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Copyright (c) 1995 Yale University
Yale Journal on Regulation

ARTICLE: Deregulating Telecommunications

WINTER, 1995

12 Yale J. on Reg. 25


Daniel F. Spulber *



In 1982, a consent decree known as the Modification of Final Judgment (MFJ) terminated one of the most significant antitrust suits since Standard Oil. 1 The breakup of the Bell System, which took place on January 1, 1984, constituted a large scale vertical divestiture. The MFJ assigned the longdistance and equipment manufacturing functions of the Bell System to AT&T. The local exchange services were divided among seven Regional Bell Operating Companies (RBOCs): Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell, and US West.

The terms of the MFJ required the RBOCs to provide "equal access" to the local network to all long-distance carriers and subjected the RBOCs to line-of-business restrictions. While regulated monopolies have traditionally been protected from rival entry, these restrictions "quarantined" the RBOCs within their markets by barring their entry elsewhere. The restrictions forbade the RBOCs from providing long-distance services from one local access and transport area (LATA) to another and from manufacturing telecommunications equipment. 2 A third line-of-business restriction concerning the provision of information services has been effectively removed since the divestiture. 3

The Bell System breakup led to increased regulation and litigation. The MFJ established what has become a complex regulatory apparatus that both implements the terms of the consent decree and reviews the RBOCs' attempts to enter markets. Although the RBOCs were "quarantined," the MFJ calls for a triennial review, in which the RBOCs are allowed to petition the court for permission to expand into other markets. For the past decade, the RBOCs, ...
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