“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.” – Lewis Carroll, Through the Looking-Glass, and What Alice Found There
Humpty Dumpty is the ideal mascot for the Looking-Glass world of Bush Administration regulatory policy. Remember those fabulous ’80s? Even in the Reagan Administration the Justice Department had an active Antitrust Division. On January 1, 1984, under a consent decree settling a long-running antitrust suit, AT&T voluntarily divested itself of its local telephone service business, spinning off seven regional Bell Operating Companies, or “Baby Bells.” Now, like the killer cyborg in Terminator 2, the spawn of the old AT&T are gathering themselves back up and reconstituting a new, Texas-based, AT&T. And it looks like all the king’s horses and all the king’s men are ready to help.
Today’s news includes a new installment of the AT&T un-divestiture – or perhaps we should just say, investiture. AT&T (that’s the new AT&T, which is to say SBC), has announced that it will acquire BellSouth in a stock deal which, if it goes through, would give BellSouth holders shares of AT&T, and AT&T control of local telephone service from California to Florida. It reassembles much of the old Bell System, plus significant cellular assets (principally, Cingular Wireless), in a regulatory environment Humpty Dumpty (or Karl Rove, which amounts to the same thing) might call “unfettered competition.”
AT&T now operates in a much different environment than that under which the old AT&T established its original regulated monopoly. In 1913, Theodore Vail cut a deal with Congress and the Wilson Administration, basically allowing AT&T to monopolize local telephone and long distance service, provided it offered pretty much universal local service, connected its long distance service to local networks, and agreed to a clear, if generous, regime of rate regulation. The key document in this agreement was the 1913 Kingsbury Commitment. The regulatory regime permitted AT&T fairly reliable profitability, but it also prevented price-gouging, especially for POTS (plain old telephone service).
Eventually, AT&T’s monopoly, and its degree of vertical integration (in addition to local and long-distance service, AT&T controlled research and development at Bell Labs, and manufacturing of many components at Western Electric) became too much for the Antitrust Division. The Justice Department sued AT&T in 1974, and in 1982 AT&T agreed to break itself up, receiving in return the ability to enter other businesses, including computers and cable TV. The breakup formally occurred at the beginning of 1984.
At divestiture, the local telephone service of what had been the Bell System split into seven Regional Bell Operating Companies (RBOCs), along geographic lines. The seven were
NYNEX (New York and New England)
Bell Atlantic (mid-Atlantic states)
BellSouth (Southern states)
Ameritech (upper Midwest)
Southwestern Bell Corporation (Missouri, Oklahoma, Arkansas, Texas)
U S WEST (intermountain West and Pacific Northwest)
Pacific Telesis (California and Nevada)
In addition, a much smaller AT&T retained its long-distance business, and has had a variety of other business misadventures along the way. There’s a good deal of entertaining history here.
NYNEX and Bell Atlantic have subsequently merged with parts of GTE to form Verizon.
U S WEST has essentially become the telephone service backbone of Qwest Communications.
Southwestern Bell Corporation was the only one of the RBOCs that was not a new creation. The other RBOCs had to integrate smaller Bell subsidiaries into new structures. Southwestern Bell Corporation was simply the old Southwestern Bell, the St. Louis-based AT&T sub that provided local service primarily in Missouri, Oklahoma, Arkansas, and Texas. Relatively early on, the company moved its headquarters from St. Louis to San Antonio, and along the way it also morphed into SBC. SBC has acquired Ameritech and Pacific Telesis (which had renamed itself Pacific Bell), and more recently acquired AT&T itself. After SBC acquired AT&T, it began the process of re-branding, shedding the SBC name and tagging its domain with the mark of AT&T.
The acquisition of BellSouth would give SBC/AT&T control over local telephone service in California, Nevada, the old SBC territory, and the South. Perhaps more important, it would also give the company complete control of Cingular Wireless, the largest mobile telephone concern in the US. AT&T now owns 60% of Cingular, and BellSouth owns the other 40%.
It’s interesting to note how antitrust policy toward deals of this type has changed in the past several years:
The merged company would have 70 million local-line phone customers, 54.1 million wireless subscribers and nearly 10 million broadband subscribers in the 22 states where they now operate. The deal appears to be the largest yet among U.S. telecom players.
In 1999, MCI WorldCom Inc. agreed to buy Sprint Corp. for an even larger sum, $115 billion, but that deal was blocked by federal regulators.
In the current environment, it’s hard to imagine more than token antitrust opposition to the deal. Even Ed Markey, ranking Democrat on the House Telecommunications Subcommittee, sounds like he’s just taking advantage of a political freebie when he says, “Our nation’s telecommunications markets must be vigorously competitive and open to innovation in order to promote job creation and economic growth. This merger proposal is one that unquestionably merits the utmost scrutiny by government antitrust officials.”
In fact, the AT&T/BellSouth deal isn’t likely to promote job creation. The combined entity would have 316,000 employees at first, but look for “synergies” – another word Humpty Dumpty might have used proudly – to eliminate more than a few. As for competition in high-speed internet, cellular phone service, and other areas, well, if you have to ask, you don’t want to know.
Meanwhile, Humpty Dumpty himself would be proud of this deal. After all, his own perch on the wall is secure, thanks to his friends in high places:
`Don’t you think you’d be safer down on the ground?’ Alice went on, not with any idea of making another riddle, but simply in her good-natured anxiety for the queer creature. `That wall is so very narrow!’
`What tremendously easy riddles you ask!’ Humpty Dumpty growled out. `Of course I don’t think so! Why, if ever I did fall off — which there’s no chance of — but if I did –‘ Here he pursed up his lips, and looked so solemn and grand that Alice could hardly help laughing. `If I did fall,’ he went on, `the King has promised me — ah, you may turn pale, if you like! You didn’t think I was going to say that, did you? The King has promised me — with his very own mouth — to — to –‘
`To send all his horses and all his men,’ Alice interrupted, rather unwisely.
`Now I declare that’s too bad!’ Humpty Dumpty cried, breaking into a sudden passion. `You’ve been listening at doors — and behind trees — and down chimneys — or you couldn’t have known it!’
`I haven’t indeed!’ Alice said very gently. `It’s in a book.’
`Ah, well! They may write such things in a book,’ Humpty Dumpty said in a calmer tone. `That’s what you call a History of England, that is. Now, take a good look at me! I’m one that has spoken to a King, Iam: mayhap you’ll never see such another: and, to show you I’m not proud, you may shake hands with me!’ And he grinned almost from ear to ear, as he leant forwards (and as nearly as possible fell off the wall in doing so) and offered Alice his hand. She watched him a little anxiously as she took it. `If he smiled much more the ends of his mouth might meet behind,’ she thought: `And then I don’t know what would happen to his head! I’m afraid it would come off!’
`Yes, all his horses and all his men,’ Humpty Dumpty went on. `They’d pick me up again in a minute, they would! However, this conversation is going on a little too fast: let’s go back to the last remark but one.’
Remind you of anybody we know?