Georgetown University

Natural Monopoly AC MC Potential Natural Monopolies: 1.Telecommunications 2.Water 3.Electicity Historically, regulated Quantity €/Q

The Telecommunications Industry Revenues 2008 Deutche Telecom 61.7 b Euros Swisscom 12.2 b CHF NTT 81 b yen AT&T 124 b Dollars Microsoft 60.4 b Dollars

The Evolution of the Telecommunications Industry Pre-divestiture BOC Long lines Post-Divestiture BOC MCI AT&T MCIIXC Post-Act BOC LD BOC CLEC LD

The Essential Facilities Doctrine United States v. Terminal Railroad Ass'n, 224 U.S. 383 (1912) 1. Does the firm have complete control over facilities that are necessary for a downstream competitor to compete? 2. Can the facilities be practically or reasonably duplicated? 3. Has the firm denied access to the facilities? 4. Could the firm have provided access to the facilities?

The Evolution of the Telecommunications Industry Pre-divestiture BOC Long lines Post-Divestiture BOC MCI AT&T MCIIXC Post-Act BOC LD BOC CLEC LD

Industry Structure Matters  Pre-divestiture (1983) Little or no consumer choice Little or no consumer choice AT&T share – 90% AT&T share – 90% One nationwide network One nationwide network Dialing disparity Dialing disparity No demonstrated ability of competitors to expand No demonstrated ability of competitors to expand Willingness to switch Willingness to switch Coast-to-coast call -- $.55/minute Coast-to-coast call -- $.55/minute  2004 Hundreds of LD firms (choice typically >25) AT&T Share – <40% Dialing parity Scores of Facilities-based competitors Demonstrated willingness to switch Coast-to-coast call  $.05/minute.

The Evolution of the Telecommunications Industry Pre-divestiture BOC Long lines Post-Divestiture BOC MCI AT&T MCIIXC Post-Act BOC LD BOC CLEC LD

The Telecommunications Act of 1996 Purpose: “To create a pro-competitive, de-regulatory telecommunications industry.” Represents a major shift in policy approach of regulation from principally acting to protecting consumers from monopoly (and monopoly from entrants) to one of enabling competition. · Eliminates Monopoly franchises (regulatory barriers to entry) · Creates three avenues of entry 1. Pure resale (at price discount of “costs that will be avoided”) 2. Facilities-based entry 3. Unbundled Network Elements

The Electricity Industry Nuclear Coal Gas Turbine Distribution Generation

The Devolution of Vertical Integration in the Electric Utility Industry Distribution ADistribution B Cogenerator

The Devolution of Vertical Integration in the Electric Utility Industry Distribution ADistribution B Cogenerator ISO

Competition in the Water Industry? Falls Church Potomac River Washington DC Historical border Fairfax Water Development projects

Antitrust Analysis  Agreement to exclusive territories  Agreement expires  Fairfax Water announces intention to compete  Fall Church sues, loses  developer is denied permission to move water Falls Church water pipes  2008 – Fairfax sues, monopolization

Final Exam  Comprehensive  Closed book  2 hours  Multiple choice, short answer, essay  Write legibly