TELECOM Digest OnLine - Sorted: Re: Bell Divestiture

Re: Bell Divestiture

Robert Bonomi (
Sat, 18 Jun 2005 03:57:09 -0000

In article <>,
<> wrote:

> Fred Goldstein wrote:

>> 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!

> But long distance rates for both switched and private line service
> were both on the way down well before actual divesture. Also, faster
> and faster digital lines were being installed before divesture.

I _guarantee_ that AT&T and the Bells were not 'voluntarily' reducing the
prices just because of a decrease in costs.

There were precisely *two* possible reasons for a price reduction:

1) pressure from competition.

2) enough 'pent up demand' that the price reduction brought in 'more
than enough additional volume' to make up for the reduction in

>> I maintain it was mostly technology -- cheaper
terminal equipment and >carrier media followed by higher call
volume and greater economies of >scale -- that caused and still
cause long distance rates to fall.

The _rate_ of deployment, however, was driven by the competition _doing_it_

> As Pat noted in his comments, in the early days MCI had a big advanage
> serving only the high profit markets with no obligation to handle the
> expensive stuff or provide support services. Any time a phone call
> had trouble they dump it into AT&T's lap.

"In the early days" all Internet connectivity was between those 'high
profit markets' -- making the 'alternative' carriers an excellent fit
for delivering such service at a lower cost than AT&T/Bell/WEco could
possibly offer.

>> Let's say digital leased line rates were, instead, regulated at
>> cost-based levels.

> Are you sure they weren't? I'm not that familiar with private line
> tarrifs,

In Chicago, in the early 80s a 'dry pair' for data service between
point A and point B cost several *hundred* dollars a month. This was
for renting the bare wire-pair between 'point A' and the C.O. a cross-
connect in the C.O., and the bare wire-pair out to 'point B'. Yet,
you could rent those same two sets of wire-pairs, *and* the use of
C.O. switching equipment connecting to the PSTN, for less than

Interestingly they would rent those _same_ dry pairs, for 'alarm
service' signalling at a fraction of the "data service" price.

'DDS' service was priced even higher.

> but as mentioned my own employer's network went down in price
> and up in speed before divesture. Private networks, such as owned and
> run by railroads, were shifted over to AT&T since it was cheaper for
> AT&T to provide it than doing it themselves.

Can you name a single railroad that had a developed long-haul telecom
network that _voluntarily_ converted to AT&T service? The one that I
am aware of where that happened did it _because_ the railroad was
*sold*, but the prior owner _kept_ the telecom operation *(including
R-O-W on all that railroad's trackage) rather than including it in the

> Considering they already had a network in place, there must be have
> been good cost savings to dump it for AT&T.

>> 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. ...
>> 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.

> I'm not sure "months of collapse" is an accurate characterization.

It is not inaccurate. Demand ramped up *far*faster* than the Bell system
projections indicated.

There were numerous big-city locations where you _could_not_get_ RBOC
phone lines in quantity, when you wanted them. 'Rationing' _was_ in
effect. For a variety of reasons -- lack of field workers to do
physical interconnects, lack of C.O. capacity, among the big ones.

When you're down to the last few thousand numbers available out of a
C.O. that serves 100,000 numbers, and the new switch isn't due for
delivery for another 18 months, you _don't_ have many choices.

> The Internet boom did not happen suddenly overnight. Remember that
> since the 1960s people used dial-up to communicate with computers and
> this traffic continued to grow. Hobbyists with early home computers
> began to talk to each other then BBS's came along.

Home computers didn't *exist* until the mid 1970s. The Altair 8800
plans ran in PE's Jan 1975 issue. The APPLE-II didn't exist until
late 1977.

The first BBS went online in Feb 1978. Within two years, the operator
of that system had crossed swords with the local telco
_at_least_three_times_, where they refused to install the additional
residential lines he wanted. Claiming he "had" to be running a
business. Public-utility commission complaints ensued, and the telco
did, in each case, end up installing the additional lines.

Other large-scale "hobby BBSs" across the country reported similar

There were telco capacity problems in the mid 80s, and in the mid 90s.
The first one was _not_ (at least directly) Internet related. That
one gets blamed on the public packet-data networks. The fireworks
started when Telenet announced a program to let hobbiests take
advantage of the (tremendous amount of) excess capacity they had
'after business hours', This program was called "PC Pursuit", and
allowed one to dial into the Telenet network, and then dial *out* to a
BBS (or "whatever") in a remote location -- as long as that
destination was a 'local' call from the Telenet 'portal' in that area.

Telenet found that they couldn't build on capacity _fast_enough_ to
keep up with the demand. And most telco 'usage projections' went in
the trashcan. In some areas, it took less than 5 months to reach
levels that had not been predicted to be reached in 2 years.

The mid-90's debacle _was_ Internet driven. dial-up usage was ramping
up much faster than projections had called for. 'last mile' service
was forcibly opened to the CLECs DSL was being pushed. Those who
weren't interested in DSL itself, _still_ got curious about "what's
all the excitement about", which contributed to the dial-up demand.

In many places ILECs _didn't_have_ the manpower to keep up with the
demand. Install dates -- even for additional _voice_ service -- were
running 8-10 weeks behind. It took me thirteen weeks(!) to get a DSL
line in, over 12 of that was ILEC problems.

> The RBOC were serving this growing traffic all along; and it was
> well recognized and expected it would increase greatly. There were
> the early services such as Compuserve and Prodigy.

Which were a drop in the bucket, compared to the public packet-data
networks that let you connect to any of a myriad of host systems.

> Remember too that many users got a second telephone line for their
> computer use. At the same time, the real (inflation adjusted) cost of
> local phone service went down and more people got second lines for
> their kids. The phone companies were planning and responding to this
> all along -- expanding switch and local loop capacity.

It is a fact, nonetheless, that the growth outstripped *all*
expectations. Line availability _was_ 'rationed' in some areas, due
to inadequate C.O. service availability. Number availability was
rationed in some areas, due to 'near exhaustion' of space in the NPA
-- there are several 'splits' that were implemented on _very_short_

>> America will, as a result, fall even farther behind the rest of the
>> world in most matters of telecom.

> Is the U.S. really "behind" the rest of the world? Ironically, prior
> to divesture the U.S. was by far the leader in telecom service.
> Indicators like cost, lines per person, etc. all were best for the
> U.S.

"Was" is not "is". <wry grin>

Even prior to divestiture, the 'road signs' were there for anyone to
read. "Measurements" for quality of U.S. service were flat-lining,
and in some cases, actually declining. While other in areas,
particularly Europe, and the more developed areas of the Pac. Rim,
service 'quality' was approaching that of traditional U.S. levels,
*and* showing no signs of leveling out.

The most common dial-tone (residential or small business) in most of
the developed world is ISDN, at cost roughly equivalent to POTS in the

ISDN, except for hi-cap service, is moribund, if not entirely dead in
the U.S.

ISDN calls for less equipment in the CO than POTS (so it -should-
price lower), provides better voice quality, and offers a flock of
capabilities that are simply 'not available' on a POTS line.

> wrote:

>> The No. 1ESS was basically a No 5XBAR with stored program control
>> (SPC). The real motivator was to cut labor cost and secondarily to be
>> able to market special calling features.

> Well, basically every switch was an advancement on the basic Strowger
> unit which itself was to eliminate manual operators.

> But I suspect the ESS offered more benefits than you suggest. I
> believe it took up less floor space and operated faster, so it could
> handle more calls in the same building. I believe it was more
> reliable and more flexible.

Space was not an issue, generally. Possibly in a few central-city
facilities in a few of the largest cities.

"Speed" is not related to call-handling capacity.

The reliability benefit was mostly to the telco -- less service
personnel on the payroll.

> Also, since the Bell System's rates were based partly on cost, cost
> savings would be passed along to the customer which they were. In a
> time of great inflation local rates remain nearly level.

The Bell system, like any regulated monopoly was _guaranteed_ a
certain minimum rate-of-return on investments. Very, *very* rarely
was 'how' that money was spent questioned. If there was a way that
was 90% as good, but only cost 10% as much, they *still* got to use
the 'expensive' way that they did things as the base for their
'profit' margin.

Oh, yeah, there wasn't any "cap" on the profits either. If they were
making 'excessive' profits, there wasn't any 'price reduction'
program. Of course, rate increases would not be approved while the
profit margin was above the required level. when phone rates "didn't
go up" for many years, it was because the telco was making more than
their 'fair, guaranteed, profit' for all those many years.

> [Telecom Editor's Note]

>> Bell got hit so bad for a few years, they finally decided they had
>> to rebuild the entire phone system from the ground up, and the answer
>> to that was ESS. So as you stated, Bell did not develop ESS in order
>> to make a few dollars selling 'custom calling features' to users; ESS
>> was developed so the telephone company could regain control of a
>> network which was rapidly getting out of control.

> Another major reason for the system rebuild was to protect the network
> itself. The "phone phreaks" were using 'blue boxes' to take control
> of the network and lock up long distance trunks. While mostly used to
> save money, it was potentially very dangerous.

All that 'non revenue' traffic was the real killer. It was so easy to
do, and becoming *so*widespread* that it was having a measurable
impact on over-all revenues, and the ability to deliver revenue

> As to the issue of not interested in providing the customer with
> advanced features, I'm not sure I agree. According to Bell Labs
> Record and the history books, advanced service features (especially
> for business users) were important.

Can you name a feature/capability introduced by the Bell System after
1970 that was not present in third-party-provided, customer-owned, PBX
equipment first? The only one I can think of is the "picturephone".

Even "caller id" (for internal calls) was available on a Rolm CBX
years before the telco's offered it.

3-way calling, conference calling, call waiting, speed-dial, call
'camping', etc. Standard features on PBXs years before there was
Centrex availability. And even longer before they were offered on
plain-jane POTS service.

> The Bell System did not have to retrofit Step-by-step exchanges with
> Touch Tone converters -- it didn't save them any money. But they
> still developed four models for various SxS situations.

'Native touch-tone' was far less expensive for the telco than native pulse

"Pre-converting" end-users to touch-tone was some expense 'now', for
less expense 'later'.

Pulse converters in front of native touch-tone was _still_ a cost win,
albeit not as much as pure touch-tone. the pulse converter, and the
touch-tone decodes could now be multiplexed across many lines. You
only needed as many sets of those devices as there were calls being
_dialed_ at any given time, not one for each line through the switch.

The reduction is several orders of magnitude.

> The Bell System didn't have to develop the Princess or Trimline
> telephone sets. But they did. And we know they put a heck of a lot
> of effort into optimizing the design for user comfort.

Do you know *why* those phones were developed?

Telephone _line_ sales had reached the 'saturation' point, Nearly
everybody that was likely to buy telephone service *had* service. The
only place for 'revenue growth' was in "add-on sales". 'Additional
extensions' was the big-money item in this class. extra jacks were
one-time revenue item. 'Long cords' (set to wall, or handset to base)
couldn't justify much of a recurring charge. Additional sets, on the
other hand, were almost pure gravy. With only one line there was, in
general, only one phone in use at a time, so the wear-and-tear on the
second phone was mostly covered by the increased life-expectancy of
the first one.

Bell was trying to sell the idea that you needed more than one phone
at home -- Ideally, 'one in every room'. But they only had about
three phones to offer -- the standard desk set or two types of wall
set. Those alternatives were fine for the workplace, but woefully
inadequate -- from a marketing standpoint -- for the residential
market. If it clashed with the decor, the lady of the house was *not*
going to permit it.

So, if Bell wanted to "make money faster", they had to "sell" more
extension phones.

To "sell" more extensions, they _had_ to have something that was
'acceptable' decor-wise to the decision-maker in the household.

So, the "Princess" phone was expressly designed for the bedroom.
Compact, a rounded 'blend in anywhere" shape, a lighted dial, to
facilitate use in the dark, etc. etc.

And the "TrimLine" for other places where you didn't want something
that "looked like a business phone". e.g. the parlor, or a 'family

The Bell System *did* have to develop those phones -- or something of
a similar nature -- *IF* they wanted to sell 'additional phones' to
the then- existing customer base.

Those phones were not intended as 'replacement' for the existing
office-type phone in the residence, but as _additions_ to it.

> The entire history of the Bell System has been one of improving the
> economies of scale to lower the cost to get more traffic and make more
> money.

Disproof by counter-example: the practices and policies leading up to
the Carterphone decision.

[TELECOM Digest Editor's Note: Before Charlie Brown became Chairman of
AT&T, he was President and CEO of Illinois Bell. At that time, he
lived about two blocks from me in Rogers Park, a north side
neighborhood in Chicago. In chatting with him at his home one day, he
said to me basically what Robert Bonomi claims above. I specifically
recall one conversation we had: I had business service in downtown
Chicago (office was WEbster 9-4600 and my recorded message lines were
on HARrison-7-1234 (and upward in number). Both sets of lines were
served from the real old, clunky, stepping switches out of Wabash CO.
All the lines were just dreadful sometimes, in terms of noise and
crosstalk. Normally of course, I just dealt with the Business Office
like anyone would do; it wasn't and still isn't my thing to drop names
or appeal to the Chairman's office unless absolutely required.

But one day, attempting to make a call from my office phone, the
dialing and setup of the call sounded just like the nickname telco
guys had for the central office: The Wabash Cannonball. (Chicago-Wabash
was the central office, at Congress Blvd. and Wabash Avenue.) It was
called the 'Wabash Cannonball' because of the amount of noise those
relays would make when a bunch were setting or resetting within a
couple seconds of each other; very noisy to be in the frames
anytime. I called repair service and asked them "please, are you doing
_any_ routine these days there, or just letting it all go to hell
since you plan to have the ESS up and running in about three months?"

The repair clerk said to me, "Sir, we do _not_ just allow our
equipment to 'go to hell' as you put it. We maintain it regularly, and
I will put in a service request for your lines." A night or two
later, I walked past Charlie Brown's home (he was getting ready to
move up to Wilmette because the RP neighborhood was getting so bad)
and I mentioned that experience to him. His somewhat guarded response
was that the techs had been told to 'do what was absolutely needed' to
keep the old system up and running, but not a lot more.

Then came the weekend it was all cut over to ESS (Wabash did not go
through several years of crossbar stuff first, just straight from
stepping switches to ESS) and ah ... the blessed _quiet_ during the
call setups. And the speed! If you did not know better, you would have
thought you dialed an extra digit or two in error and were going to
get an intercept or a wrong number; under ESS the instant your finger
came off the dial, the other end started ringing. No more of the
Wabash Cannonball chugging down the tracks and about half the time the
switch train getting derailed by accident. PAT]

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