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Tuesday, February 01, 2005

The Bell System - Coming to a Wireless World Near You

I joined AT&T shortly after the breakup of the Bell System. The interesting thing about this - one of them - was that I got to see a great deal of the culture, attributes, and people of the century old monopoly, while watching this same company turn itself into a competitor.

Most of the people inside the vast apparatus called AT&T, from linesmen in the Bell Operating Companies, to execs in New Jersey, regarded the company as something of a public trust. This thinking continued for a time even after the breakup. The idea was that the company had certain responsibilities to the public. The main responsibility, one which was never forgotten, but, believe it or not, also never quite achieved - was called universal service - the idea that every household in the U.S. should have a working telephone. Beyond this main goal were quality of service, fair pricing, and innovation. In fact, in this latter regard it could easily be argued that Bell Laboratories was responsible for much of what we know as the twentieth century (except for the war and bloodshed part). The whole history of the Bell System gives the lie to the claim that competition is always better. If properly funded and then left alone, AT&T could have - and probably would have - had us all using wireless video telephony by the 1970s, if not before.

There are lots of reasons why it didn't happen this way, and they all add up to complexity. But the main reason isn't complex at all: the company was hamstrung by its ongoing battles against being broken up. And in the end cut the process short by doing the job itself.

After the breakup, the thrust quickly turned from one of being a public trust to that of creating shareholder value. In this, AT&T was continually carving off parts of itself to unlock the share value that could supposedly be found in its so-called core business - long distance. Needless to say, this value was never uncovered, much less unlocked, and now one of its spinoffs - a Baby Bell - has bought the diminished parent.

Butchering itself was only part of AT&T's service to short-term results. In her recent book, Optical Illusions: Lucent and the Crash of Telecom, author Lisa Endlich blames the fall of Lucent on its failure to take the culture of AT&T with it, when it was spun off. But in fact, having worked in sales for the part of AT&T that later became Lucent, I can tell you this is exactly wrong. Lucent's problems lay precisely in the fact that it did take AT&T culture - the newly inculcated culture of aggressive price cutting, inflated sales figures, and accounting slight-of-hand. AT&T execs began imbuing the company with these concepts shortly after the original breakup was announced. Lucent came by it honestly. They thought they could pull it off, perhaps, because they had an asset unique in the industry - Bell Labs. But even that brilliant institution couldn't save the company from having to worship at the same alter as Wall Street.

Some idiots - or the misinformed - will make the argument that telephony as we have it today - including wireless networks, the internet, and video calls - is the result of "competition unleashed"; but in fact, of course, these technologies and more are the product of Bell Labs, which pioneered them long before the breakup. Far less true innovation has taken place since then; competition has proved to be a brake on development and not an accelerator of it. One wonders where we might be today, if the juggernaut that was Bell Labs hadn't come under the spector of the quick and dirty bottom line.

In any event, I've had my eye on Ed Whitacre and his SBC for many years. In my view Whitacre is the best CEO AT&T never had, and something of an unsung hero. I wonder if his next step will be to buy Lucent Technologies? If he does, he will have succeeded in doing what most thought couldn't be done: putting Humpty Dumpty back together again. Of course, it won't be the same Humpty Dumpty, but a smaller and maybe wiser one. I hope this time it doesn't jump off the wall.

If you're interested in the history of the Bell System, I found a great web site while writing this entry: Link. I'm sure it's only one of many.

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