structural change in the U.S. telephone industry

The break-up of AT&T in 1984 is a well-recognized, major structural change in the U.S. telephone industry.  In the 1984 divestiture, AT&T’s local telephone business was separated into seven independent Regional Bell Operating Companies (RBOCs).  By year-end 2006, recombinations of RBOCs had left as AT&T successor companies the new AT&T, Verizon, and Qwest.  AT&T, Verizon, and Qwest served 46%, 32%, and 9% of subscriber lines served by the 35 largest local exchange telephone companies at year-end 2006.

A less appreciated structural change is that telephone line share and industry concentration has increased among non-AT&T local telephone companies.  From 1916 to 1942 among the 35 largest local telephone companies, the share of telephones that non-AT&T companies served fell from 13% to 8%.  However, that trend subsequently reversed. From 1942 to 2006, the telephone line share of non-AT&T companies rose back to 13%.[1]  This increase in non-AT&T share occurred despite an AT&T successor acquiring the local telephone business of Southern New England Telephone.[2]  AT&T successor companies’ spinning off rural exchanges and less reduction in rural telephone line counts helps to explain the five percentage point growth in non-AT&T telephone share.

Concentration has increased among non-AT&T local telephone companies.  The telephone share of the top-5 non-AT&T local telephone companies among the top-35 non-AT&T local telephone companies rose from 47% to 63% to 78% from 1916 to 1942 to 2006.  The five largest non-AT&T local telephone companies at year-end 2006 were Embarq, Windstream, CenturyTel, Citizens Communications, and Cincinnati Bell, with 35%, 16%, 11%, 11%, and 4% of non-AT&T top-35 subscriber lines, respectively.

On July 1, 2009, CenturyTel acquired Embarq.  In April, 2010, CenturyTel announced that it was acquiring Qwest.  Non-AT&T local telephone companies have been a small but vibrant part of the U.S. telephone industry.

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Data: holding companies for U.S. local telephone operating businesses, 1916, 1942 and 2006 (Excel version).

Notes:

[1] Data availability for 2006 limits the comparison to top-35 companies. For 1916 and 1942, the figures are for shares of telephones.  Telephone counts are not available after 1984.  For 2006, the figures are for share of subscriber lines (loops).  One subscriber line can serve more than one telephone.  However, the difference between shares of telephones and shares of subscriber lines is unlikely to affect significantly observed trends.  Compared to the above shares of telephones, corresponding shares of operating revenue are a few percentage points higher.   But the trends are similar.

[2] SBC Communications, formerly Southwestern Bell Telephone, acquired SNET on Oct. 26, 1998.  SBC subsequently became part of the new AT&T.

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