Don Lively's Divestiture Essay and More
"A Divestiture Insanity Epilogue - December 2002"

A DIVESTITURE INSANITY EPILOGUE
December 2002

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 Divestiture

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 was.

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) Tragedy

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 decades ago.

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 to Come

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 “continuity-reliability monitors”.

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, Alcatels, etc..

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 unresponsive service.
 

“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 century later.

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 Tales    

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 Verizon.

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 Quit

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 market first.

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”.

D.E. Lively

28 December 2002  

Lafayette, CA

Donald E. Lively - Div. Mgr.

Central Services Organization - BSPPD                    

8 August 1983