main service is one-way transmission of television signals to cable television systems, although they also provide some service to television broadcast stations and a very limited amount of other point-to-point services, including data, facsimile and voice transmission.

Complimenting the firms providing service are those which manufacture telecommunications equipment. Such equipment is used for transmitting, switching and terminating voice and data communications and is manufactured by a wide variety of firms. This portion of the industry will be discussed more fully in a subsequent section.

COMPETITIVE STATUS OF THE
TELECOMMUNICATIONS INDUSTRY

Technological change has paved the way for the introduction of competition into the telecommunications industry, breaking down the former barrier of natural monopoly. FCC and the courts have responded to this change by relaxing the legal barriers to entry and, as a result, new firms have entered the industry. The telecommunications industry, however, remains highly monopolized.

To provide a perspective on the competitive status of the common carrier telecommunications industry, we collected revenue data for carriers operating in common carrier telecommunications markets and submarkets. 1/ We then used this data as a method for determining which firms appear to possess market power and, thus, may be considered dominant.

In defining telecommunications markets, we used a traditional approach which attempts to define market boundaries based on the interchangeability of products and services offered within them. Such an approach is recognized both in law and scholarly literature. We limited our analysis to domestic common carrier telecommunications services and equipment (excluding mobile services), in keeping with the scope of our review. We did not include some services and equipment which others might include in a discussion of the relevant submarkets for the telecommunications industry-such as postal services and computers. The telecommunications services we included involve transmitting information electronically, over distance, from an identified sender to an identified recipient. This is in contrast to transmission of information over distance on a mass media basis such as that provided by television. The telecommunications equipment market involves electronic and electromechnical devices used to originate, transmit, switch, and terminate messages.

1/As discussed on page 24, FCC has not performed such an analysis of the domestic common carrier industry.

Our analysis also considers markets on a national basis. We recognize that there may be other methods for assessing market structure, for example, on a regional basis. We chose, however, to conduct our assessment on a national basis since the necessary data was available from FCC or others we contacted. We also chose to measure a firm's market share by computing the ratio of its revenues (expressed as a percentage) to those of all firms in the particular market or submarket. Such a method is often used in assessing market structures. For example, FCC used such an approach in its 1976 evaluation of the economic effects of competition in the telecommunications industry (Docket 20003).

Data we used in carrying out this analysis was obtained from a variety of sources. Much of the data was taken from FCC's annual publication "Statistics of Communications Common Carriers" and from material presented by FCC in docketed proceedings. Other data was obtained from common carrier industry sources. Finally, certain 1970 and 1975 data relating to the independent telephone industry was obtained from the U.S. Department of Justice. 1/

The telecommunications

services market structure

Table II shows the market share as measured by total revenues for the entire telecommunications services market. This market includes all of the carriers discussed on pages 9 through 13 and is measured on a nationwide basis. While its market share has declined slightly, AT&T still accounts for 82 percent of the market. AT&T's decline in market share is a product of the growth of the independent telephone companies which tend to be situated in the more rapidly growing areas of the country. Despite the relaxation of the legal barriers to entry and their rapid growth, the other common carriers' overall market share has remained largely unchanged.

1/Data obtained from the Department of Justice was collected in connection with its antitrust proceeding against AT&T. The accuracy of the data we used was, however, agreed to by both AT&T and Justice.

1/Includes Western Union, Specialized Common Carriers, Domestic Satellite Carriers, Resale Carriers, and Miscellaneous Common

Carriers.

Source: FCC, U.S. Independent Telephone Association, Department of Justice, and Southern Pacific Communications Co.

Table III breaks down the total services market into a local services submarket and an interexchange services submarket. In both of these submarkets, AT&T has maintained a market share in excess of 80 percent, although its share of the interexchange services submarket has declined somewhat. The other common carriers do not operate in the local services submarket which is comprised of primarily telephone services and which has historically been served on a monopoly basis by AT&T and the independents. Their share of the interexchange submarket has remained largely unchanged.

100

PERCENT

TABLE III

LOCAL SERVICES AND INTEREXCHANGE SERVICES SUBMARKET

SHARES AS MEASURED BY REVENUES

LOCAL SERVICES SUBMARKET

Source: FCC, U.S. Independent Telephone Association, Department of Justice, and Southern Pacific Communications Co.

The interexchange submarket can be broken down into several different sub-submarkets. FCC, in its Second Computer Inquiry, 1/ has made an initial distinction between basic and enhanced services within what we have designated as the interexchange services submarket. A basic transmission service is defined by FCC as the offering of transmission capacity to move information between two or more points. In offering this capacity, a communications path is provided for the analog or digital transmission of voice, data, video, or other information. An enhanced service is a service which involves more than the pure transmission of information. For example, in an enhanced service, computer processing applications are used to act on the content and other aspects of the user's information.

Within the basic transmission services sub-submarket we see three major service sectors--MTS/WATS, private line services, and public switched record services. 2/ Table IV presents market share data for these three sectors. In MTS/WATS, the largest sector in terms of revenues--total revenues in 1979 of $26.9 billion--AT&T again has, by far, the overwhelming market share. The other common carriers were allowed into this sector by a 1977 court decision. From 1977 through 1979 their market share grew to approximately one-half of 1 percent.

The private line services sector has experienced the most significant penetration by the OCCs reflecting the fact that (1) regulatory barriers to entry were relaxed in 1971; (2) until the 1977 court decision this was the only area in which OCCS were competing; and (3) growth in demand for these services has been very rapid. Although the OCCs' share has grown to almost 10 percent of the sector, AT&T's share remains in excess of 85 percent.

The public switched record services sector consists almost entirely of Western Union's Telex/TWX service. Since AT&T discontinued TWX service in 1971 and sold some of the associated facilities to Western Union, Western Union has maintained virtually a 100 percent share of the sector.

Reliable data on the enhanced services sub-submarket is not available. Consequently, its overall size cannot be accurately determined or the share of its participants computed.

1/Docket 20828, amendment of section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry) is discussed further in chapter 6.

2/These are the same categories used by FCC in its Competitive Carrier Rulemaking (Docket 79-252).