3 Groups of Companies That Are Almost a Monopoly

Corporations dream of out-competing their rivals and reigning supreme in their respective industries. Some companies achieve this level of dominance, eventually creating a monopoly or near-monopoly conditions that allow them to earn outsized profits and keep their customers eating out of their hands.

Many forces develop to try and break down the outsized influence that some companies end up wielding on the marketplace when a monopolistic status has been achieved. Technological advancements are a frequent disruptor as is government regulation to loosen excessive control over a customer base.

Three groups of companies are almost monopolies and have seen these dynamics play out.

Phone Companies

Telephone giant AT&T was forced to divide itself into several local phone companies back in 1982 in one of the best examples of the breakup of monopoly power. The breakup was into approximately seven regional bell operating companies (RBOCs) and included Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell, and U.S. West.

It took more than a decade but these RBOCs eventually began consolidating. The first mergers began taking place in 1996. Pacific Telesis and Ameritech were eventually acquired in 1997 and 1999 by Southwestern Bell which had changed its name to SBC. SBC bought what was left of AT&T, too, in 2005. Bell Atlantic was bought by GTE in 2000 and eventually became known as Verizon.

AT&T and Verizon control most of the phone market in the 2020s and they dominate the declining fixed-line business as well as the growing mobile phone space. AT&T made and later withdrew a bid to acquire T-Mobile in 2011 to further boost its mobile capabilities and to match Verizon, the market leader.

Industry dynamics have changed a great deal since the breakup of the original AT&T. It doesn’t consist of just one firm yet but the phone industry in the U.S. consists of a shrinking group of players.

Computer Firms

The dominance of AT&T and Verizon has been matched in the personal computer industry by the likes of Microsoft and Intel. They were referred to as Wintel at one point and they respectively controlled the software and microchips that formed the inner workings of nearly every computer manufactured on the planet.

This dominance peaked around 2000 and has waned somewhat since then but Microsoft and Intel still control close to 80% of the desktop operating system and CPU markets.

These firms have faced antitrust accusations regarding their dominance and allegations that they used this power to keep competition out of the PC industry. Microsoft had been accused of keeping web browsers other than Internet Explorer off computer desktops. Intel has also been accused of forcing suppliers to only use its chips and avoid rivals such as AMD.

Both have faced heavy fines in the U.S. and Europe for trying to exploit their dominance but they’ve still been able to operate successfully and bring in high profits for shareholders.

The internet caused the computer industry to evolve rapidly. The advent of smartphones and tablet computers has proved that consumers may only need access to the internet to acquire software and applications. This could lessen the dependence on the Windows operating system and the computing power delivered by Intel’s chips but both are likely to continue to exert significant influence in the personal computing industry.

Credit Rating Agencies

Credit rating agencies provide opinions on the creditworthiness of companies and government entities. Standard & Poor’s and Moody’s dominate. Fitch an important player but is a distant third. The law has designated these firms as Nationally Recognized Statistical Rating Organizations (NRSROs) and requires that banks and other financial institutions use these credit ratings as part of their research processes.

Credit debacles have included the demise of Enron, the subprime mortgage crisis of 2007-2009, and a downgrade of the U.S. long-term credit rating. These events have put stress on the ability of the credit rating agencies to operate with the benefit of what is a duopoly. The Credit Rating Reform Act of 2006 also sought to rein in their influence. Many critics felt that it fell far short of actually altering the way they operate, however.

The Bottom Line

Buying leading firms that operate at or near-monopolistic status can prove lucrative from an investment standpoint. These firms are usually able to earn outsized profits that rivals are unlikely to be able to steal. Events quickly develop to break up firms that dominate their industries, however, as these cases demonstrate.

Disclosure: Ryan C. Fuhrmann was long shares of Microsoft at the time of writing but did not own shares of any other company mentioned in this article.