Event-study analysis of the effect of deregulation on the telecommunications industry
This dissertation examines the wealth effect of deregulation of the telecommunications industry and the divestiture of AT&T. This study can tell us whether George Stigler's Capture Theory, which asserts that regulation benefits producers at the expense of consumers, is consistent with the reaction of the stock price of firms during the deregulation process.^ The study employs the Event Study methodology which is a general statistical approach which uses many variations of the Market model including the Multivariate Regression Model and the Portfolio model to study the impact of new information on one or more variables of primary interest.^ The telephone industry, monopolized by the Bell System (AT&T), has undergone a dramatic change over the last twenty years--from regulated monopoly to an industry characterized by deregulation, divestiture and competition. Rapid technological advance has played a major part in the change of the structure of this industry. Reacting to the change in the environment, the Federal Communications Commission (FCC), supported by the courts, has over the last two decades allowed some form of competition into the manufacture of terminal equipment and long distance telecommunication services. AT&T reacted to the competition by refusing to connect non-Bell equipment to its network. Also, AT&T has been accused of unfair pricing and unfair business practices in its effort to thwart competition.^ The results of this study revealed some uncertainty whether the deregulation and divestiture of AT&T caused any positive wealth transfers. Also the results suggest that regulation could not have been beneficial for the companies studied. Therefore, the final conclusion of this study suggests that there was no significant effect of deregulation on the telecommunications industry. Also the study points out that the portfolio and Multivariate Regression Model gave conflicting results. However, the Portfolio model appears to detect abnormal returns for some events more often than the Multivariate model. When all the abnormal returns for specific events are added together, the Portfolio method and the Multivariate method appear to have the same power. Finally, the results of this study could not tell whether AT&T was a natural monopoly, or whether MCI and the other carriers engaged in creamskimming. (Abstract shortened with permission of author.) ^
Soobrian, Lloyd, "Event-study analysis of the effect of deregulation on the telecommunications industry" (1988). ETD Collection for Fordham University. AAI8818478.