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Traditional Telecommunications Networks

The International Handbook of Telecommunications Economics, Volume I

Edited by Gary Madden

This major reference work provides a thorough and up-to-date survey and analysis of recent developments in the economics of telecommunications. The Handbook serves both as a source of reference and technical supplement for the field of telecommunications economics.
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Chapter 7: Vertical integration in telecommunications

Dennis L. Weisman


Dennis L. Weisman INTRODUCTION The two dominant trends in the telecommunications industry with respect to market structure are consolidation and vertical integration. These developments harbor complex public policy and regulatory issues that simultaneously renew old debates and provoke new ones. This chapter focuses on the strategic motivation for vertical integration in telecommunications markets and the corresponding regulatory and public policy issues. The unique history of the telecommunications industry in the United States (USA) provides a useful setting in which to frame these questions. The central issues under analysis, however, have broader implications that shed light on recent industry trends in Europe and throughout the world (Fraquelli and Vannoni, 2000). In the USA, SBC led the consolidation trend among the Regional Bell Operating Companies (RBOCs), having moved first to acquire Pacific Telesis, then Southern New England Telephone, and finally Ameritech.1 The merger between Bell Atlantic and NYNEX placed control of local exchange telecommunications along the northeastern seaboard in the hands of a single entity. The trend continues with Bell Atlantic and GTE2 planning to merge pending approval by state and federal regulators.3 The two largest long-distance carriers, AT&T and MCI, led the vertical integration trend in the industry. AT&T has acquired Teleport Communications and is merging with cable giant TCI and Media-One.4 With this latest acquisition, AT&T becomes the largest cable television provider in the USA. In 1998, regulators approved a merger between MCI and WorldCom.5 A merger between MCI/WorldCom and Sprint is pending. These mergers provide...

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