Review of Industrial Organization
12: 537–553, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
The FCC and the Decline in AT&T’s Long Distance
Residential Rates, 1980–1992: Did Price Caps Do It?
SUSAN A. EDELMAN
Department of Defense, 1800 Defense Pentagon, Washington, DC 20301, U.S.A.
Abstract. From July 1, 1989, until November 23, 1995, the FCC used price caps to regulate long
distance telephony. There has been heated debate over whether the decline in AT&T’s rates was due
to the price caps, or to the efﬁciencies that price caps were meant to foster. I show that, for basic
schedule per call residential services, the rates fell most when Equal Access (1-Plus dialing) became
widespread, several years before price caps began. In addition, the decline in access charges does not
fully compensate for the decline in AT&T’s rates.
Key words: AT&T, FCC, price caps, regulation, telephony.
AT&T’s real rates for basic schedule per call residential services
have been declin-
ing since before the Federal Communications Commission (FCC) began regulating
interstate telephony in 1934.
The FCC regulates trafﬁc over local lines only when
it originates or terminates long distance calls. Otherwise, the FCC does not regu-
late, and has never regulated, local (intrastate) telephone service; this has always
been left to the states. The standard reason for a rate decline is technological inno-
vation. In the 1980s, though, a slew of unprecedented legal as well as technological
changes occurred, and there is little agreement on why rates declined as they did
in the 1980s.
I show that no single reason adequately accounts for all the rate declines, that
there are different reasons for different discrete time periods, and that price caps
and access charges cannot explain the rate declines. Most importantly, I conclude
that Equal Access technology, required by the 1982 consent decree between AT&T
and the Department of Justice, allowed AT&T’s competitors to participate in the
market on more equal footing with AT&T. Before Equal Access, long distance
This paper is based on work I did at the Federal Communications Commission during 1992–93,
and was originally prepared for the American Economic Association meetings, January 1994. I am
grateful to Richard Clarke, Paul Joskow, John Scott and Thomas Spavins for helpful comments. All
errors are my own. I do no business with AT&T. The views expressed in this article are those of the
author and do not reﬂect the ofﬁcial policy or position of the Department of Defense, the Federal
Communications Commission, or the U.S. Government.
Also small business services, which had the same rates as residential services during these years.
Except during the Great Depression.