Competition Makes Giants of the Nimble and Quick
There may not be a profit soon in the big deal in which British Telecommunications and MCI teamed up last week to create a worldwide phone system in competition with American Telephone & Telegraph. Yet the British-American venture and the emerging battle to supply global phone and data services to multinational companies sends us a very loud message about the value of competition, private industry and antitrust law.
You’ll notice that the leading players are all companies that have been involved in privatization or corporate break-up. The British government has almost completely sold the British phone company to private investors over the last decade; AT&T; was broken up in 1984 by antitrust action, and MCI was the challenger that broke AT&T;’s monopoly.
Meanwhile the big government-backed phone companies of Germany, Japan, France and other countries, lacking global efforts of their own, are being enlisted as partners for AT&T.; That’s really all that can save them from the BT-MCI combination or AT&T; itself luring their corporate customers with lower prices and more innovative services. Government-owned or protected companies are not nimble enough to compete in the new era of increased services and falling prices in communications.
More than a civics lesson is involved; the same demands for flexibility and fast action are pressing on all companies these days, from IBM to the local auto dealer. And that’s a hopeful sign--there wouldn’t be competition if there weren’t opportunity.
Furthermore, competition helps. It has made AT&T; and BT industry leaders at a time when telecommunications is poised for extraordinary growth. “It’s the industry with the strongest fundamentals for the next 10 years,” says analyst Joanne Smith of Nomura Securities.
But bright prospects demand effort and investment. The advanced computer and videophone services that BT-MCI and AT&T; are launching for roughly 2,500 multinational companies will cost billions of dollars and won’t make a profit for some time.
Success for the telecom leaders will come when they can bring the same sophisticated communications to the much broader market of small businesses and homes. That’s the time--and it’s coming soon--when phone and video communications will enter your home on five-lane highways.
“The day is not far off when I’ll carry a combination telephone and computer on which I can scribble a note to my wife from any location, push a button and send it instantly across the country without any wires,” says Elwood Kerkeslager, vice president technology for AT&T.;
He’s referring to “wireless” personal communications, which are about to make a big splash because the latest computer technology allows a lot of information to be transmitted easily and cheaply. Once the Federal Communications Commission grants licenses next year, wireless services along with direct satellite broadcasting will compete with cellular, wired and cable telecom systems.
Prices to business and consumers for even the most advanced communications will drop through the floor.
But competition to be your telecom supplier will be expensive. That’s why you see independent companies looking for well capitalized partners--MCI is selling 20% of itself to British Telecommunications for a $4.3 billion investment; entrepreneur Craig McCaw is selling a 33% interest in McCaw Cellular to AT&T; for $3.8 billion.
Big companies in the telephone, cable and communications satellite business are forming joint ventures to share development cost. And all of them are backing small, innovative companies with odd names like 3DO Co., EO Inc. and GO Corp., that are developing video computers and personal communicators.
To be a leader in this new world a company must be well-heeled, well-organized and fast-moving. And that description fits no company so much as American Telephone & Telegraph, the 108-year old firm that has found new life thanks to a swift kick from the antitrust law and a decade of painful change.
AT&T;, which once included the seven Bell operating companies, was broken up in 1984 against its will--and over the lamentations of business experts. Breaking up AT&T; was destroying U.S. hopes in global competition, they cried. AT&T; would wither, they predicted, and International Business Machines, which was not broken up by antitrust, would conquer the earth.
Instead, the opposite has occurred. AT&T;, solidly profitable on $65 billion in revenues, globally and technologically dynamic, is a model for U.S. big companies--while IBM is a patient under treatment.
But AT&T;’s transformation was neither quick nor easy. For years after the break up, the company made false starts in computers and other ventures.
The long distance business sustained profits, but even that was threatened because AT&T; stuck with old transmission lines while MCI and Sprint installed fiber cables. AT&T; could have become extinct.
So, in 1988, it acted. Chairman Robert Allen, who took the job that year, threw out the old wiring, wrote off $6.7 billion and reported a loss. But he also installed fiber lines, brought in managers from outside and divided AT&T; into 22 individual units. He made a giant company smaller, looser, faster.
“All of a sudden, AT&T; is not a lumbering giant,” says William Davidson, head of Mesa Research, a Redondo Beach communications consulting firm. “Its people are moving on all fronts, it is very competitive.”
And AT&T; stock, one of the most widely held issues, is up 50% in less than a year to its highest level ever.
Yes, but did the public benefit from the break up of a regulated company? Well, long distance rates are down 55% since 1983 under press of competition. Yet MCI is making money and growing faster than AT&T.; And the new venture with British Telecom allows MCI to take its innovative ideas to a global market.
Meanwhile, the Bell operating companies have grown and expanded. They and innovators like McCaw Cellular have created wealth and jobs. And the freed-up telecommunications environment of the United States, and Britain, is leading the way in an era that will transform business and everyday lives worldwide. Competition helps.
