How Ma Bell Got Disconnected
LEKACHMAN, ROBERT
How Ma Bell Got Disconnected The Deal of the Century: The Breakup of AT&T By Steve Coll Atheneum. 400 pp. $18.95. Reviewed by Robert Lekachman Mainstream economists, liberal as well as...
...In the immediate wake of Watergate, Gerald R. Ford's Attorney General, William Saxbe, demonstrated the new, hygienic standards of the Department of Justice by prosecuting the largest corporation in the land as a violator of antitrust statutes...
...Still an enormous enterprise, AT&T retained its long lines, Bell Laboratories and Western Electric, but the local companies now could purchase equipment from all comers...
...Although the verdict was later reversed, MCI's victory encouraged federal litigators, drawing upon MCI's public evidence, to seek a breakup of AT&T...
...As time passed, Harold Greene took increasingly vigorous steps to move the case toward a conclusion...
...George Saunders, AT&T's lead counsel, was a flamboyant advocate gifted with almost total recall of myriad details...
...Repairs were made promptly by courteous and efficient men and, increasingly, women...
...Jimmy Carter's Administration was as avid for competition and deregulation as Ronald Reagan's team...
...Reviving himself periodically with room service martinis, he somehow rose refreshed in the morning, ready for ingenious battle...
...On the evidence of daily experience, AT&T, not being broke, didn't need fixing...
...Reviewed by Robert Lekachman Mainstream economists, liberal as well as conservative, looked suspiciously upon Ma Bell for some of the same reasons that prudent investors and the vast majority of families who rarely called long distance cherished the telephone company as a monopoly to trust and love...
...Why on earth break up a marvelous-ly efficient, socially conscious enterprise in pursuit of conjectural benefits sometime in the undated future...
...The Federal Communications Commission (FCC) played its part by nibbling at Western Electric's exclusive claim to the sale of equipment to the operating companies...
...Attorney General William French Smith removed himself from the AT&T case because he had sat on Pacific Telephone's board of directors...
...Congress made several attempts to write comprehensive legislation of a generally procompetitive variety...
...As a monopoly whose capacious roof sheltered local operating companies, the long lines division, Western Electric's manufacturing facilities, and Bell Laboratories, AT&T was guilty of several sins against Adam Smith and James Buchanan...
...Those who can't afford to pay a competitive price for their telephones simply should go without...
...Nobody in the Reagan White House seemed able or willing to call off Baxter...
...Finally, stodgy old AT&T discouraged the emergence of new technologies, in particular telephone transmission of masses of computer generated data...
...The fascinating story, spanning the Ford, Carter and Reagan administrations, features quirky personalities, political vicissitude, sporadic Congressional intervention, a Federal j udge of activist temperament, and large helpings of accident, miscalculation and sheer stupidity...
...By 1982, he had spent eight years on the company's affairs...
...In due course, McGowan brought a private antitrust action against his mighty opponent and won $ 1.8 billion in damages...
...The case fell into the eager hands of Assistant Attorney General for Antitrust William Baxter...
...Moreover, New York Telephone and the other operating companies purchased equipment entirely from Western Electric...
...McGowan desperately wanted a share of the lucrative long distance market...
...In the meantime, local rates have risen sharply, long distance charges have fallen only slightly, service quality has dramatically deteriorated, monthly bills are unintelligible, and the locus of authority for repairs is mysterious...
...Early in 1973, the FCC approved MCI's application to construct towers to transmit microwave signals between Chicago and St...
...Edwin Meese, one of the President's three handlers, and Commerce Secretary Malcolm Bald-rige argued for dismissal...
...In pursuit of universal service, it charged long distance callers, mostly business enterprises, high rates the better to subsidize local customers...
...Economists knew better...
...He sketches personalities considerably more memorably than the producers of TV legal dramas or the perpetrators of most novels...
...On the campaign trail, Ronald Reagan had expressed his admiration of Bell...
...No more reason to subsidize telephones than any other article of commerce...
...Just before AT&T surrendered and divested itself of its local operating companies, a New York Times poll reported that more than 80 per cent of the customers were pleased with their telephone service, the highest satisfaction rate on record for any consumer product...
...Charlie Brown had concluded that sooner or later AT&T would be compelled to enter the competitive world, even at the severe cost of jettisoning its service ethic...
...How, screamed McGowan, could poor little MCI receive fair treatment for its long distance business in a rivalry with AT&T's long lines...
...The operating companies were split off from the parent corporation...
...Led by an utterly unspectacular career attorney, Gerald Connell, the government nevertheless presented such a strong argument that the judge came perilously close to a premature decision against AT&T, despite the desperate efforts of its huge legal staff...
...Naturally, AT&T charged for the privilege...
...His deputy, Edward Schmults, coming from a Wall Street firm that dealt with AT&T, followed suit...
...The man who did as much as anyone to keep litigation going was William McGowan, founder and still head of Microwave Communications, Incorporated (MCI...
...Baxter's holy grail was efficiency...
...Having lost the MCI case, he saw the government's assault as an opportunity to vindicate himself and conferred for long hours in his Madison Hotel suite with platoons of associates...
...Yet at the start of the Reagan Administration, Chief Executive Officer John deButts, deeply imbued with the ethos of benign monopoly, and his anointed successor, "Charlie" Brown, who quietly accepted the inevitability of competition, had reason to expect the new crowd at Justice to dismiss the case...
...Louis en route, McGowan hoped, to a nationwide service...
...To Saunders' distress, he was not allowed to present AT&T's side of the case...
...If you have been wondering about the decline of the American telephone, Coil's first-rate chronicle is the book for you...
...Steve Coll tells this story with pace and verve...
...Harold Greene, the competent, liberal Federal judge who presided, clearly sympathized with the Department of Justice and doubted that any entity AT&T's swollen size could be innocent of misconduct...
...Very quietly indeed, he, Baxter and a few key aides negotiated the terms of surrender...
...Competition may evoke exciting technological innovation and ultimately lower local as well as long distance rates...
...To cynical, outside observers, the fix seemed snugly in...
...Local service was cheap...
...Inthelongrun, economists for a change may be proven correct...
...As antitrust proceedings go, this one moved rapidly from its initiation in 1974 to its 1982 denouement...
...For its part AT&T, which under the terms of a 1956 antitrust decree had been debarred from the computer market, won the right to make and market computers and any other high technology product it could dream up...
...Enter the element of chance...
...AT&T discouraged domestic and foreign competition with its captive supplier, on the ground that the integrity of the communications network could best be assured by the constant surveillance of quality guaranteed by Western Electric and presumably no other manufacturer...
...Widows and orphans could count on steady dividends...
...He had a problem, however...
...Bleeding heart liberals, for all he cared, could fret over equity...
...Microwaves bypassed AT&T's long distance lines, but MCI required access to AT&T's local service in order to originate and complete calls...
...It is safe to say that a similar poll would record far less satisfaction today...
...While his sympathies transparently are on Gerald Con-nell's side—David against the legal go-liaths of AT&T—he relates the complex tale fairly...
...Steve Coll answers this question completely in his astute account of the case brought by the Department of Justice against AT&T...
...As the in-house joke ran, normal people went to work for the telephone company, but gradually their their heads became Bell shaped...
...A rigid free-market ideologue, Baxter was appalled by the Bell system's cross subsidies and totally unmoved by the quest for universal service...
Vol. 69 • December 1986 • No. 18
