What Are Long Distance Carriers?
Long distance carriers were telecommunications companies primarily responsible for transmitting phone calls over significant geographical distances, often across states or internationally. These entities formed a vital part of the broader Telecommunications Industry, specializing in interexchange services, as distinct from local telephone service. The business model of long distance carriers relied on extensive telecommunications infrastructure, including vast networks of cables, microwave towers, and switching centers, to connect calls between different local service areas.
History and Origin
The concept of long-distance communication emerged soon after the invention of the telephone, but commercial viability and widespread service took decades to develop. Early long distance carriers faced immense technical challenges in transmitting voice signals over great distances. A pivotal moment came in January 1915, when the American Telephone and Telegraph Company (AT&T) successfully connected the first transcontinental phone call across the United States.6 This technological feat underscored the potential of long-distance telephony, even if the service remained prohibitively expensive for most for some time.5
For much of the 20th century, AT&T held a near-monopoly on telephone service in the United States, including long distance. However, increasing antitrust scrutiny led to a landmark legal battle. On January 1, 1984, the Bell System was broken up, divesting AT&T of its local service operations into seven regional companies, while AT&T itself retained its long-distance services and equipment manufacturing arms.4 This historic event fundamentally reshaped the landscape for long distance carriers, ushering in an era of greater competition from new entrants like MCI and Sprint.
Key Takeaways
- Long distance carriers historically provided interexchange telephone services, connecting calls across broad geographical areas.
- Their business was characterized by significant capital expenditures for network infrastructure.
- The industry underwent major deregulation, most notably with the AT&T breakup in 1984 and the Telecommunications Act of 1996.
- The rise of cellular technology and the internet, particularly Voice over Internet Protocol (VoIP), led to a steep decline in traditional long distance call revenue.
- Many former long distance carriers have diversified into providing a wider array of communication services, including wireless and internet service providers.
Interpreting Long Distance Carriers
Understanding long distance carriers primarily involves recognizing their historical role in shaping modern telecommunications. In their traditional form, these companies were evaluated based on their ability to manage extensive telecommunications infrastructure, their market share in the interexchange market, and their pricing strategies. With deregulation and technological advancements, interpretation shifted from evaluating standalone long distance services to assessing diversified telecom companies. Investors now look at the overall revenue streams from bundled services, including internet, wireless, and data, as the profitability of pure long distance services has largely diminished. The competitive landscape for these entities is now defined by broadband penetration and the evolving customer base for integrated communication solutions.
Hypothetical Example
Imagine an investor in the early 1990s considering an investment in a long distance carrier. At this time, these companies were distinct entities from local phone providers. The investor would analyze financial statements looking at the company's large investment in fixed assets (network infrastructure), its per-minute call rates, and its subscriber base for long-distance services. They would compare the company's profitability with rivals, recognizing that the ability to offer competitive pricing and reliable connections was key to gaining and retaining customers in a newly competitive environment.
Practical Applications
Historically, long distance carriers were a significant sector for investors interested in utility stocks due to their stable, regulated revenue. The primary practical application for long distance carriers now lies in understanding the evolution of the broader telecommunications industry.
Today, companies that were once solely long distance carriers have diversified significantly. They are now major players in wireless communication, broadband internet, and enterprise data services. For example, the Telecommunications Act of 1996 aimed to foster greater competition by allowing local and long-distance phone companies to enter each other's markets, accelerating this diversification.3 As the traditional long-distance business declined due to new technologies, these companies underwent extensive mergers and acquisitions and strategic shifts to maintain relevance and generate new revenue streams.2
Limitations and Criticisms
The traditional business model of long distance carriers faced severe limitations due to technological innovation and deregulation. The primary criticism of the pure long-distance model centered on its eventual obsolescence. The advent of cellular phones, followed by Voice over Internet Protocol (VoIP) and widespread internet use, dramatically reduced the demand for traditional per-minute long distance calling. This shift eroded the long distance carriers' core revenue streams and forced a complete re-evaluation of their business strategies.
Another criticism involved the historical lack of competition in the industry, particularly under AT&T's dominant presence prior to its breakup. While deregulation aimed to introduce more competitive dynamics, the transition was not without challenges, leading to intense price wars and financial difficulties for some entrants. The current competitive wireless landscape still presents challenges for major carriers, emphasizing that no business model, even a diversified one, is without risks.1
Long Distance Carriers vs. Local Exchange Carriers
Long distance carriers and local exchange carriers (LECs) historically operated in distinct segments of the telecommunications industry, though this distinction has largely blurred over time.
| Feature | Long Distance Carriers | Local Exchange Carriers (LECs) |
|---|---|---|
| Primary Service | Transmitting calls between different local service areas (interexchange). | Providing local telephone service within a defined geographical area (intraexchange). |
| Network Focus | Long-haul transmission lines, often connecting major population centers. | Local loops connecting individual subscribers to central office switches. |
| Regulation | Historically regulated at the federal level, with deregulation leading to increased competition in the long-distance market. | Primarily regulated at the state level, controlling local rates and access. |
| Business Model | Revenue derived from per-minute charges for long-distance calls. | Revenue from monthly subscription fees for local service. |
| Key Legislation | Impacted heavily by the AT&T divestiture (1984) and the Telecommunications Act of 1996, which allowed cross-market entry. | Also impacted by the Telecommunications Act of 1996, which introduced competition in local markets through Competitive Local Exchange Carriers. |
The main point of confusion often arose from how a single phone call could involve both types of carriers. A call from New York City to Los Angeles, for example, would originate and terminate with a local exchange carrier but use a long distance carrier's network for the inter-city portion. Post-deregulation and technological convergence, many companies now offer a full suite of communication services, encompassing both local and long-distance capabilities, along with internet and wireless, making the historical distinction less relevant in operational terms.
FAQs
What happened to traditional long distance carriers?
Traditional long distance carriers, as standalone businesses focused solely on per-minute calling, largely ceased to exist due to advancements in technology and changes in the regulatory framework. The rise of cellular phones, Voice over Internet Protocol (VoIP), and bundled communication services rendered their core business model obsolete. Many diversified into broader telecommunications companies, offering internet, wireless, and other data services.
Are there still long distance charges?
For most residential and mobile phone plans, traditional per-minute long distance charges within the same country are rare. Modern plans typically include unlimited nationwide calling. International long distance still often incurs charges, though these are significantly lower than historical rates due to VoIP and increased competition.
How did the AT&T breakup affect long distance carriers?
The AT&T breakup in 1984 shattered AT&T's monopoly, creating a competitive market for long distance services. This allowed new players like MCI and Sprint to emerge and compete on price, leading to lower costs for consumers and a more dynamic industry. AT&T itself remained a long distance carrier after the breakup, but it faced significant new competition.
What is the difference between a long distance carrier and a local phone company?
Historically, a long distance carrier transported calls between different local areas, while a local phone company (a local exchange carriers) handled calls within a specific local geographic region. Today, most major telecommunications companies offer both local and long-distance services, as well as internet and wireless, blurring the traditional distinction.