The Information Monolith Is Becoming a Mosaic
Lessons in business, technology and law, plus a glimpse of a new pattern for industry, were all contained in news events last week as a federal judge questioned American Telephone & Telegraph’s acquisition of McCaw Cellular and a big venture between a telephone and a cable company fell apart.
Unfortunately, misunderstanding reigned, thanks partly to the bleating of business people that the government was out to hamstring new information industries with regulation. The stock prices of AT&T;, McCaw and Southwestern Bell--which broke off a $4.9-billion venture with Cox Cable Communications--fell on the news.
But shrewder analysis would have painted a different picture. The Southwestern-Cox deal, like the recently canceled merger of Bell Atlantic and Tele-Communications Inc., fell apart because it didn’t make sense to begin with. The telephone company will be better off.
And Judge Harold Greene’s questioning of the AT&T-McCaw; marriage may result ultimately in total deregulation of the telephone business with local phone companies allowed into long-distance and AT&T;, MCI, Sprint and all sorts of other firms allowed into local phone service.
The issues are important for consumers, investors, business people and just about everybody. So before getting lost in detail, we should step back to see a pattern.
Far from regulating to limit industry, the Federal Communications Commission, with backing from Congress and the White House, wants to bring thousands of companies into a new and open competition.
The result in the next few years will be a free-for-all, with a multitude of communications carriers offering voice, data and video services over ground lines and wireless systems and from satellites in space.
The FCC will auction rights for wireless personal communications systems later this year, allowing up to seven carriers in each locality. They will compete with at least two cellular phone firms, two specialized mobile radio communicators and anybody else with an innovative idea.
The FCC’s actions reflect a departure from policies favoring big companies that have guided industrial thinking for most of the 20th Century. We set up the old AT&T; as a monopoly in the early 1900s, for example, because only a big company could marshal the forces needed to deliver services at low prices to consumers.
Now we believe that competition, among hundreds of companies small and large, is needed to give us lower prices and innovation. “If America is to develop a world class information superhighway, we must promote healthy competition at home,” Vice President Al Gore has said. White House planners are looking at estimates that the proposed National Information Infrastructure will add $25 billion a year to total U.S. output.
Competitors are coming forward eagerly. A good example is Celsat Inc., a small firm in Gardena, that has just filed for an FCC license on a satellite system that promises cellular phone calls at “less than a penny a minute.”
David Otten, its founder and president, is an electrical engineer who worked 27 years for TRW’s space systems. He says Celsat will be able to transmit low-power signals that can be picked up because of special features on its satellite that were developed years ago for the military.
That sophisticated and expensive technology, which only the military could afford to use, has now become available at civilian prices because of advances in microprocessors and other computer chips, Otten explains. “There are more circuits on a chip,” he says.
And there are a multitude of small high-tech companies developing new solutions, says William Davidson, a USC professor and consultant with Mesa Research.
Qualcomm Inc., of San Diego, for example has developed chips and switches allowing low-power signals to be picked up from the atmosphere by ordinary cellular telephones and newer personal communication devices.
It is the microchip that really is driving the changes in communications and other industries. The pace of change is incredibly fast: The capabilities of chips--the number of circuits on each sliver--doubles every 18 months. So old ways of doing business no longer cut it. Big mergers, which once created economies of scale, now create only mastodons.
In their way, both events of last week reflected new competitive realities. AT&T;, seeking to acquire McCaw, was looking for a waiver from Judge Greene’s original judgment that broke up the old Ma Bell in 1984. But Ma Bell’s offspring, the regional Bell operating companies (Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell and U S West) wanted waivers in return allowing them into AT&T;’s long-distance business. Judge Greene,in acceding to regional Bell wishes that he refuse AT&T; a waiver, may have set in motion a process that will end all restrictions on telephone competition.
And the Southwestern-Cox venture broke up because the Bell companies now realize they don’t gain much by simply giving their capital to cable operators, notes Peter Bernstein, editor of “Wireless” a new trade magazine.
The sensible phone ventures thus far involve investments in companies offering a look at different businesses. U S West’s investment in Time Warner, and Nynex’s investment in Viacom, for example, give them access to movies and television show content, for whatever future possibilities they may envision.
Meanwhile, if the well-heeled Bells want to expand into other territories, they’d do better if they used their money not for mergers and acquisitions but to form linkages with the many small, innovative firms the FCC is encouraging to enter the business.
For, as was hinted by events last week, numbers and diversity will characterize the communications industry of the future. National networks may well be built not by colossal corporations but by linkages among many companies in different locales across the country.
“I am large, I contain multitudes,” Walt Whitman wrote of America in the last century. Now government policy and technological reality say the same will be true of America’s major industries in the next century.
