Wrong Number, by Alan Stone
Ulmer, Melville J.
BOOK REVIEWS T his could have been a stunning 1 book. Written by Alan Stone, a noted scholar at the University of Houston, it deals with a question that has puzzled households across the country:...
...Stone is a seasoned lawyer in the field, and his single-minded preoccupation in this book is with legal details and precedents...
...The company was also permitted to keep Bell Labs, with the provision that, for a limited period, it n November 20, 1974, the AntiTrust Division of the United States government brought a new and broader suit against AT&T in the District of Columbia federal court...
...Bell Labs had not only developed a multitude of innovations to extend and improve telephonic technology but also contributed in whole or in part the transistor, talking motion pictures, television, stereophonic sound, and lasertechnology—only a handful of the 19,500 patents granted by 1982...
...They requested and obtained permission to hook up to AT&T lines to serve some of the densest and lowest cost sections, like that in the Chicago-St...
...It began with an ambitious federal study of "the concentration of power," undertaken by a committee of fiery New Dealers...
...More important than its form is the message, a story shaped by a union of private greed and public passion...
...So of course those past contributions to society are secure...
...As soon as Alexander Graham Bell conveyed his first telephonic message ("Mr...
...AT&T is now free—as are most of the other firms—to engage in nontelephone activities such as information processing...
...That led swiftly to openassaults under the aegis of the antitrust laws...
...It finds AT&T still in the lead in long-distance transmission (though sharing the market with the now formidable MCI, GTE, U.S...
...At its height AT&T had been the largest corporation (judged by assets) in the United States...
...It embraced local telephone service, long distance, switching, transmission, and manufacture and ownership of customer telephones and other equipment...
...Almost before his assistant had a chance to reply, on that day in 1876, the courts were crammed with would-be rivals and pretenders...
...The AT&T story embraces the dreams of geniuses like Alexander Graham Bell, Elisha Gray, and Thomas Edison, and the grand visions of managerial giants like Thomas J. Vail, yet all the characters in Stone's book come across as faceless names...
...The number of telephones in the nation had exploded from 71,000 in 1876 to 150,000 in 1880 and then to 68 million in 1960 and 158 million in 1981...
...So from the beginning interlopers were present and active and, as we shall see, they multiplied to the end...
...A bit later, as Bell started actual business operations, there were barefaced patent infringements...
...Consumer reports indicate that telephone billings have grown noticeably more complex and service less convenient, and charges have risen at a rate considered markedly greater than normal...
...Whether the present configuration of the telephone industry conforms with the original dreams of reformers is anyone's guess...
...Stone's Wrong Number explores this challenging episode in economic history with a degree of technical skill that, unfortunately, far exceeds the clarity of his exposition...
...He means specifically that customary standards of efficiency in performance were sacrificed in favor of ideological commitments...
...It was a self-sufficient giant and the nature of its industry—the inherent interdependence of all of its activities—seemed to require that it be so...
...I want to see you") and incidentally filed a patent for his astonishing invention, it was evident that a new industry was born with a gold rush of promise...
...Professionals will no doubt relish its numerous digressions, careful citation of precedents, flashbacks, and sensitive anticipations...
...But it unearthed no verifiable deficiencies in AT&T's discharge of its responsibilities nor in its positive accomplishments...
...Eight years was a long time between charge and consummation, but then depositions and testimony occupied 70,000 transcript pages...
...Despite the unfair advantages, none of the would-be rivals managed to prosper, deficient as they were in technique and experience...
...H ence by the turn of the century AT&T seemed successful and secure, on the brink of a gigantic expansion that would bring telephones to virtually every home and business in the country—even though its original Bell patents had expired in 1893 and 1894...
...Watson, come here...
...It was generally agreed, as Stone puts it, that under this system "rates and profits were reasonable, technological progress remarkable...
...But what of the future...
...No doubt the lawyers and all other government employees involved would have been more productively engaged if they had been hired out as baby-sitters...
...search through the already famed Bell Laboratories...
...But by the same token, general readers, even those above the average in background and determination, will find Wrong Number disjointed, devoid of continuity, and often obscure...
...The only kind of "competition" observed was in the frequency and decibel level of telephone companies' advertising on TV networks...
...The cautionary word in the above phrase is that the network was "regulated," for its significance was destined to intensify...
...AT&T's subsidiary, Western Electric, was required to withdraw from manufacturing articles unrelated to telecommunications, except for "certain products" like the artificial larynx (invented by Bell Laboratories) and those designed for the United States government, most imporWRONG NUMBER: THE BREAKUP OF AT&T Alan Stone/Basic Books/331 pp...
...21.95 Melville J. Ulmer 44 THE AMERICAN SPECTATOR JUNE 1989 tantly for the Department of Defense...
...The charge was "monopolization, attempt to monopolize, and conspiracy to monopolize...
...It was recently encouraged by a multibillion-dollar Air Force order for computers...
...If the antitrust crusaders had imagined that their fanatically determined efforts would yield positive results of any kind —much less, say, a dramatic reduction in service charges—the answer must be, not in the slightest...
...T hough obviously pejorative, "poli- 1 tics" as Stone uses the term does not imply corruption or personal favoritism...
...That introduced the third and final stage.work had already been accomplished...
...The last several paragraphs were 1. derived from sources other than Wrong Number, since Alan Stone has nothing to say about the aftermath nor about the personalities involved in the long series of disputes and maneuvers...
...Local services are handled by a variety of local companies as before, though with a greater mixture in rates, quality of service, and types of regulation...
...Cloaked in the glorious robes of freedom and competition, theirs was a cause that was hard to resist...
...It was allowed to retain its Western Electric subsidiary, though competitors would be free to buy telephones and other equipment elsewhere if they wished...
...In their place stability was attained in the early 1920s by development of a so-called national regulated network manager system...
...It was accompanied by the creation (in 1934) of the FCC, intended to supplement the authority of the regional public utility commissions...
...Despite its whimsical title and chapter headings ("Hello, Central," "The Bells Are Ringing," "Busy Signals," and so on), Wrong Number is designed primarily for scholars...
...In order to create a nationwide telephonic network available to all, AT&T had developed a rate scale designed especially for that purpose...
...AT&T was universally regarded as the world's greatest communications system, unmatched in efficiency as well as in scientific and technological progress...
...It was a vital struggle with a termination that left AT&T with just 23 percent of the assets it had before the trial started...
...But the complexity of regulations in the telephone industry grew abruptly after the 1920s, and ominously so with the anti-Big Business sentiment borne by the New Deal...
...Whether this was intentional or not, I have no idea...
...Written by Alan Stone, a noted scholar at the University of Houston, it deals with a question that has puzzled households across the country: Why was the American Telephone and Telegraph Company dismantled by federal court order in 1982...
...Meanwhile, the cost to consumers of telephone service had advanced by only a small fraction of the overall rate of inflation...
...The second stage of the government's vendetta began a decade or so later and featured the now admittedly ridiculous decision to allow "cream-skimming...
...Regulation grew from that of courts and legislatures in the earlier days to that of public utility commissions established in each relevant area...
...Sprint, and others...
...In the 1930s, with the organization of the Federal Communications Commission and the participation of newly activist jurists, these notions led to a bombardment of studies, reports, verbal assaults, and legal charges and decisions directed at AT&T...
...Louis corridor...
...Once known as the traditional investment vehicle for "widows and orphans," the company may now be exchanging a bit less stability for a bit more excitement...
...Nevertheless, by 1899, when AT&T was incorporated, a fully integrated business organization had been formed that, at least at the time, appeared impregnable...
...Meanwhile, the company (as well as its customers) will benefit from the FCC's new approach to regulation, which allows greater rewards for technological gains in productivity...
...In return for a partial or wholly monopolistic franchise to perform an essential service, an official guardian of the public interest was universally regarded as essential...
...The technique was called "rate-averaging," and was of course approved by regulators as essential to the viability of the system...
...Yet any effort to probe further encounters mystery as well as high drama...
...It begins in the late nineteenth century...
...After legal skirmishes that provided busywork for several hundred lawyers, technical experts, and business executives supported by countless clerks employed by both sides, the actual trial did not begin until nearly seven years later...
...Regulators were driven by the populist conviction that "bigness is bad" and that "competition," no matter how loosely defined, is its natural correction...
...The settlement required AT&T to spin off its regional operating companies and thus remove itself fromthe local exchange business...
...There, given the prevailing pattern of rates, MCI could easily undercut AT&T and did...
...Aggressive acquisitors led by MCI (then tiny but ambitious) were quick to sense the opportunities...
...The study and investigation together occupied seven years, cost several million scarce Depression dollars, and slightly relieved the dreadful unemployment problem of those times by padding the federal payroll...
...The latter fixed service rates, judged the complaints of users, and held companies responsible for end-to-end service, including the provision, maintenance, and repair of telephones, transmission lines, and switching equipment...
...The first stage was impressive in duration, awesome in fury, and ended with the impact of a dewdrop...
...Its style, in short, will prove a noticeable obstacle in digesting a sequence of events that should have been packed with absorbing interest...
...It also provided its own engineering, planning, and basic reMelville Ulmer is professor emeritus of economics at the University of Maryland a fellow of the National Endowment for the Humanities and the American Association for the Advancement of Science, and author of Capital in Transportation, Communications and Public Utilities (Princeton University Press...
...We return to his legalistic style later...
...AT&T was of course the manager and also sole carrier of long-distance calls...
...But note that its great THE AMERICAN SPECTATOR JUNE 1989 45 would agree to render its research and development support to AT&T's competitors...
...Settlement was ultimately reached and approved by Judge Harold F Greene on August 11, 1982...
...Again led by MCI, they therefore renewed pressure on regulators, legislatures, and the courts for more liberal admission to the industry...
...AT&T therefore had neither cause nor a legal right to object to regulation, and never did...
...The conventional answer, as reported in the press, was to introduce competition, an abstract reason by most counts and for a regulated public utility distinctly paradoxical...
...Local services were provided by local monopolies —subsidiaries of AT&T as well as independent companies, in many of which AT&T had financial interests...
...In Stone's view the trouble began, and finally ended with AT&T's breakup, because of "politics...
...Charges were fixed lower, in relation to the high cost per call, in sparsely populated areas of the country, and in a corresponding way relatively higher in densely populated areas, where costs per call were lower...
...It took seven years to reach a verdict, bringing the crusade to twenty-two years in toto, and in the end all charges were dismissed with a piddling qualification...
...After much further investigation a charge of antitrust law violations was filed in 1949...
...It allowed the company to continue its long-distance transmission, but only in competition with MCI, GTE, and many others...
...And the users of telephones...
...In this setting a special investigation was launched into the affairs of the greatest monopoly of them all—AT&T...
...Was it for this alone, at untold taxpayer expense, that a fifty-year legal struggle had been waged...
...That was cream-skimming...
...That preliminary finding, coupled with the outbreak of World War II, managed to divert the Justice Department from its quarry until, surprisingly, at war's end the pursuit was renewed...
...That is one of the areas in which AT&T enjoys special expertise...
Vol. 22 • June 1989 • No. 6
