TELECOM Digest OnLine - Sorted: Re: Bell Divestiture

Re: Bell Divestiture

Fred Goldstein (
Thu, 16 Jun 2005 22:26:57 -0400

At 6/14/2005 03:16 PM, Pat wrote:

> [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? 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? PAT]

This is an interesting question, and like any "what if", one can only
speculate. Here's my take.

Divestiture was one stage in the evolution of the PSTN. It was AT&T's
choice, since they were being sued to divest themselves of WECo (now
Lucent), and chose to give up the BOCs instead. Vertical integration
was causing all sorts of problems, like slow progress, accounting
questions, and cross-subsidization of competitive goods by
monopoly-BOC goods. If the BOCs hadn't been spun off, would WECo have
been? It took over a decade before AT&T figured out on their own that
it should be.

Terminal equipment competition (Carterfone) was firmly in place before
Divestiture. So was Computer II, which deregulated and detariffed
terminal equipment. That latter decision, which took effect in 1983
after Divestiture was announced (and thus was often confused with it),
was arguably more important for the future Internet! Besides its
impact on equipment, it also drew a bright line between BOC regulated
common carrier activities and (non-BOC-owned) "information" services.
Divestiture changed who owned the BOCs, and did a lot for the
independent long distance industry by keeping the RBOCs out for a
while, but it alone wasn't nearly as important as people make it out
to be.

Here's my core thesis: Major regulatory changes tend to lag, rather
than lead, technical changes. Regulation changes when old regimes
cause too much friction. Carterfone came long after it was due. Long
distance competition came when it was obviously practical. Local
competition (TA96) came about because it was long overdue; the old
monopoly system was not working. Yes, the RBOCs are now taking
advantage of political clout to kill off many competitors, but that
doesn't mean that de jure monopolies are the right way.

So there are multiple scenarios we could be talking about. No
Carterfone? Perish the thought. Monopolies in LD transmission? That
would have held up the price of data transmission, slowing down all
sorts of datacomm. Ma Bell viewed leased lines, so necessary for
data, as a substitute for profitable long distance minutes of use, so
they overpriced them. The RBOCs still do the same thing with their
Special Access tariffs!

Now the Internet happened to some extent independent of the phone
companies. Had AT&T owned essentially *all* transmission, as it did
in 1970, it could have held the price so high that the Internet could
only be afforded by Uncle Sam and big corporations. A low-bandwidth
BBS/Usenet culture might have persisted, though.

Let's say digital leased line rates were, instead, regulated at
cost-based levels. Thanks to fiber optics, which would have been
gradually installed (more slowly than they were), the Internet would
have had its backbone bandwidth. Divestiture did not technically lead
to the Access Charge system that replaced Separations (the FCC's
earlier MTS and WATS Orders did), but I doubt AT&T would have had the
balls to claim that ISP-bound calls were all Long Distance, as the
RBOCs tried in their 1987 Modem Tax escapade.

But without local competition in 1996, and with the Internet going
public when it did in 1992, I suggest that the BOC networks would have
collapsed in 1996! The RBOC networks came within months of doing so.
Dial-up Internet traffic was exploding. Bell System culture bought
switches on a 5-year planning schedule, so they could not react
quickly. CLECs were authorized in February, 1996, and by the end of
the year they were carrying substantial dial-up ISP traffic. Remember
"America On Hold"? AOL did not use CLECs in 1996, and the RBOCs could
not provide circuits fast enough (I know; I was working on AOLnet at
the time). Other ISPs did, and that prevented more RBOC switches from
melting down under the load.

All told I think Divestiture was a very good thing, and the pending
acquisitions of AT&T and MCI by RBOCs is a national tragedy which
should not be allowed, but will be. America will, as a result, fall
even farther behind the rest of the world in most matters of telecom.

Fred Goldstein k1io fgoldstein "at"
ionary Consulting

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