Getting a Handle on AT&T

...But the utilities successfully managed to play up the “free enterprise” side of their image, and Congress never bothered to exclude them...

...Said the FCC staff report: “Little demand has materialized for Picturephone service and there appears to be little likelihood of demand in the foreseeable future...

...It would be wasteful to string competing networks of phone lines...

...But the bulk of the document dealt with the contention that AT&T had overinvested in t e l e p h o n e equipment on a massive scale...

...But it is clear, from reading the transcript of the hearings, that the congressmen were sympathetic to the utilities, viewing them as ordinary businesses...

...Two Sets of Books The high point of AT&T’s mastery of the public institutions that are supposed to oversee it may have been the day in 1969 the utility went up to Capitol Hill and came back with $1 1.3 b i l l i o n . The occasion was the consideration of President Nixon’s Tax Reform Act, which contained a provision, popularized by President Kennedy, allowing companies to “acce le r a t e ” d ep re cia t i o n of their assets for tax purposes...

...Thompson was a popular conservative maverick, and he was expected to win easily...

...The Federal Communications Commission regulates the interstate operations of AT&T’s Bell telephone system, while state commissions set local phone rates...

...For the regulated utility, in contrast, the only barrier to overinvestment is the regulatory commission...

...We don’t have to...

...Most of the attention received by the FCC report focused on the charitable contributions and corporate advertising that AT&T charged to its phone users...

...In 1977, it earned $4.5 billion for its 2.9 million stockholders, and this year it anticipates a rise in that figure to over $5 billion...

...Only a handful of state and federal regulators testified against the bill...

...On the assumption that the videophone was inevitable, Bell spent a great deal of money over the last 15 years developing and manufacturing them, with phone users picking up the tab...

...Back in the 60s, we were told they were going to be the wave of the future...

...The FCC has a little more muscle, with just under 300 employees in its common carrier division...

...If some unexpected business disaster should occur, there is always the possibility that the utility can obtain a readjustment of rates to cover the losses...

...He appeared to be taking the blame for a scheme unveiled by local reporters involving Bell executives who filed bogus expense vouchers and then made political contributions with the money...

...President Kennedy, when he introduced his famous tax cuts, felt they didn’t, and urged Congress to exclude utility companies from the investment incentive plans...

...IBM, a large company in a field where machinery becomes obsolete and must be replaced rapidly, was investing nowhere near the percentage of AT&T...

...In fact, financial analysts on Wall Street regard AT&T as something of a clumsy giant that squanders its huge intake of investment dollars on its internal needs, and produces only a modest return for investors...

...But sheer size is not all that sets American Telephone and Telegraph apart...

...One regulator, from California, felt compelled to establish his credentials as he sensed the committee’s coolness: “I am no enemy of utility companies,” pleaded California Commissioner Fred Morrisey...

...Around this time AT&T was having problems raising the amount of capital needed to satisfy its expansion plans...

...Utilities as a whole have saved-and retained-over $20 billion in taxes, with AT&T’s $1 1.3 billion take representing the lion’s share...

...Instead, Stott characterized the bill as a mere loan, a “postponement” of taxes...

...Indeed, in 1977 AT&T’s capital requirements equaled an astounding 14 per cent of the net new capital raised by all non-financial companies that year...

...Gravitt, the 51-year-old head of Southwestern Bell’s Texas operation, went into the garage of his $120,000 house, climbed into his car, and turned on the motor...

...I discovered it for myself while writing this story...

...Since monopoly is inevitable, the theory goes, we might as well set it up from the start, but we also must regulate it to prevent consumers from being charged exorbitant rates...

...I was appointed by Governor Reagan...

...In the ensuing years Washington would repeatedly view the AT&T colossus with alarm...

...We don’t care...

...But it is still in litigation, and the major result so far is that Southwestern Bell must pay Ashley $I million because the company was caught using illegal wiretaps to listen in on him as he prepared his case for court...

...talking with AT&T executives, you got the impression they were the type who would go out and work for charities regardless of whether it was in their employer’s interest...

...Within the confines of t h a t regulation, the United States has chosen to keep the day-to-day operations of the phone lines in private hands, in the hope of preserving at least some of the efficiency incentives of private enterprise, even in a noncompetitive industry...

...They knew that when it came to asking for a rate increase, I could be trusted...

...He also left a nine-page memorandum accusing his company of using political p a y o f f s , i l l e g a l w i r e t a p s , and questionable bookkeeping to get phone rates increased...

...As with many political scandals, the most shocking fact about these sleazy dealings is that AT&T felt if had to resort to them at all...

...Although the legislation attracted little attention in the press, the showing in its favor was impressive...

...Moreover, at the time Congress took up the “Bell Bill,” a series of scandals was breaking out across the AT&T empire, revealing the darker side of Bell’s e f f o r t s t o influence the governments-particularly s t a t e governments-on which it depends...

...Bell has every incentive to anticipate-even overanticipate-the consumer’s every phoning need...

...The savings realized by the utilities from the 1969 revision (and from a similar law passed in 1971) have been staggering...

...At no time did Stott or Walker hint that AT&T stood to gain billions from the provision...

...If AT&T has given us the Cadillac of phone systems, there are disturbing signs that we are paying a Rolls Royce price...

...Now it’s pretty doubtful that utilities need any more incentive to invest than they already have...

...On Wall Street, you might expect AT&T to be the broker’s favorite-the growth stock of the century, able to generate reasonable and certain returns on a constantly expanding group of investments...

...Needless to say, Ashley’s lawsuit has attracted a good deal of attention...

...It didn’t seem a self-serving kindness either...

...If a utility succeeds in dramatically cutting costs, and achieves an unexpectedly high return on its capital, it will only increase the pressure to reduce its rates the next time around...

...It helps, of course, if the investment in question is a controversial nuclear plant rather than a diffuse network of cables and switches...

...It seems John Ryan, an upandcoming $65,000-a-year manager in Bell’s North Carolina division, was quietly eased out of the company in 1973...

...The election showed that voters are quite capable of understanding how the public is forced to pay for the unnecessary investments of a regulated utility...

...What’s more, Gallen won...

...President Wilson called it an act of “corporate statesmanship...

...The only threats to further savings by the utility are the efforts of a few state regulatory commissionsmost notably California’s-that think they have found a way around Congress’ 1969 law...

...When one bill Bell was pushing came before Congress, all sorts of organizations from all over the country wrote to the appropriate congressional committees urging its passage-organizations ranging from the P h i l a d e l p h i a Volunteers in Aid of Sickle Cell Anemia, Inc., to the High Point, Washington Senior Citizens Club, all of whom had undoubtedly seen examples of AT&T’s generosity...

...Stott was aided in his presentation by Robert Nathan, a wellknown economist...

...The company’s top management body calls itself “The Cabinet...

...One cropped up in New Hampshire last November, when Governor Meldrin Thompson went before the voters seeking reelection...

...A Business Week article during this period noted: “Wall Street’s money managers are conce r n ed a b o u t Be 11’s seem i ng 1 y insatiable appetite for outside capital to expand and modernize its facilities...

...But his self-pity slowly turned to anger, and in 1975 he filed suit against his former employer and decided to talk to the press...

...I had the distinction of being called by Drew Pearson a proutility regulatory commissioner...

...In many states the utilities also began keeping two sets of books-one for tax purposes, using accelerated depreciation, and another for the rate regulators that used the old “straightline’’ depreciation system...

...In a short time, I was one of the top guys in town...

...The Observer summed up: “ I n s w o r n testimony and in interviews with Observer reporters, the executives paint a picture of virtually uncontrolled use of company money in efforts to influence public opinion leaders and regulatory officials and provide a good life for company officials...

...Getting a Handle on AT&T by Marjorie Boyd It is by far the world’s largest company, with assets approaching $100 billion...

...The taxman will only be paid if AT&T stops expanding...

...In presenting its case, the phone company has concentrated on establishing the incorrigible lust of the deceased G r a v i t t , r a t h e r t h a n answering his charges...

...Some state regulating commissions wouldn’t buy this scheme and ordered the utilities to return the difference to consumers...

...Consequently, we can find no basis for finding a benefit to present ratepayers to justify their being charged for Picturephone central office equipment held for future use since there appears to be no need or demand for such service...

...But neither of the two subsidiaries that comprise the other 20 per cent-Bell Laboratories and Western Electric (which makes Bell’s phone equipment)-is regulated...

...The report also said that AT&T “manifests a cavalier indifference to internal audit c o n t r o l . . . AT&T cannot answer questions relating to how millions of dollars of the ratepayers’ [consumers’] money are being spent...

...When Monopoly is Inevitable...

...Abuses like arbitrary cutoffs and discriminatory rates are fairly easy for regulatory bodies to detect and halt...

...Of course, there are legitimate needs for investment in the phone business, as more people buy phones, equipment wears out, and improvements are demanded...

...And, because the costs of installing additional phones gets cheaper as the telephone network e x p a n d s , one c o m p e t i t o r would emerge as the sole provider anyway...

...Telephone companies are thought, by most economists, to be “natural monopolies...

...A bad stock market made issuing new stock difficult, and the company had been forced to borrow from banks at high interest rates...

...Unfortunately, Bell’s incentive to invest isn’t limited to expansion that is necessary to fulfill the admittedly high expectations of phone consumers...

...The Lesson of New York Nevertheless, American phone users have come to expect this luxurious level of service...

...Still, there are stirrings of change...

...Instead, the regulators must generally attempt to pry the facts from the utility itself, which hardly has an interest in demonstrating that a proposed facility will not be necessary...

...But the message is clear nevertheless-and if the voters of a conservative s t a t e like New Hampshire are sending it to us, maybe we all should listen in...

...The provision lets firms deduct a high percentage of their investments as expenses on their tax forms, so they can use the tax saving for new investments...

...In that year, AT&T signed a document called the Kingsbury Commitment, in which it agreed to divest itself of the Western Union telegraph company, purchase no more phone companies, and allow the remaining small companies to connect up with its longdistance lines-something Bell had previously refused to do...

...In 1974, when he read about Gravitt’s suicide in Texas, he considered killing himself...

...Gallen repeatedly accused Thompson of selling out to the utilities-so repeatedly that the campaign became a single-issue contest...

...He described a three-day orgy he says the phone company staged at a TraveLodge Motel in San Antonio for politicians who could influence phone rates...

...Basically, the rates are figured like this: A rate-making commission calculates all the investments made by the utility in phone equipment, cables, buildings-anything “used and useful” in providing phone service...

...Some trace the beginning of what have been called the “Bell scandals” to the night of October 17, 1974, when T.O...

...The “postponement” of taxes now appears more like a huge gift from the American public to Bell...

...Since the trial isn’t scheduled to begin until 1980, however, we can expect AT&T to be around in its present form for some time...

...But, as the FCC staff report showed, the greater outrage may be the way Bell spends our money on facilities we don’t need and services we never get...

...It employs almost one million people i n 23 operating companies spread across America...

...Used a lot of Bell manpower...

...When Ryan left Bell some years from retirement age, he was given a $75,000 tax-free payment, along with a monthly “pension”of $1,151, in return for his promise that he would not sue the company...

...What anger there is usually has been directed at the potential arrogance of Bell’s monopoly power-the image created by Lily Tomlin’s parody of AT&T’s television ads, in which she plays a phone operator who gaily walks down a row of connecting wires, ripping some out at random and saying “We’re the Phone Company...

...Why, one wonders, hasn’t Bell stopped its controversial charity-why not make this small but visible concession to the industry’s gadflies...

...In reality, of course, the bill was much more than a mere “postponement” of taxes...

...It is not...

...Even when Texas Bell officials were not trying to impress politicians, they were not exactly stingy with the phone users’ money...

...This business of running the nation’s phone network makes up a b o u t 80 per cent of AT&T’s Marjorie Boyd is a contributing editor of The Washington Monthly...

...The suit triggered an investigation by the Texas state legislature during which a Bell lobbyist admitted that he collected $1,200 a month from Bell executives in Austin for a political fund that he kept in cash in his office safe...

...The More Expensive the Better The result, in AT&T’s case, is that the utility undertakes every capital expense that can conceivably be related to the public’s need for service...

...The investigation also revealed a luxurious Bell-leased ranch and hunting lodge where public officials, journalists, and AT&T officials sat in padded swivel chairs in carpeted shooting blinds as they fired out at deer and pheasant...

...The FCC staff found hundreds of millions of dollars of “wasted investment in overbuilt facilities” and recommended that the company refund at least $1.6 billion in overcharges for interstate long distanceicalls from 197 1 and 1975...

...AT&T may never have to repay the taxes postponed under the 1969 bill...

...The cost of a local call in the U.S...

...In February, 1976, the staff of the Federal Communications Commission issued the results of a four-year study of the nationwide Bell system, the first comprehensive study ever made of the company and its operations...

...AT&T conducted an “internal audit” and found that $142,000 had been “misappropriated” in this way-but Ryan and the other executives were not prosecuted because the company admitted it had authorized the arrangement...

...Its vehicle was a bill before Congress designed to make it impossible for state regulatory commissions to require utilities to return to consumers the taxes saved by using the accelerated accounting method...

...The result of this last decision was a superb but little-noticed series of investigative articles in the Charlotte Observer that used Ryan’s inside knowledge to show that Texas and North Carolina were definitely not isolated cases...

...In comparison with its expenditures for chronic overcapacity and misguided projects, the amount Bell spends on charitable contributions appears puny...

...lost nearly $3 billion in income taxes from AT&T over ten years because the IRS wasn’t big enough to audit the Bell System’s books...

...If they succeed, and other states follow suit, Bell will undoubtedly troop back to Capitol Hill asking for help...

...Until 1969, AT&T used the straight-line method in those states where the regulators ordered the tax savings distributed, and the dual bookkeeping system where the savings were allowed to flow into the company treasury...

...Since few communities want to see their utilities get in financial troublethereby hurting the utilities’ ability to raise capital for future improvementsit is rare that a regulatory commission lets a utility be severely punished for poor management...

...Moreover, AT&T, it seems, has managed to sell us a Rolls with a few Edsel parts...

...Today, with Picturephones gathering dust in warehouses, and only 45 actual users of the contraptions, AT&T still hasn’t given up...

...But practice again belies theory...

...If, for example, the phone rates are set to give a utility an eight per cent return on its investments, the utility can expect to earn eight million dollars for every $100 million of additional capital it can pump into its rate base...

...A shakeup within the company followed, and even those executives who escaped unscathed learned that the one sure way to damage their company, and their careers, was to get caught short of equipment...

...Remember, for example, videophones...

...Gravitt left a suicide note that began “Watergate is a gnat compared to the Bell System...

...Consumers of phone services have been slower to catch on to AT&T’s defects, even though they ultimately foot the bill...

...In many ways, the philosophy of AT&T is similar to that of a government agency caught with a budget surplus: “spend it or lose it...

...But as time passed, Ryan brooded and came to believe he had been illused and then cast aside by AT&T...

...In practice, however, there are problems...

...The utility may often boost its earnings simply by expanding-adding investments to inflate the rate base on which it is entitled to earn its comfortable, if unspectacular, return...

...When, in one of AT&T’s rare failures to expand ahead of demand, the New York City phone system became overloaded and experienced a partial blackout in 1968, the company was heaped with public abuse and criticism...

...Yet few asked them the obvious question: Why did AT&T need so much investment capital...

...The testimony in this suit has opened the door on a world previously hidden, a world where phone company executives falsified expense vouchers and kicked back portions of their salaries in order to accumulate political funds used to influence public officials...

...In theory, the FCC and the various state bodies examine all the phone company’s investments to see if they are justified by public needs...

...The Governor had strongly supported the construction of a nuclear power plant at Seabrook, and e l e c t r i c i t y r a t e s had been given a hefty boost to pay for the investment...

...before they become due the utility most likely will have made more investments, on which it can take more deductions for accelerated depreciation...

...These investments become the “rate base...

...For them, the biggest problem in controlling Bell’s investment policies is informationthey don’t have it...

...In 1974, 60 years after the Kingsbury Commitment, the trust-busters decided to take another crack...

...It is used, she said, by a total of ten customers a day...

...is higher than in any major non-communist nation except Australia and West Germany, even though we built our basic phone lines earlier (and therefore cheaper) than most other countries...

...It is not surprising, therefore, to find that AT&T workers are, on the whole, extremely well paid (even for non-supervisory employees, phone industry wages are 47 per cent above those in U.S...

...And as the organization helps itself to the spoils of power, and becomes less accustomed to trimming unnecessary expenses, fewer of the dollars it takes in find their way back into the hands of the shareholders...

...Soon there emerged, f r o m t h e Observer and other sources, a definite national pattern in AT&T’s subsidiaries of seeking increased phone rates through questionable means...

...By giving, AT&T wins a lot of friends...

...Quite impressiveand quite expensive...

...Last year’s revenues of $36.5 billion exceeded the gross national product of all but 19 countries in the world...

...For AT&T the system really is the solution...

...And, as a nationwide enterprise, AT&T enjoys an advantage over the states similar to the advantage of multinational companies in the international arena: the ability to shuffle revenues around between its various subsidiaries, so that the local regulators are unable to tell what is reality and what is a bookkeeping mirage...

...Ashley countered with charges that Southwestern Bell used lust to make money...

...The history of AT&T has been ineluctably entwined with the history of the United States government, and there is no question that it has been an advantageous relationship for the utility...

...a former Internal Revenue Service official charged that the U.S...

...Among other charges, the suit accuses AT&T of “predatory” pricing, and surveillance and boycotting of its business phone competitors...

...For example, the “Consumer Communications Reform Act,”introduced in 1977 with almost 200 congressional sponsors, would have effectively eliminated AT&T’s competition in the business communications industry, and probably thrown the Justice Department’s antitrust suit out of court...

...The capacity of the telephone network,” the FCC concluded, “is substantially in excess of present and future needs...

...I n s t e a d of scaling down its expansion plans, Bell seized on accelerated depreciation as a way to obtain the dollars it couldn’t raise in competition with other firms on the money markets...

...The suit is based on AT&T’s attempts to stop a bit of competition nibbling at the edges of its monopoly, in the small, fast-growing field of business communications...

...Thousands of dollars in company money were spent for food, liquor, guns, ammunition, and the services of a full-time cook and housekeeper...

...The competent organization man whom you’d want as your neighbor-that’s the sort AT&T traditionally has liked to attract...

...So even prior to 1969, some utilities switched over to accelerated depreciation...

...in factories that made products nobody wanted) it would quickly lose a good deal of money...

...The Observer series showed that in 15 states, executives contributed between $50 and $100 a month to secret political funds used to influence public officials in rate-making cases...

...The effect of t h e government on AT&T’s investment plans, says one Justice Department attorney, is like what happens in the obscure sport of curling: AT&T sails its stone out onto the ice, and the regulators can do little but try to alter its progress by sweeping around it with a broom...

...John Ashley, a friend of Gravitt’s and a fellow Bell executive, repeated some of these charges to the press...

...To utilities like AT&T, which are used to hiding behind the complexities of “rate bases” and “accelerated depreciation”-at least when posing as c o m p e t i t i v e e n t e r p r i s e s failsThompson’s defeat must have come as a jolt...

...Unnecessary investment, on the other hand, seems to be next to impossible to stop, and we are paying biliions for it...

...AT&T’s size alone presents an imposing barrier to effective supervis i o n . And Bell’s monopo!y on information makes it extremely difficult for regulatory commissions to even question the phone company’s latest investment plans...

...industry as a whole), or to discover that the company employs buildings full of bureaucrats with vague job titles and even vaguer duties...

...However, the act quickly became known as the “Bell Bill,” and one of the subcommittees that studied it ended up recommending greater, rather than less, cornpetition in the industry...

...Until a few years ago, most state regulatory bodies had only a handful of employees and a budget to match...

...Ashley then teamed up with Gravitt’s widow and filed a $29-million slander suit against the company...

...The mixture of this good will with AT&T’s economic clout has helped to insulate the utility from the sort of scrutiny that might ensure we’re not paying for more than we’re getting...

...The power of the phone company to annoy, or even injure, through unjustified cutoffs of service is genuine...

...There is, however, a way out...

...While AT&T officials in New York watched this unfolding public relations disaster, all the while insisting it was an isolated case, another scandal broke out, this time in North Carolina...

...For Bell, contributions to civic, charitable, and educational organizations are worth infinitely more than the petty millions they cost...

...As a hybrid, AT&T has been able to appear as a member in good standing of the business community while enjoying the protections of a government-sanctio’ned monopoly...

...Among the latter, hunting trips seem to have been especially popular...

...When phone lines are filled only at peak hours, the cost of idle capacity at other times is immense...

...In a competitive sector of the economy, these needs would be demonstrated by the willingness of consumers to pay the price of improved service-but a company would not be assured of any profit, and if it habitually overinvested (e.g...

...Again a disaffected executive blew the whistle...

...But this charitable giving is important, not because of the amounts involved, but because of what it says about the way Bell operates...

...At the top end, the incentives again break down...

...Nathan produced a series of upward-pointing charts and graphs dramatizing the anticipated stimulative effect...

...The company is two years into the “market trial” of the “Picturephone meeting service,” which shows up to six people on a single screen, allowing busy executives to hold long-distance meetings at which they can see charts, graphs, and live pictures of their fellow executives sitting in AT&T studios trying to look attentive...

...The Federal Communications Commission complained that it did not have anywhere near the resources needed to oversee the company...

...The bill “postponing” taxes quickly became law, and America’s utilities, including AT&T, switched over completely to accelerated depreciation...

...It is fitting that at least a small portion of this bonanza was realized by those who helped to bring it off: since he left the government, Charls E. Walker has started his own consulting firm and received over $230,000 in fees from AT&T...

...The system has received an “excellent reaction” from consumers, an AT&T spokeswoman recently told The New] York Times...

...As John E. Harrington, assistant controller of AT&T, told a Business Week reporter, that possibility is “no more likely than Armageddon...

...Part of the answer may lie in the statements of a former Bell executive from Texas, who described how he came to be a charity organizer: “He [the mayor of a Texas city] said I ought to take on the United Fund campaign and he saw I was appointed to run it...

...Just as high profits are the central goal of ordinary private businesses, expansion-byinvestment can become the overriding goal of the regulated utility...

...One secret of this success is undoubtedly reflected in Bell’s charitable works...

...But by 1913 the foundations of AT&T as we know it were already in place...

...Officials of Southwestern Bell fired Ashley and accused both men of lying, saying that they had been under investigation by the company for some time-Ashley for embezzling company funds and Gravitt for “sexual misconduct...

...operation...

...In theory, there is still an incentive for efficiency, because if the phone company wastes money it won’t achieve the expected level of profits...

...A mere $14 million, for example, was involuntarily given by phone users to charities in 1972...

...Two years a f t e r the J u s t i c e Department filed this well-publicized antitrust action, another government agency released a report that received relatively little attention, although it offered equal insight into the workings of our biggest utility...

...This heedless consummation, the company alleged, took place high above the clouds between San Antonio and Laredo...

...As a result, we have built our system of regulation around a single requirement-that the phone company seek government approval of the rates it charges phone users...

...Bell women employees, Ashley said, were used as party girls at this and other affairs...

...Undersecretary of the Treasury, Charls E. Walker, appearing for the Nixon administration, backed Stott’s view...

...So the utility is faced with a dilemma: it is almost guaranteed an adequate return on its investments, but it is unable to increase that return by wringing more profit out of less capital...

...Much testimony has centered on the company’s claim that one afternoon Gravitt, who was piloting the company jet, set the controls on automatic pilot in order to seduce a female passenger who was also a Bell employee...

...Stott, an AT&T vice president, predicted that increased investments by utilities would mean a stimulated economy and more jobs...

...Well, I put it over...

...Still, there are things AT&T must worry about-in particular, there is the danger that it will alienate both the business community and the consumers on whose good will it depends...

...AT&T’s engineers are now perfecting a system in which practically no one dialing long distance, even during periods of heaviest use, will get a busy signal due to crowded lines...

...Of course the set of books using accelerated depreciation, which showed a much lower tax liability, reflected realitybut the utilities went ahead and sought rates that would recover the mythical taxes shown on the second set of books...

...Of course, Congress doesn’t always give AT&T what it wants...

...They aren’t...

...As a result, while technically the FCC and the state commissions must approve each new investment, in fact they have little choice but to issue blanket authorizations for hundreds of millions of dollars at a time...

...They argued that the utility companies needed no additional incentives to invest, and that any tax savings should be passed on to the consumers who ultimately must pay utilities’taxes...

...Predictably, the line between the unexpected and the mismanaged is sometimes fudged...

...To understand the importance of this charge, it helps to make clear some of the rudiments of utility regulation...

...But conservative credentials were no match for the combined weight of AT&T and the Nixon administration...

...There are probably few people in Washington or state government, at least few who count for AT&T, who don’t have some favorable contact with Bell executives, even if it is only that a close friend is one, or that their favorite nonp r o f i t i n s t i t u t i o n has been the beneficiary of Bell’s largesse...

...In a country that espouses the virtues of the free enterprise system and competition, AT&T is differentpartly a regulated utility and partly a private company...

...But the relief the government seeks is broadthe divestiture of Western Electric and the division of the Bell system into its component parts (the local operating companies and the interstate “Long Lines” division...

...Bell’s managers complained loudly in the press and in the halls of Congress about their difficulties in raising cash...

...Most analysts of the industry believe, however, that as long as the phones keep working as well as they do, Bell is safe from any meaningful attempt to limit how much it ends up charging us for that service...

...And that’s the second half of the Bell story-the process by which AT&T has succeeded in dominating the regulatory processes that are the only existing check on its expensive expansionist imperative...

...The more expensive the investments, the higher the phone rates that will be set, and the greater will be the utility’s total profits...

...The Democratic challenger, a relative unknown named Hugh Gallen, did manage to latch onto one issue, however...

...You also know one reason why America’s phone system ranks, as AT&T correctly claims, as one of the best, if not the best, in the world...

...Other and perhaps more far-reaching results of the case have occurred outside the courtroom...

...Georgia officials shot doves in Mexico, while Missouri regulators preferred the pheasants in Texas...

...Morgan, had systematically devoured most smaller competing phone companies, that the government trust-busters stepped in...

...Since an excessive rate of return would be an embarrassment to AT&T with the ratemakers, the company has developed a healthy layer of fat designed to absorb any surpluses before they become too visible...

...With rdspect to both the states and the federal government, the company seemingly operates at a tremendous advantage...

...These included falsified expense accounts used to create political slush funds, “public relations consulting fees” paid to local officials, and free vacations for state regulators...

...The Bell people I interviewed may have suspected that I wasn’t out to prove the AT&T slogan that “the system is the solution,” but they were nevertheless invariably personable, knowledgeable, and generous with their time...

...The state legislature’s investigation uncovered one five-day conference of 136 Bell executives in 1973 where the liquor bill came to over $13,000 and the bill for golf balls was an incredible $1,650...

...So if you’ve ever wondered why the shiniest, newest building in every small town belongs to t h e telephone company, you now know the reason...

...Then the commission sets prices for telephone services that, based on projected operating expenses and sales, will produce enough revenue to run the phones plus give the utility a reasonable return on the investments that make up the rate base...

...It wasn’t until 1913, years after AT&T, under J.P...

...If AT&T tries to sneak some unnecessary investment past the regulators, they are supposed to detect it and exclude it from the rate base...

...AT&T certainly will...

...Bell invests over $13 billion each year...