Bell System redux?

In a conversation with a colleague from another magazine last week, the recent spate of carrier mergers and acquisitions came up-and this was a few days before GTE and MCI disclosed their courtship.

Specifically, we were discussing whether the industry is reassembling the old Bell System monopoly, or at least a handful of giant companies that would equal a large oligarchy or telecom cartel.

While it is always prudent to be on the lookout for this, there are certain aspects of the telecom business that, when examined more closely, temper the oligarchy fear.

What makes the issue so difficult is that today's telecommunications business no longer has close analogues to any other industry in conventional economic models.

This is because in no other business is technology so closely knit with the end product or service. More plainly, the quality of any telecom service-at any given time-is directly related to-and dependent on-the state of the myriad technology platforms being used to deliver it.

This accounts for the frustration of nearly all parties-carriers, users, regulators-over everything from the rise in network busies to the lack of universal wireless roaming. These problems have carriers pointing fingers at each other, and not always out of sheer evasiveness. And from all this frustration springs the current quest for companies such as WorldCom, AT&T, GTE and the RHCs to attempt to control as many components of the network as they can. And when compared with the time and expense of network buildouts, acquisition-even at prices such as $28 billion-is a more desirable route.

Because the goal of these acquisitions is clearly to unify long-distance, local, Internet and wireless services, critics say we are returning to the same structure we took apart in the early '80s.

Not quite. The Bell System was, in many ways, a highly decentralized organization. AT&T was a holding company for a manufacturer, a long-distance company and 22 local exchange companies.

Each had its own accounting structures and its own profit-and-loss responsibilities. In the case of the local and long-distance companies, each network was operated separately, and the money that passed between the two was documented and accounted for.

While divestiture was painstaking from an administrative point of view, the points where the LEC and IXC networks could be separated were identifiable. All divestiture did was institutionalize that decentralization, and although most applauded the decision to break up AT&T, there were a few, including Reagan policy analyst Peter Huber, who questioned whether separation of local and long-distance was the right way to do it.

This legacy of decentralized, geographically regionalized networks is what the industry has spent the last 15 years trying to overcome. Over the years we have witnessed Open Network Architecture, IS-41, TMN, Network Management Forum solution sets and 14-point FCC checklists-all aimed at unifying the global telecommunications infrastructure. The acquisition route we are seeing may be turning out to be the path of least resistance.

Which brings us back to the way technology is so closely tied to services. Even if a handful of giants remain when the dust settles, they still will have to compete on service. Unlike the old Bell System, which could throw out services any time it chose whether customers wanted them or not, any future megacarrier still is going to have to integrate its network-and its operations support system platforms-based on its own perception of the marketplace. This is the most intimidating aspect of carrier business management today.

Because of the technology commitment required to implement a strategic decision, a mistake can be expensive and irreversible. The risk rises substantially when the quality of your service is directly related to what another carrier is doing in its network. And that carrier is just as likely to be a competitor. Is it any wonder then, as Dan O'Shea suggested last week in "Operations Overhaul," that OSS management will be the glamour job of the next decade?

In such an environment, consolidation is all but inevitable. Yet what's happening is not the reconstitution of the Bell System but the creation of the new, and necessary, networks the fastest way possible.