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1997 Kluwer Academic Publishers. Printed in the Netherlands.
Confessions of a Telephone Regulator: The FCC’s
AT&T Investigation of 1972–1977
MANLEY R. IRWIN
Professor Emeritus, Whittemore School of Business and Economics, University of New Hampshire,
Durham NH, U.S.A.
A quarter of a century has elapsed since the Federal Communications Commission
launched a massive investigation of the American Telephone and Telegraph Com-
pany (AT&T). In this study, known as Docket 19129, the Commission sought to
determine whether the Bell operating companies (BOC’s) were paying too much
for equipment purchased from AT&T’s supply afﬁliate, Western Electric. Stated as
a question, did AT&T’s integration of telephone service and telephone manufac-
turing beneﬁt the telephone rate payer?
AT&T’s ownership of telephone service and equipment manufacturing was
hardlya recent development in U.S. telecommunications.Western Electric had been
a part of the Bell system since the early 1880s. Despite some one hundred years of
supply ownership, the policy questions attending Bell’s vertical relationship kept
recurring over time. In 1934,for example,the very ﬁrst inquiryby the newly created
Federal Communications Commission was none other than AT&T’s ownership of
Western Electric. The Commission’s examination of Western’s prices and costs ran
through most of the 1930s and drew to a close as war clouds gathered over Europe.
By 1939, the FCC essentially opted for AT&T’s structural status quo. The FCC’s
intention to revisit AT&T’s integration in 1972 was thus not an action without
To a certain extent, the Commission backed into the Western Electric prob-
lem. Initially, the FCC sought to determine whether the price of long distance
service was reasonable and prudent. That question inevitably triggered another.
How could the FCC justify telephone rates without some knowledge of equipment
costs? Equipment costs led the commission to look into Western Electric prices.
The billing of equipment to the Bell operating companies constituted an internal
corporatetransaction. Did those transactions redound to the beneﬁtof the telephone
I was teaching economicsatthe Whittemore Schoolof Business and Economics,
University of New Hampshire when the AT&T investigation was announced. The