TELECOM Digest OnLine - Sorted: Bell Divesture (was Re: Schools Prohibit Personal E-mail Sites)

Bell Divesture (was Re: Schools Prohibit Personal E-mail Sites)
16 Jun 2005 07:14:02 -0700

Robert Bonomi wrote:

> If the "Bell System/AT&T/Western Electric" had remained a monolithic
> entity, The rate of change in the "Internet" would likely have been
> much slower. There probably would not have been the telecom boom/bust
> of circa 5 years ago,

What is your basis to claim "the rate of change in the Internet
would likely have been much slower"?

It seems that many critics of the former Bell System "freeze it" at
the time of divesture. That is, they presume the Bell System's
physical plant and operating policies would never change and remain in
1983 technology. That premise is absurb. Throughout its history the
Bell System was improving its plant. The system of 1983 was radically
different than the system of 1973, and clearly the system of 1993 and
2003 would be radically different than 1983.

I know that data communications improved greatly just during the late
1970s, for example. Digital lines replaced analog lines for faster
speed and higher reliability. Private line costs were coming down.

It is also clear operating policies and service plans would have
changed, too. (They were always envolving in the past). How or what
is tougher to say -- it depends on the external environment.

Don't forget the Bell System was heavilly controlled by (1) regulation
and (2) the consent decree. We know that deregulation became popular
later on. It's possible the Bell System may have been allow to adjust
its rates so the the profitable corridors (the "cream") may have
gotten discounts so Bell could compete fairly against newcomers. It's
possible the Bell System may have escaped the consent decree--just as
IBM was able to do -- and go into new markets previously closed to it.

Who knows, perhaps LANS and WANS would've been bult FASTER had
the Bell System been allowed to be involved and use it strengths.

Fred Atkinson wrote:

> Regarding divestiture, I'd have to disagree with your position. Have
> you ever studied economics and the principles thereof?

Yes, I have studied economics. I know that "competition" in as much
by itself is no guarantee of lower prices. There are a great many
more significant variables that must be considered. In the case of
the Bell System, it must be remembered that Bell's prices were NOT set
by being a monopoly, but rather set by the govt in accordance with
social policy.

It was easy for MCI to undercut Bell's pricing because MCI focused
solely on the most lucrative markets and unlike Bell, did not have to
spread its costs and revenues a wide base. MCI didn't have to build
microwave towers high in the Rockies yet charge no more. Nor did MCI
have to carry deadbeat or higher cost customers or provide support

That's not free competition.

> The telephone system never improved all that much over the years (at
> least, to the perception of the end user) until the Bell companies had
> to compete.

That is utter nonsense.

If your statement was true, then the Bell System would still be at a
1910 technical level. Obviously it went beyond that.

The reality is that the Bell System was continually improving its
switchgear, transmission media, customer service, and subscriber
equipment right up until divesture. Long distance rates were falling.

Before divesture my employer was getting faster, more reliable, and
cheaper private line data service and Centrex service.

> Thus, competition played a big role in bringing prices down. And
> the end user got a lot more say so about his/her telephone
> service(s) and got what they wanted at prices they could afford.

The divesture result in costs being _shifted_, not coming down. For
many subscribers, cost went UP.

Users could define their service requirements before divesture.

One cost shifting was moving former telco employees into the employ of
corporations they once served. That didn't really save any money,
indeed, for many employers, it increased costs. That is, instead of
contracting out specialized work to specialists, one now had to hire
those specialists in house.

> I remember when an answering machine could only be provided and
> installed by the phone company. The cost was enormous and there
> were no other alternatives. Then came Carterphone, thank goodness.
> And then came competition between carriers ... and the walls came a
> tumbling down (with apologies to 'Joshua').

There were answering machines available in the early 1960s. Back then
the technology was limited to what a machine could cost effectively do
(not a lot of microprocessors in the early 1960s). Many business
people preferred human answering services to provide superior customer

BTW, Carterphone was not Divesture. Separate issue.

> Because everyone was trying to provide something that the other
> carriers didn't provide (to target their niche in the marketplace),
> the technology began to develop and new things were offered. I often
> doubt that we'd have ever seen the Internet if the industry hadn't
> become competitive (or at least not for many more years to come).

Your statement implies there was no technology development prior to
divesture. I suggest you read some Bell Laboratories Record magazines
to see all the things that were going on. A great many of the
technologies of the 1990s were originally developed at Bell Labs.

As to the Internet, as mentioned the cost of private lines was
declining while speed was going up before divesture. This would

Indeed, I wonder if the old Bell System had stayed around and had a
hand in regulating the Internet, some of the problems we have today
would not exist.

> [TELECOM Digest Editor's Note: Here is a question for the collected
> readership: _If_ Bell had not gotten divested, and was still in
> charge of most everything relating to telecommunications, what would
> the internet be like today?

Probably better. Pat, look at the many problems you articulated about
Internet control and supervision. I dare say the Bell System would
have handled it better.

> Would it all be run by 'the telephone company'? Would we be getting
> all our attachments and peripherals from the telephone company? I
> suggest that might be the case. What do the rest of you think?

Carterphone already removed a big barrier and private lines were
already free to hook up their own stuff. So, many attachments would
be available from private sources. However, I suspect a healthy Bell
System would've kept Western Electric, modified it to meet modern
business needs, and been a competitive player.

Much would've depended on the regulators.

IBM was able to radically change as a company and save itself because
it was freed from its 1956 consent decree and got into some lines of
business previously forbidden to it and not forced to share free very
valuable research patents.

Presumably there'd be deregulation of the Bell System. Private
services would be allowed as well as long distance interconnection.
But at the same time, Bell would be allowed to modify its rates to
meet specific market conditions and compete better, and get revenues
from new services previously forbidden, just like IBM.

Let's remember that MCI got a foothold in many doors not by offering
superior service and lower rates, but by suing regulators or other
agencies to force itself in the door. That's not "free market"
activity either.

[TELECOM Digest Editor's Note: Recall please that MCI got its start
by filing a fraudulent petition with the Illinois Commerce Commission.
The radio repair shop in Joliet, Illinois (MCI's humble beginnings)
_claimed_ all they wanted to do was run a microwave link for a
small, selected handful of their private customers between Joliet,
Chicago and St. Louis. Illinois Bell protested, but to no avail. ICC
allowed Microwave Communications (the small private dealer of radio
equipment and repair of same) to install a link between Chicago and
St. Louis. Soon thereafter, Microwave Communications somehow 'snuck
in' an interconnection to the 'outside' world via a telephone central
office in Chicago and one in St. Louis.

Regards how they initially built up their customer base, MCI took
advantage of two things: (1) the public's general dislike for Bell
System (remember, VietNam, anti-everything big business in the 1960's)
and (2) whether they were 'anti-everything' or not, the general
ignorance of the public regards the working of things telephonic. Knowing
nothing about the concepts of Separations and Settlements, nor the
costs of running big telcos versus rural telcos, nor the profits to
be had in the east coast corridor versus the heavy expenses of putting
repair people to work atop telephone poles in the Rocky Mountains in
the dead of winter, when MCI proffered 'much cheaper rates for calls
by using us instead of them', between that and (1, above) people
jumped at the chance to 'get one over on Ma Bell' ... As Charlie
Brown, AT&T's Chairman during Divestiture once phrased it, "When was
the the last time MCI had two of their long-time, dedicated workers
fall to their deaths from a high peak in the Rockies in the dead of
winter when they had gone out to repair lines for a small community
of a few hundred people who otherwise would have had to go without
phone service until spring when the lines could be safely restored?
If AT&T did not have to deal with hideous conditions like that in
the interest of providing round the clock phone service to small,
rural areas, then I could afford to give cut rate long distance
service also." And he continued, "the nerve of those people to tell
customers to use _our_ directory service (which we provide for 'free'
as part of our over all expense in running the telephone company) and
then to place the _revenue_ portion of the call using their facilities
'because they are cheaper, and why would you want to spend money on
Bell when you could get it for less' ..." PAT]

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