Oct 30, 2003 12:00 PM,

Anniversary Waltz revisited

by Tim McElligott

“As a former employee of ‘Ma’, I look back and say to myself, ‘Charlie, what the hell were you thinking?’”
—Jack from Millcreek on the pending 20th anniversary of the 1984 breakup of AT&T.

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The on-again/off-again merger negotiations between AT&T and BellSouth—a move that would in effect bring full circle the life and makeup of the company that started it all, and in all likelihood relegate the second most famous name in communications (the first being Bell) to the history books—only adds to the delicious practice of second-guessing and the cathartic lambasting of the high-powered elites who changed the course of history in telecommunications.

Twenty years later, some longtime Bell System employees are also waxing philosophic on the changes wrought by the systems breakup. As promised, here are the responses I got from readers with their thoughts on the deregulation that never was, beginning with the rest of Jack’s comments.

“…I would like to spend several hours vilifying both Mr. Brown and Judge Green. The real truth is that if the system were intact, we would not have as many of today's innovations and applications. The root of the problem always was and always will be Bell Labs. They love to invent, but, like the guy with brown stains on his underwear, they never like to finish the job. Driven by market influences, they do deliver. One hopes that as the past twenty years progressed, AT&T would have developed a strong marketing organization to go with their very potent development organization. I truly feel that divestiture did the subscriber a major injustice. Competition has failed to expand on that once proud communications network. Wireless would have developed at a much slower rate, but the standardization of the network would, in the end, provide us with a more reliable system. The rest would follow, again more slowly, but more reliably. The ‘System’ had its faults, but, it was a system.”

From Clayton: “In my opinion, we would have about 90% of what we have today without the competition that divestiture unleashed in 1984. However, it would be priced differently. Long distance would cost more than today (but much less than in 1984), local voice service would be less costly, and high-speed Internet would be less expensive since one organization could provide it, not the multiple parties that DSL now requires. ISDN would have been rolled out sooner and become the access of choice for the Internet until DSL was introduced.

...the worst disaster was the slow loss of Bell Labs. It is now just broken into several applied research institutions, not a fundamental research institution. It used to be one of the real crown jewels....

If divestiture had not happened there would be less risk of major damage due to terrorism (without LNP). Network reliability would be better—yes, it is still good—but not what it could be. I also believe that had divestiture not happened, some competition would have evolved anyway. Depending on how this was regulated it might have produced the choices we have today without taking apart the network in 1984. Once the Carterfone decision was made, some competition would happen. Also, look at the computer industry; IBM was not broken up and computers evolved competitively.

“In my opinion the worst disaster was the slow loss of Bell Labs. It is now just broken into several applied research institutions, not a fundamental research institution. It used to be one of the real crown jewels that really provided research for the human race. Not anymore. If it was still intact we might have much more that we have today post-divestiture. We just don't know what was missed. Are we better off? Technically sophisticated customers—maybe; average businesses and consumers—no.”

Gordon’s standards: “I believe technology would still have advanced, at least to where it is today. Why wouldn't it? There is always more money to be made with new gadgets and gizmos, speed and reliability. AT&T was a leader in technology, not just telephony. They set a standard for the world, developing a network from nothing—no one to copy from. Who sets the standard today? With the competition at hand and costs being so tight, has new development actually been stifled? Will lack of research dollars actually hurt the U.S., as a leader around the world in the near future?

Time will tell, but we can already see a shift in where new technology is coming from. There is something to be said for making reasonable profits on services sold and for having research dollars available. By the way, I'm not an AT&T employee or retiree, just a telecom guy with 32 years engineering and design experience. Perhaps the 20-year anniversary should not be a celebration of the break-up, but more of a remembrance of the contributions that the 'monopoly' of AT&T made to the betterment of this country. They were a leader in technological advancement. Now we import new technology.”

Phyllis Bernt, PhD, Professor, McClure School of Communication Systems: Management: “The ultimate irony that I see in the upcoming anniversary is that by the beginning of December, all of the RBOCs will have been allowed into in-region long distance. Each of the four RBOCs will be replicas of the former Bell System—providing local and long distance services—the very structure that everyone was so concerned about because of its potential to stifle long-distance competition. In a sense, we have come full circle.

Regulators will face the very same issues of worrying about whether the RBOCs control of local service will give them an unfair competitive advantage. Of course, we now have other players who weren't around in 1984—wireless and VoIP providers—but the RBOCs provide those services as well. So, after 20 years, maybe we replaced one Bell System with four. Maybe the way to celebrate is to take a merry-go-round ride.”

Pete (lost his taste for yogurt): “The breakup of AT&T probably did little to spur the deployment of wireless services or the Internet or VoIP. Wireless services took a separate and distinct path from wired services and is probably now the most formidable competitor to local service. The Internet boomed from the ground laid by AOL/Compuserve, Microsoft (MSN) and eventually, the Yahoos of the world. This was probably more ‘in spite of,’ not ‘due to,’ any work by Ma Bell.

The limitations of the wired world were as much an obstacle to widespread adoption with its bandwidth challenges and poor line quality. Finally, with some semblance of reasonable U.S. coverage and competition in the broadband space (I still only have one broadband option in rural NJ), I would expect prices to come down and all those AOL subscribers to quickly find the exit to a better experience (unless AOL can accelerate the transformation of its business model sooner).

With VoIP, I believe that the simplicity of IP and Cisco's thorough dominance of the IP space provided this fertile ground—again, nothing to do with AT&T. Got the theme? Full disclosure: Former AT&T employee, 1980 to 1989—a lifetime ago. No hard feelings. No regrets.”

Mike (ex-AT&T): “I think the best measure of success or failure of Divestiture would be an economic analysis. You could identify the total industry costs in the past 20 years (lost investment capital expenditures, etc.) that brought all of the services and innovations you describe in your article, then compare those costs to the Capital Program that AT&T and the Bell System had in place prior to Divestiture and assume it continued on for the next 20 years. I would speculate that the costs since divestiture would far exceed the costs of AT&T continuing to operate the "Bell System."

I know someone would then immediately state that the "Bell System" would never have brought the innovations to the consumers. My retort would be that if AT&T had had access to even half the level of Capital dollars that have been spent in the industry these last 20 years, I would not have counted out the people of Bell Labs and AT&T with regard to industry innovation. Further, without the wasted, non-productive, dollars of these many years the American Stock holder/investor may have actually accumulated more wealth. Finally, I would have liked to see what we as consumers would be paying for basic services and long distance if the "Bell System" had continued!”

Cliff:
Are you better off with regards to your personal and business communications than you were in 1984?
“Yes.”

Did we screw up the most reliable network in the world or did we open the door to innovation?
“Yes.”

How should the industry celebrate 20 years of divestiture?
“With sack cloths and ashes.”

Did we do the consumer and the business community any favors by offering choice or have communications services become too complex for many of them to understand and appreciate?
“Yes.”

Would the Internet and wireless technology that may have prompted you to answer ‘yes’ to the first question have evolved whether or not A&T was broken up? Would VoIP?
“Yes, but at a slower pace.”

How should the industry celebrate 20 years of divestiture?
“With sack cloths and ashes.”

Tim (from jetsetter to CLEC): “Though I now work for a CLEC (which would not exist without the break up), it has only been for the past three years. Back in 1969, I had to argue with ignorant telephone techs when trying to [get] a non-Western Electric modem up and running—one project took months. Later, the airline I worked for had to buy a Bell-approved TIMs set so we could prove to the Bell carrier that they had a problem. More often than not I would have to walk the Bell tech through the troubleshooting steps, explaining to him how to use his own test equipment. Circuit orders took an extraordinarily long time, line costs were high and any time we used non-Bell equipment, the repair time took much longer because we first had to prove it wasn't our problem.

“Right after the split up things were extremely confusing with the Baby Bells and AT&T pointing fingers at each other. A high-speed modem for home use was 2400 [baud]. Yes, 9600 [baud] was available but not always reliable due to line conditions and settings.

“In 1992 I went to work for a company that was a vendor to the RBOCs (once again, that job would not have been there with out the break up). Working with the RBOCs, I found that their culture had changed in many ways. [They were] far more customer-oriented and the craft people far more interested in the latest technology. I have been in and around Bell Labs—what a place—with some of the smartest people I've ever had the privilege to work around. However, had there not been the break up—even with the Carterphone decision of 1968, I do not believe we would have the amount of innovation and product assortment that we have today.

“Interestingly, I'm finding today's RBOCs just as slow in providing upgraded services as the old system was in 1970. Back then it was a pain to go from 300 baud to 1200. Today, the fastest I can go on my dial up at home is 28.8K. I can't imagine how thrilled I would have been even 20 years ago with such speed. Today, it just doesn't cut it. The cable company has just laid new cable through the area and I'm current a satellite TV subscriber. With the cable I can get my TV and high-speed Internet. With the satellite I can get my TV, ISP and high-speed Internet. And with a cell phone, do I really need the RBOC? Should I choose either of these options, I would do so because these companies have invested the time and money and the RBOC has not.

“So overall the consumer is the winner. The RBOCs may lose, but only because they, just like the old system, won't provide the services requested by the customer. If the break up had not occurred, I doubt that the increases in productivity that has helped to grow our economy would have happened. We would however, have what some consider a more reliable network, but how much does it take to maintain the equivalence of two tin cans, two buttons, and a length of string?”

Paul: “Has the competition improved our lives as it relates to communication? Not sure. Certainly I could do without the constant calls asking to switch service providers, the endless choice of wireless plans and the multiple monthly bills.

One thing I can say for sure though is, overall, I spend a lot more money now on communications than I did in 1984! Then I had one monthly bill for telephone services that, if I watched the long distance calls, was less than $30/month. Now, including the additional services I have added such as mobile phone and DSL, I spend in excess of $250/month. Even accounting for inflation that's a huge increase. I think I'll pass on the yogurt.”

Mr. Tracy: “I believe that the choice of services is vastly better. The major failing is in regulatory, both FCC and business type, IRS, Accounting Standards Board, and the Justice Department. FCC failure to protect the consumer, they fully believe that they are regulating for businesses, they should be far more in touch with what their decisions do to the average citizen and screw the businesses.

Accounting Standards Board and the IRS have continually let businesses operate in the ‘deep gray’ area as long as they have had any sort of explanation. That is how things like Enron and WorldCom happen. The Justice Department has continually let businesses ‘slide’ on the ethics and financial operations, not to mention the breaks they allowed companies that break workers' rights laws. Summary: Nobody is looking out for the consumer, and the states' regulatory commissions have failed the worst in this area. Thanks for the venue to express my opinion!”

David (four years retired): “I believe that competition was driving AT&T in the same general direction that Judge Green’s decision was. MCI and Sprint were taking large market share of long distance by the late 70's. To become competitive, AT&T would have divested itself. The old Bell companies would have became self-sufficient to allow the Long Lines Department of AT&T to be on the same footing as was its competition. The migration to cell phones as we know them would have been slow in coming. The spin off and more open markets of telephony moved us along at a faster pace. Internet component products would have been slower to deploy due to cost. If you can compete, you move faster. POTS development to VOIP is the future. You get more bang for the buck.”

Bob from the Netherlands (no offense taken, good point): “Your newsletter and many others go out on the Net, so it reaches the rest of the world. It would nice to see that fact reflected in more editorial, e.g. surely George Orwell's book of the same year is more significant than Clara Peller, an unknown person to me. This is a generic remark. Since I don't use AT&T's network I can't comment, but I do like this newsletter. Hope you understand my point and don't take offense.”

Rob from Kansas (with empathy for the Cubs): “Your questions are posed from the telco viewpoint. Maybe we should look at the customer's. Back in the pre-divestiture dark ages of Ma Bell, communications were a little simpler with IBM's big iron. IBM was business data and the telcos were transport and voice carriers. I was installing 1200 bps modems & 9600 bps hubs on DS-0's for the phone company and we all knew the demarcation points to the 9370 dumb terminal networks. Life was good and the network rate base was king.

“Did we screw up the most reliable network in the world or did we open the door to innovation? No, not on your life. Talk to your parents about how they treated a long-distance call. You could always tell it was long distance from the carrier hiss. With the high cost (including bad volumes, noisy, drop outs, no ring/ no answers) they only made calls when something really important happened. Business was done by written letters over a period of weeks and months. All deliberate speed, you know. Then came that damn Sprint and forced "pin-drop" quiet fiber and Sonet rings into the network with reliability never dreamed of with L3 carrier and Microwave. Everyone else followed.

“Did we do the consumer and the business community any favors by offering choice or have communications services become too complex for many of them to understand and appreciate? Yes. The evolution of the PC is legendary. The simple office network has grown into a LAN/WAN with flexibility to handle 10/100/1000 mbps with 10 GigE links. And the RBOCs offered what products? Without deregulation, competitive carriers and Microsoft Office those businesses would still be islands trying to get ISDN to work on DS-1s.

“Would the Internet and wireless technology…have evolved whether or not A&T was broken up? Would VoIP? No. But if the networks don't stop selling their technology, they will lose out on the end-to-end products that don't really care if a bit or voice goes across wire, fiber, or air or other bits. VoIP has the capability to reintegrate voice & data. We started out with digital data modems to convert signals to analog. The pendulum has swung to moving the PBX and the rest of the voice to the packet side. (again, it is not as important to differentiate which kind of packets or cells work best in individual situations as it is to note that the network is no longer based on what the telco network is or was.)”

Wes (good ol’ reliable and clever Wes): “I started thinking about this fairly sure I had some clever and insightful remarks to make and then, whoosh, it all flushed out of my brain like the Cubs’ World Series hopes.

I don’t really think the telecom and IT sectors would look anything like they do today. While the Bellcore guys were really bright and working the bleeding edge, they sought remedies for problems. If you don’t know you need an electronic cross-connect tool, you don’t invent it. Would anybody else have? It’s hard to say, but I lean towards ‘no.’ Computers would be bigger than they were then, but I don’t think we’d have The Internet and all it has brought us.

It really makes you wonder what we’d all be doing now if there weren’t the telecom/IT market to speculate about. What to do for a celebration? I have no idea. Personally, I’d like a good job right now. So would thousands of other people pretty much like me. I’m sure the trades will be chock full of speculative articles on ‘Where Would We Be’ and so on. The only celebration I’m concerned about right now is my 10th wedding anniversary—it’s been pretty entertaining as well though far less volatile. Many still wondered if it’d last. Kinda like telecom.”

Edward (no tears): “Twenty years ago I was selling leases for 9.6 kHz DataPhone modems for $5,000 per year for AT&T. We were selling Data Access ‘network protection’ devices in a last ditch effort to keep non-Bell CPE off the network. Our line of terminals were overpriced and under featured. Our flagship PBX, the Dimension, was analog-based in a rapidly to become digital world. I was chaffing for deregulation, but once it came, it was clear that AT&T was not prepared to survive in the competitive environment. Unit after unit failed to thrive and slowly died, General Business Systems, Data Systems (later to be merged with NCR), Micro Electronics, Large Business Systems (now Avaya) Network Systems (now Lucent) have all struggled or disappeared.

The 20% at the top of the pyramid did not have a clear vision as to how to deliver competitive products in a world market where customers grew to expect high performance at low cost. The people at AT&T were the greatest to work with and we worked very hard to please our customers, but I am still disappointed by the leadership. Thousands of us lost our jobs primarily through no fault of our own, but due to the incompetence of poor and arrogant leadership. I am happy to be a customer these days. I have many technologies to choose, from a variety of vendors at competitive prices. I for one do not mourn the passing of the Bell System.”

Al (the epitome of the Spirit of Service): “I appreciate your comment on the 20-year anniversary of the Breakup. I work for one of the RBOCs and have worked for the local telephone company for the last 30 years. I remember vividly the preparations we did for the famous 1/1/84 date. It was an extreme amount of work that was done in a short timeframe to allow long-distance calls to be carried across LATA boundaries by whatever carrier the subscriber chooses. Anyway, I do not know if we are better off or not, but I do feel that the speed of new technology being integrated into the system has been much faster because of it. I do not feel that things like all of the wireless technology and the Internet would have come about as quickly without the competitive environment.

The Bell System just was not that fast. I believe it would have happened, just not as fast. However, the Bell System was very reliable and I think the cost of phone service was reasonable. From an employee perspective I know the benefits were better under the Bell System. I don't know if it was a good decision over all or not, but it has been an interesting ride. I feel bad for the lives that have been disrupted because of the lack of stability of telecommunications these last few years. The Bell System was very stable and very good employment. I have also enjoyed the challenge of working with new technology and learning new things also that I don't think would have happened in my career. Like anything else, there has been good and bad things that have happened because of it. As far as how to celebrate, maybe something like free phone calls for a day or a nice pay raise for those who have made it through the past 20 years.”

Coke (not Pepsi): “Are we better off having broken up AT&T? Twenty years ago it cost $1.20 to make a three-minute call from Albany, NY to New York City. My grandmother would call once a month and would never go over three minutes. Today my daughter calls me daily in Atlanta from Austin. She pays a flat rate of under $20 for unlimited LD calling. We are a much closer family and share the joys of family events. 20 years ago "all circuits busy" was a regular occurrence on holidays.

When was the last time you heard that announcement? 20 years ago most long distance was transported on analog carrier with crosstalk and circuit noise. How often do you get a bad connection today? Competition has brought us lower prices, better quality and better reliability. While the "Golden Network" was great for its time, AT&T wouldn't have and couldn't have modernized as quickly as it did after divestiture due to rate-of-return restrictions and a depreciation rate that rewarded it for keeping equipment in service as long as possible.”

Marian: “I was in my eleventh year at PacBell, when we divested on 01/01/84. It was a great time before, during and after. I am now in my 16th year at [my company] and loving the level of creativity that has allowed the industry to progress to this level. Yes, we are probably more complex than we could be and have so much to offer that it boggles the mind, let alone trying to select a comparable wireless plan. I have watched the industry evolve into something unrecognizable but still familiar.

Did we screw up the most reliable network in the world or did we open the door to innovation? No, we opened the doors that for years had creative minds attempting penetration. Would the Internet and wireless technology…have evolved whether or not A&TT was broken up? Eventually, but at a considerably slower pace. Would VoIP? That would be another five years into the future.”

Mickey (a survivor, from Riverton to Denver): “I believe the answer is both yes and no. I can't help but think of something I read or heard early on in my career (35 years June 9, 2004) that the reason we had the Bell System monopoly was because it was too costly and too confusing to have more than one carrier. I remember the pictures of multiple pole lines going down a street with many arms of open wire circuits on them. I am reminded of those pictures every time (which is constantly) someone adds a new fiber cable in front of my office.

This block is no longer AT&T and Mountain Bell. You now see markings on the street for Qwest, AT&T, Level 3, MCI, Sprint, McLeod and a host of others. If you look up into the windows of the old ‘Electric Building’ next door you see not offices but the ironwork and racks of communication and switching equipment. Across the street you see the old Woolworth's with no widows now and the big sign on the wall that says ‘Communications/Data Center space for rent.’

“I guess for the consumer, price-wise, it may be a good deal. But with that price has come the unrealized risk in reliability. And like the Tech in the Qwest commercials says, ‘No matter who you write your check to for your phone service, it's our truck that roles and I'm the one who will come to fix it.’ So it is both better and worse. It is extremely confusing for the customer.

It is extremely conducive for the different suppliers to get into finger-pointing rather than a customer service focus. And as hard as we all may try to keep that focus, customers get lost in the middle of who did or didn't do what. Personally, I have been lucky over the last 20 years to have survived and still be here. It only took three moves and eight or 10 different jobs. It is a long way from CO Forman in Riverton, Wyoming!”

William the Competitor: I have been in the ‘telephone business’ since the early 60's (USAF). I worked everything from a lineman to a regional manager over the years at AT&T, BellSouth, and now a CLEC. I cannot see where the great break-up helped the telephone industry do the great things the government said it would. As a personal note and having been put out to pasture by Bell, I am glad at this time in my life they did, because I work for a great company that is growing and someday will be the leader in CLEC's.”

Dick’s List: “Being a Bell System retiree, I could go on for a long time about the stupidity of breaking up the Bell System. The major loss was the elimination of the Country's foremost bastion of pure scientific research, the Bell Telephone Laboratories (BTL). BTL's budget was supported by Western Electric, AT&T Long Lines and the local operating companies. Much of the work was directed at cable, switching and telephone electronics research and development. However, a significant part of its budget was directed at pure scientific research, some [of which was] used for space exploration, national defense, theoretical math, materials science and human understanding. Some discoveries ultimately benefited telephony but many, such as the transistor, laser technology, satellite communications, traffic theory and more.

“In 1967-68, I was assigned to an 18-month program at BTL in Holmdel, NJ. It consisted of eighteen months of classroom work and five concurrent rotational assignments at BTL's Holmdel and Murray Hill locations. During one of the five assignments, I had access to a slow motion PicturePhone set. It was part of the support for a national PicturePhone trial with Westinghouse Electric. The PicturePhone (PP) to which I had access was part of a dedicated network with other PicturePhones at the four major BTL New Jersey locations and AT&T's headquarters in Manhattan.

“Not only did my phone have slow-motion video access to the other PicturePhones on the dedicated network, but I [also] could check the weather reports and airport arrivals and departures at the three major New York airports and access a shared computer mainframe dedicated to the network for computer problem-solving. When the Westinghouse trial was completed, Westinghouse wanted to keep its PicturePhone network using the trial's rates. However, the FCC would not allow those rates to be used. The FCC ruled that local and long-distance rates for all customers could not be used to subsidize the provision of a new service for a handful of business customers.

“That decision squashed the development of a new technological advance by forcing an economic planning period of five years or less. Westinghouse did not want the service at the much higher rates. It was no longer cost-effective for its needs. AT&T could not pay for this and other potential new services out of its shareholders’ pockets nor recover the capital expenditures out of its annual depreciation charges. In those days, the FCC was requiring depreciable lives of 50 years for old panel switches, making it difficult to raise capital through depreciation to replace them through the technological advances of crossbar and, later, electronic switches.

“The FCC required the telephone companies to subsidize customers through Universal Service dictates and to subsidize the placement of payphones in non-cost-effective areas, but never understood the need for basic local and long distance rates to subsidize the advancement of new technologies. Thirty-five years later, I still don't have a PicturePhone on my desk. I could equip my personal computer to have that capability, but there aren't enough people out there whom I would normally call who can afford to equip their computers.

“So, now, we have lower local and long-distance rates. (It is questionable whether they are any lower than they would have been, if you just extrapolate the Bell System's long-term basic service rates curves.) However, can you give any real examples of technological discoveries or advancements by the CLECs or any of the other cream-skimming, pseudo-competitors?”