American Telephone & Telegraph began in 1880 as a project by the American Bell Company to create a viable and cost-effective telephone network for America. Nineteen years later the AT&T project company was so successful that it bought her parent, American Bell. The AT&T company built our country's communication infrastructure. The natural result, well she was a monopoly. But it's not like some evil barons in top hats just started buying up all the pig bellies or sugar or gold one day to corner the market - no, this company invented and created an entire technology. (All Bell-Meucci debates aside...)
Well this monopoly (for the most part) provided affordable, quality service for nearly a century, until the government decided that "Ma Bell" was getting too big for her britches. After WWII, the country experienced an enormous surge in technological development by numerous companies (i.e. would-be phone company competitors), but because of the natural monopoly, many new technologies would stagger in dormancy (fiber-optics, microwave communications equipment, etc.). In 1974, in a move that I'm sure was in no way encouraged by money from Microwave Communications, Inc., the Justice Department brought an anti-trust suit against AT&T.
A sign that hung in many Bell facilities in 1983 read:
"There are two giant entities at work in our country, and they both have an amazing influence on our daily lives. . . one has given us radar, sonar, stereo, teletype, the transistor, hearing aids, artificial larynxes, talking movies, and the telephone. The other has given us the Civil War, the Spanish-American War, the First World War, the Second World War, the Korean War, the Vietnam War, double-digit inflation, double-digit unemployment, the Great Depression, the gasoline crisis, and the Watergate fiasco. Guess which one is now trying to tell the other one how to run its business?"(*Actually, to be fair, I should point out that the Krauts and the Commies did play a part in some of those items.)
I really hate to defend the phone company, but I think the sign had a point. Well, some judges and executives got paid off, and as a result of the suit, in 1984, AT&T agreed to divest many of her subsidiaries (the "Baby Bells"), in return for being allowed to venture in to the computer business (which was a HUGE flop, by the way). So now customers had to go to different companies for long distance and local service, and there was a whole host of corporate break-ups, spin-offs, and restructurings. Bell Labs/Lucent, Oracle, Western Electric - not to mention all the regional local companies (there were many which later consolidated on there own - for instance, BellSouth used to be at least 3 different companies).The idea was to give folks a choice. Sounds good, right? New companies like MCI & Sprint could now operate (thanks to a court order) on the physical infrastructure that another company built. Sounds fair to me. Well if it'll bring LD prices down, I guess it's ok (I didn't pay a phone bill back then, but folks say prices didn't go down like we were promised. LD sort of went down, but local went up, up and up some more. Mmm...)
However, another result of the suit allowed the subsidiary companies to remain as monopolies of local service! What a crock. So all the many "Regional Bell Operating Companies," South Central Bell (later BellSouth), Southwestern Bell (SBC), Bell Atlantic (GTE, later Verizon) - they still had customers by the, um, well, by the bills.
Then cellular service came along, and BellSouth offered BellSouth Mobility (later Cingular), as I'm sure all the other Baby Bells offered their own versions. AT&T also had AT&T Wireless.
I'm getting to my point - and kudos if you can keep all this straight - AT&T begats Baby Bells, like BellSouth and Southwestern (SBC). Baby Bells begat cell companies, like Cingular. What happens 20 years later, the Baby Bells come back. AT&T starts buying up Lucent, Oracle, Western Electric, Cingular buys AT&T Wireless, SBC buys AT&T (keeping the AT&T name), AT&T buys Cingular, and now AT&T buys BellSouth.
God creates man, man destroys God, man creates dinosaurs.
Dinosaurs eat man, woman inherits the earth.
5 comments:
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Warm Regards
Biby Cletus - Blog
if ya ever get the time, this book, along w/ writings by richard posner, really kind of changed the antitrust landscape. i have the book but, after reading the first chapter, realized that i will never "get the time" to read it
I have a few quibbles with your tale., though it does follow the standard storyline of AT&T's rise and fall and rise. If you care to discuss it, I'll dig up my communications law folder and we can battle it out:) AT&T did figure out how to build efficient telephone networks, though as you note, there is some dispute about who actually invented the telephone line, just as there is regarding the telephone.
Also, AT&T was originally a regional telephone operator, along with several other regional operators. AT&T's monopoly came not from the nature of telephone networks, but rather from their skill in lobbying. Early in the 20th Century, AT&T convinced the feds that it would be inefficient to have more than one phone company and was granted monopoly power to create a nationwide telephone network by using the force of the gubmint to eliminate competition. (Whatever basis the natural monopoly rationale had back in the day, it certainly holds no water now with the technologies available today) After 80 or so years of state-created monopoly protection, some folks in the gubmint, under pressure from would-be competitors, realized that Ma Bell was an inefficient, innovation-crushing behemoth. Then, instead of just removing AT&T's monopoly protection, the feds created a dog's breakfast of regs that created a bunch of little monopolies (Baby Bells) in place of one big monopoly with predictable results. In other words, this is not a story of a company that tamed the telephone wilderness and hence became a corporate juggernaut, but rather, a story of a company with political savvy that out-lobbied its competitors and was guaranteed monopoly rents for nearly a century. I'm sure a new telecom act is in the works and I'll bet that it doesn't say: free competition for all competitors. I'm sure it's full of the same forced access garbage and regional monopoly bs that doomed the previous acts to failure.
End of rant:)
AT&T did not begin like that. It was a subsidiary company specifically created in 1885 by the American Bell Company for the sole purpose of building the infrastructure of LD. It was never a regional operator until it bought American Bell in 1899. But if you build a company, that builds something (the telecommunications network), I would say that you would have a valid (but not conclusive) point if you objected when the Government said that other companies had the right to make money off your sh-, er um, stuff.
I did point out that AT&T's monopoly prevented new technologies from emerging. To that, I say 'so what?' (I personally hate AT&T, but that's another story) But after deregulation, nothing changed. Prices pretty much stayed the same and people's voices on the telephone sounded the same as they always had. Wait, something did change. The pockets of Judge Green and DOJ heads got fatter. Oh yeah, MCI and Sprint started interrupting our dinners.
My point is that we're only 2 more companies away from AT&T being the company it used to be. It's only been 23 years since the gov't essentially broke it up, but now the gov't is now ok with this? Monopoly? Technically no, I can still choose the Po-Dunk-Backwaters-Telephone-Cooperative to handle my phone billing. But who's going to choose them? Not me. The point of my rant is that I hate the government and that Ma-Bell wasn't that bad. She wasn't that good, but not that bad either.
(Concerning any modern technology - phone, radio, lasers, time machines, any Italian-American will happily tell you that it was invented by an Italian, and some Anglo stole it from him.)
Here's a good article illustrating some of my points:
http://www.cato.org/pubs/journal/cjv14n2-6.html
What we've got here is...:) I agree w/ your timeline, as I said the network buildout and gubmint granting monopoly powers to Ma Bell occurred in the early 20th Century.
Forced access (when gov't forces a network owner (such as AT&T) to open its network at mandated rates is always a bad idea. It discourages existing network owners from investing in network improvements (innovation). I think we're agreed on that point. My point is that as a gov't monopoly AT&T went out of its way to squash innovation and maintain its monopoly power even in seemingly trivial cases like the Carterphone decision.
I agree also that the breakup was handled badly (see the dog's breakfast comment above) and that the DOJ and Judge Green were idiots who just imposed managed competition rather than opening up the telecom market to unfettered competition. The ghost of this decision and the disastrous telecom acts that have followed continue to hamper competition and prevent innovation. I do think we're in better shape now than in the past though.
Even though the telecom market is still a mess, advances in celluar, digital, VOIP and many other communications technologies means more reliable service at lower costs. Yes, costs are lower today, for providers and consumers, due to technological advances as well as increased competition in the communications market (not a completely free market, but better than it was).
Again, we agree that the breakup was bad and that what's occurring now isn't ideal, but I think you're off-base in claiming that things weren't so bad under Ma Bell. Sure, you could make long-distance phone calls, but the rates you paid were considerably higher than those of today, not to mention how far international rates have fallen. Further, I don't think that the innovation we have seen since the breakup and especially the rate of innovation is anything to sneeze at. Imagine where we'd be today if Ma Bell had never received her gov't granted monopoly? Who knows what new technologies we're missing out on because of that distortion in the market? Generally, even though things are "good" now and were ok in the past, does that mean we shouldn't try to make things better? Reminds me of this excellent essay:
http://www.econlib.org/library/Bastiat/basEss1.html
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