• Ma Cartel
Ma Cartel
The business of making a phone call was simpler 20 years ago. You picked up a phone, made by Western Electric Co., a subsidiary of American Telephone and Telegraph Co. (“Ma Bell”), that was leased to you by one of Ma Bell’s regional operating subsidiaries.
Your call, whether local or long-distance, traveled on lines and through routers and switches owned and maintained by Ma Bell. You got one bill for all these services. State regulatory commissions made sure that Ma Bell didn’t gouge you for these services. Times were good. Life was simple.
Then came the big break-up of Ma Bell in 1984. Technology was exploding, and the argument was that competition among carriers would provide better services and lower prices. Ma Bell was split into nine regional operating companies (“Baby Bells”), a technology company (Western Electric became Lucent) and a long-distance company that kept the AT&T name. All would stay in business, but all would get new competitors.
Suddenly phone companies were everywhere. Phones got cheap. You could get one free with a magazine subscription. Long-distance carriers pounded at you relentlessly. Microchips made snazzy features like call waiting and caller ID possible. Cellular technology blossomed, creating an entire unwired phone system. The personal computer business created a demand for something called “broadband” service – in essence, fatter wires capable of carrying more data at higher speeds.
Within 12 years of the breakup, the marketplace had exploded. Congress tried to restore order by passing the Telecommunications Act of 1996, setting forth who could get into what business under what circumstances.
Law firms and lobbyists were enriched, but still the consumer benefited.
Capitalism was working; deregulation had led to more choices and lower prices for consumers.
But there is something about capitalism that a lot of capitalists can’t stand. So it was that four weeks ago, on Oct. 20, top executives of three of the four remaining Baby Bells (they long since had gobbled up their siblings) held a swanky dinner at the St. Regis Hotel in Washington. The invited guests: top executives of the Bells’ biggest vendors and suppliers – companies that manufacture items like phones, cables, microchips, routers, switches and computers.
The agenda for the evening: to enlist the manufacturers to pony up money for a three-year, $40 million lobbying effort designed to get rid of rules that require the Bells to lease parts of their network of cables, switches and routers to their competitors, companies known as “competitive local exchange carriers,” or CLECs. At the dinner, the three Baby Bells (SBC, Verizon and BellSouth) suggested their large suppliers contribute about $500,000 a year to the lobbying effort.
The trouble with the plan is that those vendors also supply Bell’s competitors. Intel, to name but one supplier on the guest list, sells microchips to just about everyone. When the Los Angeles Times first reported the Bells’ effort, the CLECs’ trade association reacted with a letter demanding a congressional investigation into antitrust violations.
“The apparent audacity of this effort seems to go beyond even the normal questionable standards of the Bell Cartel,” the CLECs’ letter stated. The letter suggested the Bells might retaliate against any vendor not joining the lobbying effort. The campaign has the “unmistakable patina” of intimidation, the letter said.
“Baseless and slanderous,” replied Walter McCormick, head of the U.S. Telecom Association, the lobbying arm of the Bells. He said the dinner merely pointed out that current rules restrict the Bells from growing as fast as they might like. “If we grow, they (the vendors) grow,” he said.
To be sure, the rules that require the Bells to lease their systems to their competitors seem unfair, until you consider that the bulk of that system was built during the days of the (first) AT&T monopoly. If competitors had to duplicate that system, stringing their own wires into every home and business in America, there’d be no competitors. This may be what the Bells have in mind.
The break-up of AT&T 20 years ago created confusion, but it also created an explosion of better services and lower prices. To allow the Bells to lean on suppliers to help recreate a monopoly would only hurt the consumer, and capitalism, in the long run. Congress should make sure it doesn’t happen.
St. Louis Post-Dispatch
