Don Lively's Divestiture Essay and More
"An Insiders View of Divestiture's Insanity"

AN INSIDER’S VIEW OF DIVESTITURE'S INSANITY

INTRODUCTION

As 1983 winds down it brings dissolution of a 100+ year old and remarkably service-efficient Bell System. It seems appropriate therefore, to record one “insider’s” thoughts regarding this exercise in Big Government bureaucratic insanity.  

This monograph offers some perspective and predictions about divestiture - these, from an insider privileged to have worked in many sectors of this remarkable enterprise - both in Operating Company settings, plus, various Headquarters and overseas environments.

A career-long curiosity regarding this organization and the strategic focus of its evolution, including recent work on issues central to the Government’s case, make it seem obligatory that such a record be compiled from a view not likely to be found in the legal briefs surrounding the DOJ’s anti-trust case (with the FCC bureaucracy contributing as Justice’s willing handmaiden-instigator).
 

BACKGROUND

In general terms, the DOJ has based its justification for bringing the anti-trust suit against the Bell System, and which resulted in this “divestiture insanity”, on these primary issues:

• Foreign equipment (Carterfone) “network harms” issue
   

• “Inferior access” for competitive long distance firms
   

• Monopolization of equipment supply by Western Electric

In reality, by the time the case reached its present stage, much of the basis for the above complaints, had long since been eliminated. Discussion of what has transpired to address DOJ concerns is offered in some detail - this, to make clear how politics has been allowed to grossly override long term interests of ratepayers and investors (not to mention the national defense and economic competitiveness of America).

The Network “Harms” Issue

Despite those who claim the “harms” issue was a smoke screen to keep out competition, the writer’s experience as a BOC District Maintenance Engineer, provided abundant proof that indiscriminate connection of non-standard or non-interoperable devices to the Bell Network, can and has caused harms of one sort or other (service-affecting impairments, expense-causing compatibility investigations) - these, ranging from excessive transmission levels, out of spec dialing and signaling formats, poor or inadequate electrical protection designs and the like.              

Most of these matters have been rendered moot in recent years - largely by widespread availability of Bell Standards and Technical Requirements publications. This has ensured that non-Western products or non-Bell communications links can be safely and cost-effectively connected to the Network. 
 

Inferior Access

This is another smoke screen by “technology carpetbaggers” who want a free ride from a set of shareowners different than their own. The present forms of two-wire of telephone number interconnection to the “Network”, require only minimal investment. Providing “toll grade” connections like those furnished to other regulated common carriers, require far more elegant and pricey technology costs for the “carpetbaggers”.

Their demands are as though Grand Union came into a “Pathmark town”, demanding under government authority, that Pathmark provide floor space, carts and parking lot privileges at cut rates (until GU can take enough Pathmark business to build its own store and lots).
 

Equipment Supply

Of all these complaints, the equipment supply matter makes the least sense (yet carried much weight) - largely, because it has the least foundation in reality. Since the BOCs for many years have, in fact, been making significant “buys” of non-Western gear (in both customer equipment areas and transmission products), the procurement issue has rapidly been rendered moot.  This, by selections of Bell-quality technology in the market. Even complete central office switching systems are now installed by some of the Companies - e.g., gear from suppliers such as Northern Telecom, ITT, North Electric, Nippon Electric and Stromberg-Carlson. 

Regrettably, until AT&T Headquarters established its full fledged Bell System Purchased Products Division (BSPPD) to search out and evaluate suitable technology, BOC attempts to introduce big ticket systems such as C.O. switches, were not particularly effective - this, because of reliability, compatibility, maintainability and other “standards-related” issues (i.e., documentation, quality, support, training, etc.). 

Some years before the divestiture mandate came into force, very significant progress had been made in centrally contracting for and “standardizing” major “outside” systems - i.e., technology of the sort Western Electric would have historically built and sold to the Telcos. 

For example, new digital central office products (both an exchange central office switch and toll tandem machine) have been successfully put through rigid competitive technical evaluations and deployment. In the case of the Northern Telecom DMS-10 Local CO switch, it was found superior to Western’s comparable 3A-ESS digital system. The DMS-200 toll switch was determined to be fully compliant with the requirements which underlie Western’s No. 4ESS machine, and the DMS100 with the 5ESS. 

Similar major standardization decisions were made for a wide range of other products. This included developing requirements for major systems and subsystems that could be developed from scratch by any supplier willing to undertake the design and development effort - that, normally reflected in standard Western offerings. This includes 2^nd generation Computerized Directory Assistance systems, digital microwave radio, fiber optic systems, T-1 Carrier and a wide range of outside plant technology. 

In effect, by the time divestiture was being considered, the BOCs had “technically compliant”, and economically competitive, alternative choices for virtually all Western product lines. 

More important, using the processes developed by BSPPD and the RS&E (Research & Systems Engineering) side of Bell Labs, a systematic form of “requirements and technical evaluation” protocols have been put in place - these, for use by any vendor seeking to sell to the BOCs. Central AT&T testing and contracting in this fashion, has given the BOCs purchasing and pricing leverage none of them will ever be able to realize singly (as stand alone buyers).

THE “INSANITY’S” PRINCIPAL DESTRUCTIVE ELEMENTS

These “perceptions” treat “divestiture insanity“ in the following contexts:

• Customer and Ratepayer Impact
   

• Network & Service Standards
   

• Loss of a Unique and Irreplaceable Scientific Resource
   

• Exacerbating Already Counterproductive Regulatory Harms
   

• Degradation of Service and Accountability to Customers
   

• Loss of 100 years of Telecom Institutional Memory

With one or two exceptions, all of these “perspectives” are demonstrably provable - not just speculation about what might occur!
 

Customer & Ratepayer Impact

Absent a radical restructuring of state regulatory policies, including elimination of predictable political delay in removing artificial subsidy of local service by toll revenues, overall rates will not decrease. No regulatory bureaucrat or politician is likely to want “real cost” rate making that will raise local dial tone rates by a factor of two or three.

Further, as each new part of the network is disaggregated, end-to-end accountability for service will diminish. Service delays and quality deterioration will follow as multiple standards and policies materialize, absent the discipline of a single “quality controlled” and tightly indexed “natural system”.

Finally, the “circular finger pointing” phenomenon will increase as more players get into what has until now been a single game. That is, as multiple carriers become involved in delivering a ratepayer’s overall service, trouble clearing or service establishment becomes the customer’s job to coordinate.

The concept of a “control office” tech, with responsibility to act for the customer, including authority for escalating service problems to some distant company CEO (to demand application of resources needed to resolve an un-addressed service priority), will disappear with divestiture. The rate payer will truly be on the outside, looking in.
 

Network & Service Standards

The existing Bell System structure provides for common operating procedures and technical standards throughout the Companies. In emerg- encies, every BOC can call on any other Bell Company for help with man- power, equipment and facilities. This, knowing that tools, training and practices are compatible and immediately usable to meet rebuilding and restoration needs.

Sharing costs of creating and maintaining the practices and procedures for operating the Network, offer the  economies of scale not realizable by individual Telcos. The cost and overhead of developing and maintaining such things as the traditional Bell System Practices (BSPs) will become prohibitive. Plus, the ability to do things in a uniform fashion across corporate boundaries, will have to give way to concerns for competitive security and protection of trade secrets and markets. There will eventually have to be some sort of re-aggregation to meet customer and shareowner expectations (but likely on a contracted basis or the like).

Creation of the Central Services Organization (CSO), made up of BTL Research and Systems Engineering (RS&E) personnel and ATT General Dept’s specialists, may provide some of the traditional support services, and in fact, may suffice for awhile. But, as the divested Companies begin to compete with one another, CSO will be caught in conflicts of cost, service, priorities and security.

It is not probable that study work funded by one company, aimed at stealing the lunch of a neighbor, can result in the economies of scale and cost effectiveness realized by doing such work just once for an entire nationwide enterprise.

It is also not likely that an artificially structured “standards” organization of this sort, will survive for long in a real world market place. Worse, probably, most of the Companies will be forced to establish their own standards and practices creation capability - that, or rely on suppliers and contractors for such services. This observer’s guess is that CSO will not last 10  years in its presently conceived form.
 

Loss of an Irreplaceable National Resource

The RS&E segment of Bell Labs is a unique and never-to-be-replaced or duplicated national treasure. This segment of BTL has traditionally been supported almost entirely by a small part of the “license fee” which AT&T bills the Companies for its central support functions. This part of the Labs does the basic research which underlies many of America’s most valued technological advances - e.g., the transistor, cellular radio, the laser, satellite communications, many vital defense technologies, etc. The “Labs” have long been ranked among the world’s very top world scientific research organizations.

While much pure research is performed, when discoveries having telephony or data systems potential are encountered, they are “thrown over the wall” to the part of the Labs funded by Western Electric for product development and manufacturing.

It is  highly unlikely that any private company, government or even university, will, in the future, ever be able to undertake such wide ranging and valuable study and invention - both for civilian and military use.    

Regrettably, the big government aficionados of the Washington bureaucracy, are incapable of comprehending the significance of this tragic and disastrous consequence of their legal boondoggles. Some future historian will, without doubt, equate this as near treasonous DOJ motivation (driven by the New Deal and ‘60s campus radicalism, even now beginning to show up in government telecom policies, regulation and strategies).
 

Counterproductive Regulatory Harms

As an insider to the ATT technology evaluation process, it has been possible to observe one of the most egregious examples of heavy-handed and destructive Federal regulatory malfeasance - the FCC’s 10 year long delay in allowing introduction of cellular radio communication service to the US markets.

This is a technology conceived and developed by BTL, yet the FCC (and likely the DOJ), with its near-socialist “anti-competitive fears”, has let the Europeans and Asians, both, exploit markets and technology manufacturing opportunities all over the world (except the US). Only in recent months has the FCC set licensing and spectrum allocation decisions in place.

To illustrate, the first cellular radio product “standardization evaluation” has just been done by ATT (BSPPD), and with a Japanese product being the first selected (Oki Electric). The probable price of near $4000, is likely far higher than a similar product would have been today, if 10 years of market and technology development were behind us.

Similar stories can be told about the heavy hand of government regulators in delaying introduction of other new telecom products and services. The unrealistically long depreciation schedules and “rate-of-return” rate setting in the local Telcos, have precluded timely introduction of other innovative services and products…e.g., electronic switching to supplant the outmoded, inefficient and labor-intensive electromechanical systems - many, still widely deployed in most BOCs.
 

Degradation of Service

System-wide and world famous service and maintenance quality standards, now found throughout the Nation, will be one of the first casualties of the break up of Bell. For example, there are currently rigid and demanding “bogies” for every facet of telecom service delivery and quality.

To illustrate, service index penalties are levied for slow answering time by telephone operators, Business Office reps or Repair Service attendants. Similar penalties obtain for trouble reports which are called in again within 30 days of a previous report. Manager paychecks and career advancement are directly tied to such measurements...and, to be sure, these are powerful personnel motivators!

Such quality measurements will be among the first casualties of BOCs, cut loose from the funding and central support which has enabled them to keep local costs minimized (and quality high).  

Loss of “Institutional Memory”

The 100+ years of Bell System service and operations continuity, represent a systematically refreshed and replenished flow of skill and knowledge about how to plan, provision and operate an ever-more complex, but reliable, network (and the services it provides). Already, there are signs in the BOCs, that loss of this special continuity is being experienced.

Knowledgeable managers and occupational personnel are being encouraged to take early retirement. These people typically have the most knowledge and institutional background - the sorts of vital knowledge which younger employees have traditionally absorbed by working alongside them. Over time, this is certain to seriously compromise the BOCs ability to maintain the standards of service and reliability Bell customers are accustomed to.

CONCLUSION & PREDICTIONS

Conclusion

It is doubtful that the US Government has ever imposed a more destructive and counter productive piece of legal and regulatory flim-flam on the American public. At a time when digital technology, the microprocessor, software-defined networking, fiber optics, cellular and other forms of radio-derived services, promise undreamed of gains in productivity and flexibility, the social meddlers are doing to the telecom industry, what they failed at in their effort to dismember IBM and it global computing reach.

The long promised cost reductions and service improvement promised by computerization, electronic stored program switching and wide band digital transmission, are finally just being realized. This, largely because both product and market management “marketing” have come into play in Bell. That is, customer needs and wants are finally driving technology, instead of the reverse (which has been the historical course of service evolution in the Bell System).

Casting the telcos loose, absent this central vision and BTL RS&E systems research, will significantly slow the introduction of many services and capabilities, just now being conceived by 295’s Market Management planners - and, being “shopped” by BSPPD for development, to potential suppliers. 

Even more distressing, is unwillingness of certain Headquarters leaders to authorize a rigorous and urgent tutoring program to expose BOC Engineering and Purchasing personnel to the processes and skills developed in recent years (to put non-Bell suppliers to work meeting new market needs). From personal experience, this observer can state categorically, current BOC engineers and planners simply don’t have the background and training to take on this function, “cold”. 

Finally, there has been no mechanism to apprise the public (in relevant terms) of just how badly their government is affecting the price and quality of their telecom service. They will only discover this when cost and price of service begin to depart from the norm - the “best-in-the-world” standards they’ve long been accustomed to. By then, those responsible for this travesty will be long gone or their “trail” become cold.

Predictions

1. Although creators of the CSO believe it will become a “world class scientific organization”, it’s doubtful that a competing clients-supported pure research and standards enterprise, will survive the stresses of a multiple-owner constituency... especially, when no bottom-line near term benefit can be seen by new managements lacking 100+ years of historical perspective.
 

2. Benefits of “competition” between carriers will not lower overall prices to customers! State and Federal regulators wont  allow the subsidies to be removed or mass services priced at cost. It’s a good bet that the BOCs will also not be allowed into long distance service for a long, long time. The DOJ and District Court are not at all likely to let go of this goodie soon. “Freeing the BOCs” could well drag on at least as long as has the “Case” itself, has.
 

3. Life for the individual telephone user will become increasingly complicated as multi-vendor service provisioning moves into the picture. The prompt and efficient Business Office, Installation and Repair Service functions, so long the “gold standard” of customer service, will doubtless deteriorate as competition and pressures on cost, grow.
 

4. The Courts and regulators will continue to find reasons to hold control of what should be dealt with like any other service or commodity in the marketplace...phony “consumer groups” will take up where DOJ lawyers and judges have left off in brain washing voters.
 

5. Ultimately, some sort of telco re-aggregation will have to occur! Service which relies on standards and consistency, and can prosper only with a correspondingly sized headcount, will have to find ways to regain the economies of scale once enjoyed with centralization.

The foregoing is not a sour grapes litany of despair...only the conclusions of a long-experienced Bell upper middle manager (with a lot of hands-on engineering and operations insight) - and, one, who has had occasion to observe the best and worst of the Bell System from both inside and from off-shore perspectives. For the good of Bell share- owners and surviving employees, I can only hope my views turn out to be categorically and totally wrong!

Donald E. Lively - Div. Mgr.

Central Services Organization - BSPPD

8 August 1983