Telecommunication Industry

In the old days, the telecom industry was viewed as an example of “natural monopoly. ” This was due to increasing returns to scale, where the telecom services could only be provided efficiently by a monopoly provider. In the U. S. , this pattern started many years ago when the American Bell Telephone purchased the Western Electric Company of Chicago. Alexander Graham Bell patented the telephone in 1876 and formed Bell Telephone. AT&T, which is today one of the leading company in the wireless telecommunication industry, was formed in 1885 to connect the Bell Companies.

In 1913, AT&T agreed to become a regulated monopoly. Although their monopoly was allowed, they were required to connect competing local companies and let the Federal Communication Commission to approve their prices and policies. In January of 1982, AT&T agreed to break itself into a national long-distance carrier and seven “baby bells” in order to end the long-running antitrust suit by the U. S. Department of Justice. The break occurred in 1984. At the time of the breakup of AT&T, almost all telephone companies were monopolies and the increased growth toward competition

The cost reductions have made access to the Internet affordable to the general public. However, in the wireless market, while more people are able to get new devices, companies may try to cap their data usage. For example, at Verizon, they changed their data plans from unlimited usage to capped plans. This is “partially due to rising bandwidth costs from data-hungry subscribe, making the switch to tiered plans inevitable. Network expansion is another area of the wireless sector that can lead to transactions costs.

A good example is Sprint plans to expand its network from the WiMax to the LTE, which is expected to take place in 2013. All main competitors already are into the LTE network. This switch “is expected to cost Sprint $4 and $5 billion, though the investment could deliver over twice that in economic benefit to the company, if this bet pays off better than the money it put on WiMax did. ” Through this example we can see how there are most than just the cost of expanding the network itself, but anything else that is involved until its completion.

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