. Adopting the value-of-pricing strategy allow costs to differ by class of services but does not influence the size of customers. I recommend the idea of treating customers equally as this broke the traditional regulatory pricing. However, the efficient economic solution should not equate the particular joint price to the borderline opportunity cost. Each service has a unique marginal cost and hence the benefits are unique. What should be controlled is the amount of profit gotten.