TELECOM Digest OnLine - Sorted: Re: Bell Divestiture

Re: Bell Divestiture

Robert Bonomi (
Sun, 19 Jun 2005 22:43:25 -0000

In article <>,
<> wrote:

> Robert Bonomi wrote:

>> 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
>> profitability.

> Neither of those make sense. There was not significant competition
> before divesture except from other modes (ie writing a letter,
> telegram).

No competition for telephones, answering machines, fax machines,
PBX's, modems? No competition for long-distance telephone calls?

Do you know when divestiture occurred? Do you know how many years
*earlier* MCI was founded? Do you have any idea when the company now
known as Sprint was founded?

Do you have any idea how many local telephone lines the company now
known as Sprint was serving, in, say, 1976? Would you believe three
and a half million lines?

Do you know when MFS started laying its own 'bypass' fiber?

Do you know when Merrill-Lynch laid the first bypass fiber loop in the

> If you say the Bell System had no interest in the customer,

I did not say that. They were *very* interested in the customer -- as
a milkable source of revenue.

> then it would not have lowered rates to meet that "pent up
> demand", rather just put in more lines and made all the more money.

'Pent up demand" describes a _price-sensitive_ phenomenon.

i.e., where the price is the primary barrier to additional sales.

People want the product, but they _will_not_ buy more of it, at that
high price. Drop the price, and people do buy more.

If lowering the profit margin on a product by 25% only brings in 10%
more business, you are better off with the smaller volume of sales.

If lowering the profit margin on a product by 10% brings in 25% more
business, you are 'money ahead' to do so.

The latter scenario *precisely* describes the situations in which the
Bell System lowered prices. They lowered their _profit_margin_ by
*less* than the factor of increased sales, and thus pulled in more
money from the customers.

>>> 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_ FIRST.

> Again that fails to explain the continual rate reductions before
> divesture.

Not to those who know the actual history. And that competition *was*
there in the profit-making areas, a decade or more before divestiture.

The Bell System's primary _profit_ sources were: (1) value-added
business telephone services / equipment, (2) long-distance-derived
revenues. Residential service was usually priced at break-even, or
maybe a little below that. It was a 'necessary evil', to make the
bread-and-butter business services a 'salable' item.

BOTH of those profit sources were under significant competitive
pressures, long (as in "well more than a decade") before divestiture.

>> 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
>> sale.

> The Pennsylvania Railroad/Penn Central network was privately owned,
> maintained, and operated, then turned over to AT&T.

Not, exactly a ringing endorsement for the approach -- Penn Central's
management made so many "smart" decisions that the company went
bankrupt and closed its doors.

>> 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.

> But businesses and schools were heavy users of time sharing by the mid
> 1960s -- using dial-up Teletypes.

Revisionist history at work. Computer "time sharing" did not exist
_at_all_ before mid-1964. By September of that year, DTSS could
handle an amazing =seven= terminals. By 1968, capacity was up to
several dozen simultaneous-use terminals.

IBM didn't have an interactive time-sharing system offering until late 1967.

As of 1970 it is doubtful that there were 10,000 simultaneous dial-up
'modem' calls active at any given time, across the entire United
States. But the landscape _was_ changing rapidly.

>> 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
>> problems.

> That is a tariff issue. Rates for a business and residential line are
> based on expected use. A non-profit is still considered a business.
> Seems to me a high volume BBS should've been classified as a business
> line due to high volume of use.

_WHAT_ business?? In Randy's case it *was* just a hobby. No income,
no membership 'fees', no nothing. All the expenses came out of his
personal pocket.

>> The mid-90's debacle _was_ Internet driven.

> That was after divesture and the Bell System no longer existed at
> that point.

Well, it was the "Baby Bells" that couldn't handle the demand. didn't
have enough physical ports on switches, hadn't properly projected the
growth, and didn't have phone numbers to assign. Same management,
same planning process.

>> 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.

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

> Space IS a MAJOR issue. Real estate is expensive in growing areas,
> whether city or suburb. ESS takes up a far smaller footprint than the
> equivalent No 5 crossbar location.

Where the telco had an existing facility, there was no net savings
realized by the fact that the replacement box had a smaller footprint
than the box it replaced. Bell System bought/built facilities with
planned-for 75-100 year life-spans, _including_ projected growth.

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

> Yes, it is.

Speed of call set-up is irrelevant to the number of
_connected_and_running_ calls that can be handled

> I believe you yourself said it was the to the advantage of
> common control equipment to get in and out of the call as quickly as
> possible. A faster common control can handle more calls.

Yes there is an advantage. It has nothing to do with the number of
connected calls that can be passing through the switch at any given

The advantage is that you can set-up/tear-down more calls, with _less_
equipment. As long as you have 'enough' equipment to set-up/tear-down
more calls than the system can handle, in _less_ total time than the
average duration of a call, the speed of the equipment does not
constitute a limiting factor in capacity of the equipment. if the
equipment is 'slow', then you merely have to have more elements, to
achieve the required overall capacity. When the 'performance limit' is
elsewhere -- e.g. as in the number of communications-paths through the
matrix -- speeding up the 'common control' equipment has *zero* effect
on the number of simultaneous calls that can be handled.

>> The Bell system, like any regulated monopoly was _guaranteed_ a
>> certain minimum rate-of-return on investments.

> Regulated monopolies were NOT _guaranteed_ a minimum rate of return.

You know not that of which you speak.

You can find percentage figures spelled out in the franchise
documents, granting the monopolies.

> If they were Western Union would not have gone broke nor would the
> railroads.

Western Union and most of the railroads were 'regulated common
carriers'. Not regulated monopolies.

> In some locations of the Bell System and even today, regulators
> mandate below-cost services for social reasons or deny rate
> increases.

> Very, *very* rarely was 'how' that money was spent
> questioned.

>> *NO*, <that> is _not_ true.

>> As Pat pointed out, Ma Bell was under constant scrutiny by the news
>> media and government and advocates. Shareholder gadflies made a point
>> of disrupting stockholders' meetings every year. Activists filed
>> constant lawsuits against the system.

Primarily a 1970's and later phenomenon. You can generally count on
your thumbs the number of rate increase requests that were _not_
granted in their entirety, between the end of WW 1, and, say, 1965.

>> 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".

> I guess to really answer that claim one would have to list the latest
> PBX offerings of the Bell System of 1970, their cost, and the
> competition's offerings.

That does _not_ answer the question posed, Carterphone opened the door
WIDE for third-party suppliers. Allow a couple of years for their
first-generation gear to hit the market, and then start looking at
_who_ introduces the new capabilities *first*. Aside from
"picturephone", I can't think of _one_ where Bell/AT&T/WEco was first.

> How many third party PBXs were available in 1970?

A fair number. Rolm was the 800lb gorilla of the bunch.

> Getting back to your claim the Bell System did nothing it didn't have
> to,

I did not say that. I said that what they did was for *their*
advantage first, and if the customer benefited, well, that was an
unimportant incidental.

> let's not forget the Princess, Trimeline, Panel, Home Interphone,
> and Bell Chime units.

Princes and Trimline were 'marketing gimmicks' first and foremost.
The market for 'additional' extension phones was stagnant, if not
moribund. Princess and Trimline were "kickers" that marketing could
sell up.

'Panel' was an interesting unit -- the house I grew up in had the
first, and for more than 10 years, the _only_, residential
installation of one of those phones in the entire state. The concept
was better than the implementation; maintenance was an ongoing issue.
Panel's "marketing gimmick" selling point was "Look, Ma no cord!" when
the phone was hung up. As well as not sticking out into the room as
far as a regular 'surface mount' wall phone. Bell had the customer's
interest _so_much_ at heart that the customer had to _buy_ the
enclosure for that phone (at significantly over $100 in 1964 dollars)
*and* 'rent' (at the usual price) all the regular phone innards that
were inside it).

Home Interphone, and Bell Chime also fell into the category of
'marketing gimmick' _first_, An un-needed high-markup item that
'sales' could artificially create a demand for, and then fill.
Primarily a revenue booster.

>> 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.

> All available on Bell PBXs of the 1960s.

"All", eh? Including the part of that list that you so carefully cut

You are claiming that these features were available on Bell-provided
PBX gear on customer premises, before they were available on
Bell-provided PBX gear in the central office.

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

> Not in SxS, which required extra equipment. See Eng & Sci book.

Hint: the SxS _was_not_capable_ of *native* touch-tone operation, a
front end translation from touch-tone to pulse was required.

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

> Most families we knew did not bother paying extra for "premium"
> telephone *sets*, BUT *did* pay +extra+ for _extensions_ in various
> _rooms_ and particular <floors> of a house. Having three (3) phones--
> 'basement', 1st fl, 2nd fl, was very _common_ to -save- steps.

The 'tolerance point' varied by household. _Average_ number of
extensions per household, in households with more than one phone,
climbed appreciably after introduction of Princess/Trimline, after
having been comparatively stagnant for several years ... As in
"something close to 80% of the total number of Princess/Trimline
phones manufactured".

>> [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'm not sure which claims you're referring to.

> I'm not claiming the Bell System was perfect, however, my own
> experience as a customer in large organizations was that the service
> was generally excellent and the company responsive, and that rates
> were on a decline before divesture.

> [TELECOM Digest Editor's Note: I was talking about Robert Bonomi's
> claims that Bell System did just what the law required of them, and
> not much else, unless it worked to their advantage. PAT]

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