How AT&T Works

The End of Monopoly

AT&T paid dearly for its monopoly status. Each time the government took action against AT&T for anti-competitive behavior, Ma Bell had to give up a piece of its future. One example of this was the "consent decree" it signed in 1956. This was a contract AT&T made with the United States government. The decree set very specific limits on AT&T when it came to conducting business outside its basic function. AT&T could remain the telephone monopoly, offering its phones and phone service to the public, but at a price.

That same year, Bell Labs' scientists won the Nobel Prize for inventing the transistor. Transistors are the building blocks of integrated circuits and microchips. The information age would not exist without the innovation of the transistor. The 1956 consent decree forced AT&T to put the transistor patent in the public domain. That meant AT&T couldn't make any money off of other companies using transistor technology for its products.

Not that AT&T was trying to do so in the first place. The 1956 consent decree completed a process which began in 1949, when the government filed its lawsuit to break up AT&T. Bell Labs invented the transistor in 1947 as an improvement on the vacuum tubes AT&T was using to improve the quality of its long-distance service.

The transistor had many more applications than boosting a phone signal, but the last thing AT&T could do was keep such a revolutionary technology all to itself. Otherwise it would risk even more ire from "trust busting" lawmakers. As a gesture of good faith, AT&T said it would share its transistor technology to any company willing to pay $25,000. The companies that became licensees made their names in transistor and semiconductor technology: General Electric, Texas Instruments, IBM and Sony, to name a few.

At the time, AT&T insisted that its monopoly served the public interest. The innovations pioneered by Bell Labs, and AT&T's lack of interest in exploiting them, appear to confirm this notion. To list the number of important innovations, inventions and technologies that came out of Bell Labs over the 107 years AT&T was "Ma Bell," is more than the scope of this article. Even the highlights are impressive:

AT&T remained a colossus from 1913 to 1982. In 1982, the company had its last run-in with the government. Despite the Kingsbury Commitment and the 1956 consent decree, lawmakers in Washington continued to hammer away at Ma Bell. At that point, AT&T was spending $360 million in legal fees to defend its monopoly status. It was fending off anti-trust suits from dozens of states, the federal government and the private sector. When Chairman Charles Brown learned that the federal judge on the case thought AT&T was going to lose no matter what, he decided that a negotiated surrender was better than an unconditional one. In 1982, he announced that AT&T was going to break up into separate companies by 1984. It was the end of the road for Ma Bell.

In the 1984 breakup, AT&T split into eight pieces as "Ma Bell" gave birth to seven "Baby Bells." The Baby Bells were seven companies made up of AT&T's 22 operating companies: Nynex, Bell Atlantic, Ameritech, BellSouth, US West, Pacific Telesis and Southwestern Bell. In the deal, AT&T kept its name, its long distance business, its manufacturing arm and Bell Labs. The Baby Bells appeared stuck with the least profitable parts of the Bell System: local service and the century-old copper wire network to carry it.

The conventional wisdom was that AT&T reserved the best parts of the company for itself. However, AT&T wasn't built as a collection of interchangeable modular pieces. AT&T may have had the profitable long-distance business, but not the means to deliver that service "door-to-door." In order to bring the signal from a long-distance line from one phone to the other, it had to pass through a Baby Bell's local copper wire system. The Baby Bells charged access fees for use of that last mile of wire connecting to someone's home. It was as if nerve signals from your foot had to pay a toll to get to your < a href="brain.htm">brain. This put AT&T at the mercy of its former appendages.

Another far-reaching decision AT&T made during the breakup was to give up its rights to wireless telephone service and infrastructure. No one expected the coming revolution in mobile technology with the cell phone. The Baby Bells, initially resentful about the breakup, appeared to have had the better part of the deal. Paradoxically, a Baby Bell became AT&T's salvation in its darkest days.