The Breakup of AT&T

I finally got around to reading a book that’s been on my list for a long time. The book is The Deal of the Century: The Breakup of AT&T by Steve Coll. This book came out in the 1980s and chronicled the events and the big personalities involved in the divestiture of AT&T into the Baby Bells on January 1, 1984. I worked with Southwestern Bell until just before divestiture and watched how the topic consumed everybody inside the old Ma Bell business. The monopoly that has been steady for a century was suddenly a perilous place to work, and career employees found their futures to be uncertain.

This is blog is not a book review, although I recommend this book for anybody that wants to understand how we ended up with the telecom industry we have today. The book has two focuses. It looks at the court cases involved in the processes. People may not remember that the antitrust case against AT&T had been going on for a long time before Judge Harold H. Greene took over the case. He brought discipline to the prosecution and singlehandedly got the case on track.

The book also looks at the big personalities involved in the case. In addition to Judge Greene was John D. deButts and Charles Brown, the presidents of AT&T that fought, but eventually agreed to the divestiture.  On the prosecution side was Assistant Attorney General Charles Brown and outside counsel George Saunders. Also playing a big role from Congress was Peter Rodino from New Jersey and Tim Wirth from Colorado. The book describes the chain of events and interplay of personalities that eventually led to breaking up AT&T.

Looking back 36 years after the breakup it’s easy to see how divestiture changed the telecom industry in both good and bad ways. On the plus side, it introduced competition. The premise of the divestiture was about allowing competition for long-distance service. It’s probably hard for kids today to believe that making a long-distance call required an affordability assessment when talking to somebody outside the local calling area cost ten cents or more per minute – at wage levels a fraction of today. Long-distance has gotten so cheap today that it is thrown in on telecom products. Nobody thinks twice about calling somebody and talking for an hour on a cellphone or across a computer link.

However, the idea of competition didn’t end with divesture and there is a straight line between the AT&T divestiture and the Telecommunications Act of 1996 that allowed competition for local service in addition to long-distance. That spelled the end of the telecom monopoly.

Probably the best outcome of the breakup of AT&T was the way that competition opened up the development of the Internet. If Judge Greene had not been successful, we may not have seen the success of the dial-up ISPs that relied on telephone lines to function. An AT&T monopoly would have been able to fend off and maybe block cable company broadband networks. Without robust long-distance competition, we probably wouldn’t have seen the same successful development of the cellular industry – it likely would have remained as a tool for corporations and the wealthy.

But there is a flip side to the successes due to competition. Increased competition led to decreased regulation. As long-distance companies and the cable companies pummeled the regulated telcos we saw federal and state regulators allow the telcos to deregulate. That deregulation is probably the biggest factor that has culminated in today’s badly deteriorated and non-functional rural telecom networks. The idea of carrier-of-last-resort has seeped away over the years and regulators stopped insisting that regulated telcos take care of the needs of rural customers. In most parts of rural America, the telecom landscape is probably the worst it’s been for a century. Nobody is tasked with making sure rural America has broadband.

Unfortunately, the idea that everything in the telecom world ought to be open to competition ignores the fact that landline networks work best as monopolies. We’ve seen the consequences of the competition movement in two big ways. In urban areas, the cable companies have largely become the new monopolies, but nobody seems to want to invoke that word or talk about invoking monopoly regulation. In rural areas, every big telco has largely walked away, and nobody wants to make infrastructure investments that don’t make high rates of return. The only long-term solution to having broadband everywhere is a regulated environment that ensures that most rural places share in the benefits of affordable communications. The challenge we face is figuring out a path from today’s fully deregulated world back to something that will work for rural America. I’ve heard dozens of simplistic suggestions on how to make this work again, but it’s a puzzle that I’m not sure can be solved.

3 thoughts on “The Breakup of AT&T

  1. Doug,

    The only entities that already have outside plant everywhere, even the most remote rural places, are the REAs (antiquated term, I know, but I am 81). Marrying their existing structure with advancing fixed wireless and/or maybe 5G appears to me to be the only possibility for the still essential farmers and ranchers to do their jobs.

    BUT… it appears the ‘electrics’ think they need a financial ‘opportunity’ that probably involves Fed $$s. Politically can’t it be ‘sold’ as ‘seed money.” I am persuaded they also need their directorates to find the courage to look outside the box of power. Today’s rural deficit is communication.

    As a lifetime conservative, I still think there are segments of an economy that can ONLY be supplied by Fed$$s as infrastructure – developmental investments.

  2. Dear Doug:

    A few thoughts on last Tuesday’s very prescient topic.

    (1) The original American telecommunication paradigm… that long distance telecom prices should be inflated in order to deflate/subsidize local telecom prices… was never a good long-term strategy. It was a “temporary”, unstable buy-in, with net-winners and net-losers, and it was never going to last indefinitely. Studies have been done — including one paid for by AT&T itself — to explain what happened. Simply put, the net-losers didn’t want to keep losing, and they looked for other options. Along came the L/D competitors (Microwave Comms., Inc., Sprint, etc.) who got their nose under the tent and offered viable solutions. Then came wireless local which provided, for many reasons, a better choice to local landline.

    (2) The AT&T Divestiture case should not be taken in a vacuum. There was also an anti-trust case in the 1970s against IBM. That case was resolved around the same time (Reagan administration, in 1982), but had a very different result. The Federal Government effectively dropped the suit because competition had come to the computer industry… negating the need for divestiture.
    The 7 RBOC “Baby Bells” regrouped themselves — and SBC ‘ate their mother’ — into three current telecom conglomerates, “AT&T” (SBC, etc.)… Verizon (Bell Atlantic, etc.) and CenturyLink (USWest, etc.). Other telecom providers and newer firms still exist…
    Western Electric, the manufacturing arm of AT&T, itself became a problem for the newly competitive AT&T, and was itself spun off as Lucent Technologies.

    ~ Ron

Leave a Reply