Diversification and Regulated Industries - What's Next for the Telephone Holding Companies

Should regulated businesses be allowed to diversify into nonregulated areas? And if so, should the ratepayers be required to absorb the losses if these "investment opportunities" turn sour? Examining the landmark AT&T Divestiture Decree, the author argues that recent decisions regarding the permissible scope of outside operations have gone too far afield. By overemphasizing the potential benefits of competition, while underemphasizing important considerations of management psychology, the author feels unlimited diversification operates to everyone's detriment.

The author concludes that the present guidelines are unworkable and offers some guiding principles for future decisions.