Sunday, March 12, 2006

The Past is Future?

Or should I say “Let's get the family back together.”

22 years ago the feds busted up AT&T. Before the break-up, AT&T was synonymous with the telephone. One bill for all of your services (of course, there were far fewer services at the time- local service, long distance, and that's it) and they provided the hardware (that was starting to phase out by the 1970s). There were a smattering of non-Bell (AT&T, aka Ma Bell) local service providers- the largest of whom was GTE- commonly referred to as 'independents.' AT&T was, essentially, the only long distance provider. The entry of MCI (and satellite technology) struck the blow which ultimately led to AT&T's divestiture.

AT&T, pre-1984, was a patchwork organization consisting of AT&T proper (Ma Bell) which operated the long distance network, the Bell Labs, and the so-called Regional Bell Operating Companies (RBOCs) which provided local service. The Regional Bells were arranged according to state lines and AT&T's acquisition processes (the Feds stopped that during the first part of the century). The divestiture order consolidated the Regional Bells into 7 companies and then spun them off into completely independent entities— Bell Atlantic, Nynex, BellSouth, Southwestern Bell, Ameritech, USWest, and Pacific Bell. Essentially, the government recognized local phone service to be a natural monopoly (and limited the so-called Baby Bells to providing local service so as to blunt that monopoly power) and attempted to create competition within the long distance market by forcing AT&T to buy it's access the same as any other long distance provider (additionally, Ma Bell was forced to disavow the Bell name).

Fast forward to the Telecommunications Act of 1996, which attempted to foster competition in local phone service (by allowing the Baby Bells to enter the long distance market only after they opened their local networks to competitors). As we walk forward in time, 1997 saw Bell Atlantic buy Nynex. In 1998 Southwestern Bell bought Pacific Bell and added Ameritech to the family the next year. Bell Atlantic bought GTE in 2000 and re-named itself as the far less regional sounding Verizon. Also in 2000, USWest was purchased (with tech bubble funny money) by Qwest. Last year Southwestern Bell— who had by now changed their name to the far less regional sounding SBC— purchased AT&T and Verizon acquired MCI (but only after winning a bidding war against Qwest). Which leaves only poor little BellSouth without an interesting corporate history. Until last week, that is, when it was announced AT&T (SBC chose to use AT&T's more well known- and far less regional sounding- name when they merged) is in bringing BellSouth back into the fold.

The 7 Baby Bells are now 4, heading toward 3. You can only wonder how long until the family is back together. Verizon and SBC are the successful children. Verizon largely broke from the family and pursued its own path (making peace with the family's long standing nemeses GTE and MCI). SBC is the better sibling- giving Ma Bell a place to live when she could no longer take care of herself, offering a home to the smaller siblings. BellSouth is the mid-life bachelor of the family, coming home because he's lonely. USWest is the truly wayward Baby- taking up with a sketchy partner and as a result saddled with questionable debt. Maybe Qwest is re-united with the family at some point over the next few years, but I doubt it.

On the cellular front, BellSouth and SBC are the joint owners of Cingular. In 2004 (in preparation for giving up on this whole independent living thing), AT&T sold its wireless division to Cingular. With the pending merger of AT&T (nee SBC) and BellSouth, the Cingular name will be retired in favor of the better known AT&T brand. Which makes sense- I buy part of you. The rest of you is bought by someone else (who part owns me to begin with). They buy the rest of me. I take your name.

None of this should be interpreted as an argument either way. Things have changed with the advance of cable, cellphones, and broadband. But have they changed so much that what was done should now be undone? Are there really adequate economies of scale involved?

At the same time, it is probably a mistake to think in terms of the concentration and size of the telephone companies. Rather, telecommunications- phone and cable companies if we're talking about the wires into our homes, many others if we are talking about the actual services provided- is probably the more accurate market concept. Which brings me back to an idea I considered a few weeks ago- public ownership of the wires. As the giants of the telecom infrastructure are increasingly making clear, part of the allure of owning the information highways is charging content providers and users for the privilege of using the bandwidth. Why shouldn't this be public property? Control over those wires is not the sole driving force behind this merger (in the short term, consolidating the cellular situation is probably a bigger deal), but telephone and cable companies both know the more homes they connect to, the rosier their future will be. I wish the same could surely be said for the people who live in those homes.

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