Divestiture Essay and More
"A Divestiture Insanity Epilogue - December
A DIVESTITURE INSANITY
A Post-1983 Snapshot
When the Wall Street Journal recently
“headlined” the idea that AT&T’s “corporate end” may be in sight, and Reuters
carried the story that the firm’s magnificent corporate campus in Basking Ridge,
NJ was on the market to raise cash, it prompted the author of a 1983
“Divestiture Insanity” monograph to engage in some “See, I Told Ya So” carping.
What follows, represents a few snapshots of what has happened in the
world of telecom since January 1, 1984.
A 1991 “Outsider’s” Take on
University of Houston faculty member, Alan
Stone, has done a magnificent job of tracing the whole divestiture travesty.
This, from the beginning of its historical roots as he relates it in his 1991
volume, “Wrong Number”. Stone goes into great detail - first, as he recounts the
superb vision of Theodore Vail and his “One Policy, One System, Universal
Service, Network Management”. Then he goes on to portray the full dimensions of
how every piece of the old Bell System, was organized and managed to provide the
best telecom service the world ever knew (and now no longer enjoys).
Stone provides the historical details which
demonstrate how divestiture has eroded Vail’s vision of end-to-end
responsibility for service, quality and continuity, plus, national network
management (regardless of who owned any particular telecom service provider).
Clearly, events of recent years reveal the
price the customer has paid for deteriorating service - service, where everyone
and no one can be held accountable for deficiencies related to multiple
providers engaging in “circular finger-pointing”.
Except for drastically lowered long distance
costs (that would have dropped anyhow with the fiber optics already being
deployed by AT&T prior to ’84), telephone service pricing based on actual costs,
has reversed its decades-long trend of ever lowering real dollar charges for
local dial tone.
Would The DOJ-FCC” Service
Destructors” Please Stand Up
It would be enlightening to ask the DOJ and FCC
social engineering divestiture bureaucrats, judges and politicians, if wading
through three sets of voice response scripts, then waiting through five more
minutes of elevator music (interspersed with digital apologies for the delays)
prior to reaching a live human, is a desirable divestiture outcome? All this,
just to report a service problem or to ask a simple service question. Ask
Washington if all this is better than pre-1984’s 20 second answers from telco
employees trained and ready to help. Or, further, would they prefer the current
next day (maybe) trouble repair appointments, to 4 the hour commitments that
were routine in pre- divestiture Bell?
Like so many consequences of big government
meddling where it doesn’t belong, soon an entire American generation will be
clueless to what superior, reliable and totally supported telecom service once
Divestiture’s now turned out sort of like the
dumbing down of public education by the disciples of “The Frankfurt School” -
i.e., that band of pre-WWII European social radicals which came to America to
impose its brand of revolutionary socialism on all the American institutions
which, until then, set us apart from the rest of the World. Divestiture’s legal
and bureaucrat architects are “Frankurt pupils”.
Except for a tiny handful of authors who have
recounted the economic and service insanity wreaked by the Consent Decree, few,
if any of the contemporary U.S. citizenry are even aware that there was once
superb and affordable telecom service. And, that it was their own government
which deprived them of same.
The Real (and frightening)
The real divestiture tragedy (as predicted
earlier) has turned out to be the loss of the world-renowned Bell Laboratories
“Research & Systems Engineering Department”(RS&E) role in the Nation’s
historical technical and military superiority.
The Central Services Organization (that later
become Bellcore) lasted less than a decade. And as also predicted in 1983, it
became apparent that Bellcore could not serve its “competing RBOC masters”. When
“spun-off” into its now Telcordia form, it became just another “laboratory for
hire”. No longer is there a national technological crown jewel of pure research,
supported by a few pennies from every Bell Company phone bill.
Even the Bell Labs “development division” (once
supported by Western Electric dollars), is now a shadow of itself. As an arm of
Lucent (the post-divestiture AT&T Technologies), this agency has become also,
one more hardware supplier chasing technology markets it hopes will pay
off...certainly, no longer the efficient element of a closed loop “service
system”, devoted to meeting specific customer needs.
Given, the growing “dot.com” fiscal
catastrophe, and over- building of network capacity, world-wide, even Lucent’s
survival is being questioned by the marketplace. And with that, this once
special scientific asset, which the U.S. Defense Dept. counted on for much of
its “military technology edge”, may soon be a fading technology memory. Lucent,
Nortel and Alacatel have collectively dropped about 500,000 jobs…with investor
losses in the firms, counted in the trillions range.
Don’t Forget The Inept and
For-Sale-To-Highest Bidder FCC
Lost in institutional, public and corporate
memory, is the role of an inept and “for-sale-to-highest-bidder” FCC, in giving
birth and perpetuating Divestiture Insanity. It’s continuing love affair with
UNE-P (unbundled network elements platform), is little different from the WADS
(Wide Area Data Network) and political cellular radio foot dragging of over two
In the early 1960s, AT&T and the Companies were
a “switch throw” away from activating a nation-wide switched data network. It
wasn’t the Internet as we know it today, but it was the equivalent of “servers”
in every significant population center, tied together with a national data
facility network. The switching centers were in place and transport facilities
connecting them, were tested and ready to go. Then came a “Save Western Union
Telegraph Co.” political message to the FCC, and the “WADS activation switch”
was never thrown. And with this, it remained for DARPA, Compuserve and Prodigy
to kick start the Internet 25 years later.
And so the FCC, et al, muddled around with the
Bell Labs invented cellular radio technology and concept for at least 10 years.
Political concern that Bell might somehow monopolize this natural evolution of
telecom by extending wire line connectivity for mobile access to the network,
allowed the FCC and its political shadowers, to keep cellular regulatorally
bottled up while the Japanese, Swedes, Koreans, et al, skimmed off the cream of
technology and service markets (for a decade).
Only a few months before the curtain came down
on the Bell System, were cellular rules finally laid down and wireless markets
opened for Americans to enjoy. Imagine if the Feds (via FCC) had chosen to deny
development and deployment of the Internet (while say, Germany or Japan set the
standards and rules for this modern information phenomenon).
Deregulation? It’s Still Yet
Divestiture’s tragic trail of bureaucratic
malfeasance, political power intrusions and grossly unethical competitive
attacks, all, sheltered by the foregoing, actually trace back to the Consent
Decree of 1956. As Stone notes, and as regulators still act - 1956 remained a
burr under the saddle of those who’d put their power grabs and ambitions ahead
of national survival and U.S. economic well being. That is, a political target
reflecting the free enterprise visions and goals of those who invested in and
created this once unique enterprise. 1984’s divestiture tragedy was, and
remains, just another Government roadblock to those visions - one, it seeks to
maintain as long as possible.
Telecom customers are still unable to go to a
provider for end to end service (and accountability). Customers must, 18 years
after consent decree imposition, still be their own systems integrators and
Staggering amounts of capital have been
squandered on failed attempts to introduce “competition” into an environment
which, by nature, clamors for a regulated monopoly. Oceans of fiber optic cable
have been placed underground or in the sea “on the come” - and, much of which
will never be anything but “dark”. Mountains of now aging hardware also sit in
“equipment cages” of failed “competitive local exchange carriers” (CLECs) - most
of it likely to never again see service.
Where Did The Dividends Go?
(and share value)
Investments in traditional telecom service
provider shares, could once be characterized as almost like owning government
bonds. This, because those investments underwrote capital costs of an essential
and heavily government-regulated public need. In return for quality service at
affordable cost, governments allowed regulated monopolies to meet both investor
and customer expectations.
Now, as the free-lunch folks who were let in
the game on the cheap (i.e., feasting off someone else’s table to deliver sub
par reliability and quality), laws of the market place and economics have kicked
in. The Worldcoms, Global Crossings, MCIs, MFSs, et al, have discovered that the
“Vail script” which Alan Stone described in “Wrong Number”, could not be
replicated on the cheap (or overnight). Neither, will contemporary fancy
bookkeeping tricks substitute for the eagle-eye scrutiny of the FCC’s ancient
Uniform System of Accounts.
Sadly, the disaster of post-Divestiture
“competitive tele- communications providers” is carrying down with them, as
noted earlier many good enterprises which fed off Bell...the Nortels, Lucents,
And, because all this has been the government’s
doing, there will be no Arthur Anderson or Enron managements to hold accountable
(or to punish) for ripping off investors or leaving customers with lousy or
“Takings” on A Grand Scale
One of the least recognized consequences of
Divestiture, is the violence it has done to Constitutional property rights of
shareowners whose investments in telecom plant, have been taken by regulatory
fiat...this, for the benefit of those who’ve made no contribution to these
investments. That is, the central office floor space, electric power, outside
cable plant, etc., which Washington mandates incumbent local exchange carriers
(ILECs) must offer at discount, to competitors.
Forcing ILECs to provide these capabilities at
wholesale, relieves the CLECs of these capital costs, thus enabling them to
“rebrand” the ILEC product and undercut the prices of the owners of these
properties. And, “wholesale” does not carry the customary meaning of that term -
i.e., a sale price that recovers costs plus a reasonable profit. Under another
FCC fantasy (TELRIC) “total element long range incremental cost”, state
regulatory agencies devise their own forecasts of what plant investments may
cost in the long term. Thus, ignoring the actual costs and capital recovery
projections of the firms who do the actual network planning and provisioning.
Still more egregious in this regard, is how
this CLEC-TELRIC based demand forces premature and non-profitable capital
construction of otherwise unneeded facilities (to meet such “takings” demands).
To this untutored legal analyst, the unbundled
network element- platform (UNE-P) component of divestiture, is a 4th Amendment
“takings” matter on a scale of unimaginable dimensions. It’s an enormous
government-directed and uncompensated transfer of assets from a set of rightful
owners, to a class of recipients who have only a fabricated legal claim to same.
Forcing ILECs to construct and or provide switching, transport and “last mile”
or other facilities beyond their own forecasted needs, including inability to
earn normally on such investments, would be grounds for litigation if one
traditional private enterprise were to engage in such practices via a “tie in”
demand on another.
Faux Deregulation and
Technology - A Guaranteed Disaster
The sham of deregulation (price caps, et al)
and the thundering pace of new emerging technology, guarantees that the
continuing train wreck of failing telecom technology suppliers will continue.
This, and the whole carrier community being trashed by denial of economies of
scale in planning and provisioning. That is, incurring duplicative overheads
from separate subsidiaries, with accompanying inability to employ those wasted
funds on bringing in new technologies with more immediate and higher returns.
Being forced to continue planning and provisioning of technologies with 20 year
life cycles, in presence of new technologies with life spans a quarter of that,
reveals how “Divestiture Insanity” continues to prevail, approaching a quarter
Perpetuating continued desegregation of
wireless from “wire”, denies the telecom using customer, the benefit of orderly
integration of rapidly emerging wireless capabilities (which will be realized,
once the FCC, military and broadcasters are forced from their “dog-in-manger”
husbanding of grossly underused spectrum).
Not only do American ratepayers, shareowners,
carriers and suppliers manufacturers suffer, but foreign operators and
manufacturers increase their opportunities to exploit our markets.
The “Interoperation Intrusion”
Perhaps some even less defensible effects of
Washington’s regulatory and judicial fiat, are the monumental administrative,
operational, accounting and capital costs imposed on the ILECS (and ultimately
the customer). These, by forcing them to modify and expand their management
structures, billing systems, service order processing protocols and
maintenance-operations technology - all, just to be able to interface and
interoperate with whatever variety of plant and administrative architecture, the
CLECs choose to deploy.
It’s as though a band of transients speaking a
variety of different languages and having special dietary requirements, was
moved into a property owner’s home by government fiat - and, with the proviso
that all such related fiscal burdens be borne by the property owner.
It’s Not Just The Telcos
Regrettably, these same fiats are being laid on
other “natural monopoly” service enterprises - e.g., forcing the regulated
“energy utilities” to carry or “wheel”, the products of competitors over
transport facilities constructed for their own use and markets.
“Re-aggregation” and Other
As time has passed and the great Washington
social experiment has floundered, the weaker or less aggressive RBOCs have been
swallowed by the more robust ones.
The once steady-earning and quality
service-providing Northwest Bell And Mountain States Tel. Co., got swallowed by
a different freebooter, QWEST (the successor to U.S. West). And now that mirage
too is near bankruptcy. SBC, Bell South and Verizon are all that’s left of ‘84’s
seven once-healthy RBOCs. Even the big independent, GTE, got swallowed by
As Theodore Vail once conceived
telecommunications, it was with a vision of quality, reliability,
accountability, universal service and nation-wide management of the network -
all these, at reasonable and uniform rates. Now, who’s got the nerve and muscle
to put this genie back in the bottle to revive Vail’s vision?
Those Social Engineers Won't
While divestiture’s barricades still remain in
place, the D.C. social engineers have cranked up a campaign to demolish another
successful “natural technology system” - this time in the cyber
world...Microsoft. Although the Windows computer operating system is essentially
a software offering, it is not unlike the old Bell System in terms of standards,
defined interfaces and interoperability with a wide range of user devices.
As with pre-1984 telecom, users have been
little harmed by Microsoft’s near monopoly of Windows - only the wannabees who
have wished to crawl into the inner reaches of Windows, to cream off profitable
pieces of the action (but without responsibility or accountability for the costs
and support of the overall system), keep whining because they didn’t corner this
Change the calendar and substitute the players’
names, the issues and scripts of the Microsoft and Bell legal dramas, and the
“plays” are markedly the same. The lawyers rake in the dough, users subsidize
the costs of litigation and Windows will cost more while getting “buggier”. So
it’s going for telecom.
Another and Final Conclusion
Historians may well view this decades-long
attack on the best interests of telecom rate payers and investors, as a near
treasonous continuum - particularly, as it has now clearly impacted America’s
military and technology prowess (and markets).
Were a foreign power to have been detected
deliberately or secretly corrupting and destroying our means of production,
communications and defense, heads would roll for such not being discovered and
thwarted. Yet, our own judicial and political authorities brought this state of
affairs about - initiating it instead of thwarting it. And sadly, only a handful
of rapidly aging observers have the slightest sense of this tragedy’s dimension
or how to redress it.
The author John Brooks, in his 1975 book,
“Telephone - The First Hundred Years”, did a remarkable outsider’s job of
defining what the Federal social engineers of the 1956 to 1983 period, set about
to finally successfully destroy. It should be required reading for everyone who
has lost money on telephone stock, or suffered the agonies and frustrations of a
so called “competitive” telecom market.
Finally, in this same context, Alvin vonAuw, a
confident of the last undivested Bell System CEO (Charlie Brown), wrote a superb
1982 characterization of the AT&T empire…”Heritage And Destiny”. It is not only
a chronology of how the government and a recalled-from-retirement Theodore Vail
established the “social contract” which defined the Bell System, but the book
portrays a picture of what may have been the best in an American enterprise of
unparalleled competence, ethics and public accountability. If there would ever
be need to offer a contrast to the sleaze of the Enrons, Global Crossings,
Worldcom-MCIs, etc., vonAuw’s portrait of what came from the early 1900’s
“Kingsbury Commitment”, provides it. And, so “See, I Told Ya So”.
Donald E. Lively - Div.
Organization - BSPPD
8 August 1983
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