Kingsbury Commitment
Encyclopedia
The Kingsbury Commitment of 1913 established AT&T
as a government-sanctioned monopoly, as an out-of-court settlement of the government's antitrust challenge. In return for the government's agreement not to pursue its case against AT&T as a monopolist, AT&T agreed to divest the controlling interest it had acquired in the Western Union telegraph company, and to allow non-competing independent telephone companies to interconnect with the AT&T long distance network.
The government had been increasingly worried that AT&T and the other Bell Companies were monopolizing the industry. Under Theodore N. Vail from 1907, AT&T had bought Bell-associated companies and organized them into new hierarchies. AT&T had also acquired many of the independents, and bought control of Western Union
, giving it a monopolistic position in both telephone and telegraph communication. A key strategy was to refuse to connect its long distance network — technologically, by far the finest and most extensive in the land — with local independent carriers. Without the prospect of long distance services, the market position of many independents became untenable. Vail stated that there should be "one policy, one system [AT&T's] and universal service
, no collection of separate companies could give the public the service that [the] Bell... system could give."
AT&T's strategies prompted complaints and attracted the attention of the Justice Department
. Faced with a government investigation for antitrust
violations, AT&T entered into negotiations.
In the Kingsbury Commitment, actually a letter from AT&T Vice President Nathan Kingsbury of December 19, AT&T agreed with the Attorney General to divest itself of Western Union, to provide long distance services to independent exchanges under certain conditions and to refrain from acquisitions if the Interstate Commerce Commission
objected.
The Commitment did not settle all the differences between independents and Bell companies and averted the federal takeover many had expected. AT&T was allowed to buy market-share, as long as it sold an equal number of subscribers to independents. Critically, while with the Kingsbury Commitment, AT&T agreed to connect its long distance service to independent local carriers, it did not agree to interconnect its local services with other local providers. Nor did AT&T agree to any interconnection with independent long distance carriers.
Consequently, AT&T was able to consolidate its control over both the most profitable urban markets and long distance traffic. The Willis-Graham Act allowed AT&T to begin acquiring more local telephone systems with the genial oversight of the Interstate Commerce Commission
. By 1924, the ICC approved AT&T’s acquisition of 223 of the 234 independent telephone companies. Between 1921 and 1934, the ICC approved 271 of the 274 purchase requests of AT&T. With the creation of the Federal Communications Commission
in 1934, the government regulated the rates charged by AT&T.
The entire network was nationalized during World War I
from June 1918 to July 1919. Following re-privatization, AT&T resumed its near-monopoly position. In 1956, AT&T and the Justice Department agreed on a consent decree to end an antitrust suit brought against AT&T in 1949. AT&T restricted its activities to those related to running the national telephone system, and special projects for the federal government.
In 1968, FCC regulators intervened when the Bell System tried to prevent a mobile communications system, the Carterfone
, from connecting to telephone lines. That decision established the principle that customers could connect any lawful device to the telephone network, even to offer a competing service. In the mid 1970s, emerging long distance competitors like MCI and Sprint faced the same tactic of denying interconnection, which regulators quashed, followed by a series of efforts by the Bell System phone companies to escalate the costs of interconnection as an indirect means of excluding competition. These battles resulted in epic antitrust litigation and eventually the 1982 breakup of the Bell System.
In 1982, AT&T and the Justice Department agreed on tentative terms for settlement of anti-trust suit filed against AT&T in 1974, under which AT&T divested itself of its local telephone operations, which became known as the "Baby Bells." In return, the Justice Department agreed to lift the restrictions on AT&T activities contained in the 1956 Consent Decree.
American Telephone & Telegraph
AT&T Corp., originally American Telephone and Telegraph Company, is an American telecommunications company that provides voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies. AT&T is the oldest telecommunications company...
as a government-sanctioned monopoly, as an out-of-court settlement of the government's antitrust challenge. In return for the government's agreement not to pursue its case against AT&T as a monopolist, AT&T agreed to divest the controlling interest it had acquired in the Western Union telegraph company, and to allow non-competing independent telephone companies to interconnect with the AT&T long distance network.
The government had been increasingly worried that AT&T and the other Bell Companies were monopolizing the industry. Under Theodore N. Vail from 1907, AT&T had bought Bell-associated companies and organized them into new hierarchies. AT&T had also acquired many of the independents, and bought control of Western Union
Western Union
The Western Union Company is a financial services and communications company based in the United States. Its North American headquarters is in Englewood, Colorado. Up until 2006, Western Union was the best-known U.S...
, giving it a monopolistic position in both telephone and telegraph communication. A key strategy was to refuse to connect its long distance network — technologically, by far the finest and most extensive in the land — with local independent carriers. Without the prospect of long distance services, the market position of many independents became untenable. Vail stated that there should be "one policy, one system [AT&T's] and universal service
Universal service
Universal service is an economic, legal and business term used mostly in regulated industries, referring to the practice of providing a baseline level of services to every resident of a country...
, no collection of separate companies could give the public the service that [the] Bell... system could give."
AT&T's strategies prompted complaints and attracted the attention of the Justice Department
United States Department of Justice Antitrust Division
The United States Department of Justice Antitrust Division is responsible for enforcing the antitrust laws of the United States. It shares jurisdiction over civil antitrust cases with the Federal Trade Commission and often works jointly with the FTC to provide regulatory guidance to businesses...
. Faced with a government investigation for antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
violations, AT&T entered into negotiations.
In the Kingsbury Commitment, actually a letter from AT&T Vice President Nathan Kingsbury of December 19, AT&T agreed with the Attorney General to divest itself of Western Union, to provide long distance services to independent exchanges under certain conditions and to refrain from acquisitions if the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
objected.
The Commitment did not settle all the differences between independents and Bell companies and averted the federal takeover many had expected. AT&T was allowed to buy market-share, as long as it sold an equal number of subscribers to independents. Critically, while with the Kingsbury Commitment, AT&T agreed to connect its long distance service to independent local carriers, it did not agree to interconnect its local services with other local providers. Nor did AT&T agree to any interconnection with independent long distance carriers.
Consequently, AT&T was able to consolidate its control over both the most profitable urban markets and long distance traffic. The Willis-Graham Act allowed AT&T to begin acquiring more local telephone systems with the genial oversight of the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
. By 1924, the ICC approved AT&T’s acquisition of 223 of the 234 independent telephone companies. Between 1921 and 1934, the ICC approved 271 of the 274 purchase requests of AT&T. With the creation of the Federal Communications Commission
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
in 1934, the government regulated the rates charged by AT&T.
The entire network was nationalized during World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
from June 1918 to July 1919. Following re-privatization, AT&T resumed its near-monopoly position. In 1956, AT&T and the Justice Department agreed on a consent decree to end an antitrust suit brought against AT&T in 1949. AT&T restricted its activities to those related to running the national telephone system, and special projects for the federal government.
In 1968, FCC regulators intervened when the Bell System tried to prevent a mobile communications system, the Carterfone
Carterfone
The Carterfone is a device invented by Thomas Carter. It manually connects a two-way mobile radio system to the public switched telephone network , making it a direct predecessor to today's autopatch....
, from connecting to telephone lines. That decision established the principle that customers could connect any lawful device to the telephone network, even to offer a competing service. In the mid 1970s, emerging long distance competitors like MCI and Sprint faced the same tactic of denying interconnection, which regulators quashed, followed by a series of efforts by the Bell System phone companies to escalate the costs of interconnection as an indirect means of excluding competition. These battles resulted in epic antitrust litigation and eventually the 1982 breakup of the Bell System.
In 1982, AT&T and the Justice Department agreed on tentative terms for settlement of anti-trust suit filed against AT&T in 1974, under which AT&T divested itself of its local telephone operations, which became known as the "Baby Bells." In return, the Justice Department agreed to lift the restrictions on AT&T activities contained in the 1956 Consent Decree.
See also
- United States Independent Telephone AssociationUnited States Telecom AssociationThe United States Telecom Association , founded in 1897, is the trade association for broadband service providers and their suppliers. The Association represents the broadband industry before the United States Congress, the United States federal courts, and the White House.-External links:* * *...
- Sherman Antitrust ActSherman Antitrust ActThe Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
- Communications Act of 1934Communications Act of 1934The Communications Act of 1934 is a United States federal law, enacted as Public Law Number 416, Act of June 19, 1934, ch. 652, 48 Stat. 1064, by the 73rd Congress, signed by President Franklin D. Roosevelt, codified as Chapter 5 of Title 47 of the United States Code, et seq. The Act replaced the...
- Telecommunications Act of 1996Telecommunications Act of 1996The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
- Bell System divestitureBell System divestitureThe Bell System divestiture, or the breakup of AT&T, was initiated by the filing in 1974 by the U.S. Department of Justice of an antitrust lawsuit against AT&T. The case, United States v...