The Boston Globe Boston Capital Column: February 2005
Posted on: Monday, 14 February 2005, 21:00 CST
Feb. 15--THEY'VE GOT MA'S LOOKS: More than 20 years after the breakup of AT&T Corp., we are left with this: two big companies that dominate the telecommunications business and a small crowd of specialty operators or also-rans trailing in their wake.
The two big survivors, Verizon Communications Inc. and SBC Communications Inc., have more than a passing resemblance to each other and to another, more abstract corporate image. They look like smaller versions of the old AT&T, or what Ma Bell might have been today if it hadn't been sliced into pieces in 1984.
That was true many months ago, and it's only more obvious today. Verizon's agreement to buy MCI Inc. for $6.7 billion yesterday and SBC's earlier deal to purchase what remains of the old AT&T parent will make the buyers look even more like reconstituted versions of the old phone company.
AT&T was split up along functional lines, operating companies with their local businesses diced into geographic regions on one side and the parent company with its long-distance service and Bell Labs on the other. Now all the lines have faded and the leading survivors are bulked up like Jose Canseco.
Verizon and SBC gained scale by combining several of the original Baby Bell operating companies and have more than 190 million phone lines between them today. Soon they will auire leading long-distance businesses, but Verizon and SBC are really making their latest purchases to add large corporate customers and Internet-related networks.
Both companies also became important players in the wireless business that didn't exist at the time of the AT&T breakup. Verizon owns Verizon Wireless along with partner Vodafone Group, and SBC owns Cingular Wireless with partner BellSouth Corp. No doubt, the old AT&T would have grown some kind of wireless arm if the company had been left whole.
So this is what 20 years of telecom turmoil has forged, two smaller versions of the original phone company. Was that worth all the trouble?
It's not really a simple question, of course. An important point of breaking up monopolies is to foster innovation, encourage more ideas, and the money to support them. And there has been a blizzard of telecom innovation, particularly when it comes to wireless and Internet activity. Would today's advances exist in a Ma Bell world?
Wireless communication would certainly be different. The cellphone revolution would have posed big problems for the old AT&T's gigantic nationwide investment in its land lines.
The Baby Bells struggled with the same problem, but they had no choice. They had to embrace the wireless world and try to manage the shift somehow. The same thing would happen in a Ma Bell world, but at a slower pace. The old AT&T would have had the size and clout to make investors think twice about a bet on wireless, driving up the cost of capital and slowing the pace at which it was invested.
Perhaps something like that would have happened with Internet communications, too. But so much investment money was wasted in the gold-rush fever to develop that capacity just a few years ago, I'm harder pressed to say whether Ma Bell would have put capital to better use.
The future holds more "what if" questions. Voice over Internet protocol will change the equation again, and soon.
Twenty years of competition reforged Baby Bells into big companies organized and focused much as AT&T was two decades ago. The process was far from ideal. Baby Bells worked relentlessly to dodge head-to-head competition in each other's backyard, and regulators who tried to force the issue were hopelessly overmatched. Too bad.
But we gained more than we lost by going through the exercise. It wasn't perfect, simply better.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
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Source: The Boston Globe
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