Who Killed Ma Bell?
Someone’s buying AT&T; -- and it isn’t even the biggest deal of the month. Let’s hope Alexander Graham Bell isn’t informed in the afterlife that SBC is getting AT&T; for less than a third of the $57 billion that Procter & Gamble is shelling out for a maker of razors. How humiliating.
Not that long ago, the idea of someone buying AT&T; would have been as ridiculous as someone buying the United States. But the company’s drawn-out decline -- recent blows included its expulsion from the Dow Jones industrial average and its announcement that it would not seek new residential customers -- provides a textbook case of how technology, poor management, changes in government regulation and even cheating competitors can conspire to kill off even the most formidable enterprise.
AT&T;’s fate may have been sealed as far back as 1984, when the federal government busted the monopoly up into a long-distance company and the regional “Baby Bells.” AT&T; bought into the conventional wisdom back then that long distance was the crown jewel of the business, and that its Baby Bells would be mired in the highly regulated, low-margin local game. The opposite turned out to be true, as long distance became a commodity and the owners of those wires into your home -- the Baby Bells -- became the gatekeepers to the increasingly digital information economy.
In 1996, Congress ratified the local/long-distance regulatory divide, even as the explosion of wireless and other technologies was already rendering it a legal fiction. Over time, regulators themselves became wary of their own commitment to force Baby Bells to lease out at a discount their equipment to AT&T; and other competitors.
C. Michael Armstrong, Ma Bell’s boss at the end of the 1990s, saw all this coming and realized the company would need its own wires into homes to survive. So he wagered $100 billion on cable companies. It was a desperate move, poorly timed and poorly executed. It was a bit late for the company to buy an alternative strategy, and a bit early for it to get consumers to rely on their cable providers for phone service. The cable holdings were dumped, along with Armstrong, at a steep loss. Adding insult to injury, Wall Street kept pressing AT&T; to downsize its ambitions to match MCI’s operating results, which we now know were fabricated.
The fall of AT&T; is no indictment of the messy divestiture of the old Bell system and its aftermath. Ma Bell’s progeny have thrived, after all, and there is no denying the health and technological innovation of the telecommunications sector as a whole. In its showdowns with the Baby Bells in recent years, AT&T; has been the biggest advocate for competition in Washington, but this deal should not face major regulatory hurdles because technologies like cable and Internet telephony are relentlessly creating a more competitive marketplace.
As for SBC, which has almost as many employees in California as its former parent has worldwide, it should benefit tremendously from the addition of AT&T;’s business customers, not to mention such a fabled brand. This may turn out to be a rare instance in which an acquirer takes the name of the acquired. That would come as some consolation to Alexander Graham Bell.
