Competition in Long Distance Telecommunications

Long Distance Competition Study--04/07/95)

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A study released today by Federal Trade Commission economist Michael R. Ward concludes that the long-distance telephone ser- vice market was more competitive in the years 1988-1991 than many observers previously may have thought. The market likely has become more competitive since that period, the study notes. The study measures the degree of market power in the small business and residential market for long-distance telecommunications. The evidence it presents may be relevant to policy decisions regard- ing whether AT&T long-distance services should continue to be subject to price regulation, and whether the Regional Bell Opera- ting Companies should be allowed to offer long-distance services.

The study estimates that the maximum potential welfare loss that would result if AT&T prices were completely unregulated would have been about $199 million in 1991, which is "well below previous estimates of the benefits that followed partial deregu- lation of the long distance market."

In discussing the study's conclusions, Ward notes that price regulation can be beneficial when it limits welfare losses due to supracompetitive pricing, but that it imposes costs when it reduces productive efficiency. "In the early 1980s, competition may have been insufficient to constrain AT&T prices to long-run marginal cost," the study states. "In the intervening decade, competitive pressures on AT&T increased substantially." The study estimates that competition constrained the potential dead- weight loss from supracompetitive prices to between 0.03 percent

- more -

and 0.36 percent of total industry revenues. "Competitive pres- sures continue to mount and it is likely that the potential deadweight loss currently is smaller," the study concludes.

This study reflects the views of the author, and not neces- sarily those of the Commission or any individual Commissioner.

Copies of the study, "Measurements of Market Power in Long Distance Telecommunications," are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.


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