The Bell Babies Clearly Require a New Formula
Is the law of unintended consequences at work in the telephone business?
When IBM sold its Rolm office switchboard operation to Siemens of West Germany last week, that left one U.S. company, American Telephone & Telegraph, among the half dozen leading suppliers to a $4-billion U.S. business market.
In the much larger, $30-billion market for basic equipment for U.S. telephone companies, the situation is the same: One major U.S. supplier, AT&T;, and a half-dozen global giants--Northern Telecom of Canada, Siemens of Germany, Alcatel of France, L. M. Ericsson of Sweden, NEC and Fujitsu of Japan--sell into the world’s biggest telecommunications market.
It has been that way since the breakup of AT&T; on Jan. 1, 1984, separated the local Bell companies from the parent. Before the breakup, the local companies bought equipment only from AT&T.; But afterward, more than 40% of their purchases go to foreign suppliers.
There’s irony there: One thought behind the government’s antitrust action against AT&T; had been that spreading those local purchases to other suppliers would spur U.S. technology. But the breakup decision by federal Judge Harold H. Greene turned out instead to be an invitation to foreign competitors.
“The Bell system breakup has aroused substantial trade concerns,” says a recently issued report by the National Telecommunications and Information Administration, a White House panel. “An $817-million trade surplus in 1981 deteriorated to a $2.5-billion deficit in 1987 in telephone and telegraph equipment.”
One problem is that the breakup’s terms prohibit the Bell regional companies (Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell and U.S. West) from making or even designing their own equipment--on grounds that their monopoly on local phone service would distort markets.
Much Money Wasted
Meanwhile, other U.S. companies turned out to be fragile shoots--like Rolm, which was already past its peak when IBM bought it in 1984--and no match for companies like Siemens and Alcatel, which enjoy billions of dollars in telecommunications sales.
So U.S. phone companies became good customers, but foreign markets didn’t throw open their doors in gratitude. France spurned an AT&T; bid on a major contract last year because of European politics, and there is worry that AT&T; will be shut out of Italy’s $28-billion revamping of its telephone system to be awarded this month.
But change is coming. Both Congress and aides to Judge Greene will reconsider the breakup decree in 1989, to remedy its competitive shortcomings. “The breakup was decreed with antitrust concerns very much in mind, but not competitive and foreign trade concerns,” says a Federal Communications Commission official.
One unintended consequence was that the Bell companies were restricted from so many sensible business moves that they wasted money on unwise or unnecessary diversifications.
Ameritech, for example, bought a computer software firm, lost money and is now selling it at a loss. Others have brought out new editions of the Yellow Pages.
If that’s all they can do with the money, the companies should give it back to the customers by lowering phone rates.
Yet they face real challenges. The Bell companies soon will have to spend heavily to bring fiber-optic networks--with vastly expanded communications capacity--to homes and businesses, says Andrew Silton, research director at First Albany Corp. Those networks will be key to competitiveness in the 1990s and into the 21st Century.
And they see real opportunity. The New York and New England phone company Nynex, for example, wants to invest in an Atlantic cable to serve corporate customers. Pacific Telesis wants to invest in a cable to Japan. But they need approval from Judge Greene to make such investments.
And that’s the problem. An immense and crucially important U.S. industry is still being regulated by a single judge working from a breakup decree that spoke to problems of another time and ignored the globally competitive world of today.
