August 10, 1999
Paul Solman, of WGBH-Boston, explores the former phone company giant and AT&T's plans for the future.
PAUL SOLMAN: Lily Tomlin in the mid-70's, mocking all powerful AT&T, better known as the phone company.
LILY TOMLIN: Here at the phone company, we handle 84 billion calls a year, serving everyone from presidents and kings to the scum of the earth. We realize that every so often you can't get an operator. For no apparent reason your phone goes out of order, perhaps you've been charged for a call you didn't make. We don't care.
PAUL SOLMAN: It may be hard to believe that just 20 years ago AT&T was the most successful and sometimes imperious monopoly in U.S. history because today it's casting itself as the underdog, trying to break into a monopoly it once controlled.
WOMAN: Thank you for using AT&T.
PAUL SOLMAN: Local phone service, now effectively monopolized by local phone companies. AT&T wants to compete with them, but this time not over old-fashioned copper telephone wires, but via the coaxial cables that already carry cable TV and can carry phone calls and Internet access as well.
COMMERCIAL: Remember racing with your friends? Competition helped everyone run faster. AT&T and Media One are creating an exciting new age of competition and choice for America's consumers.
PAUL SOLMAN: Media one is a cable TV company, one of two, the other is TCI, that AT&T has spent billions to buy in order to own, once more, the line into your house.
COMMERCIAL: Who will win? You will, because when companies compete, consumers win.
|Putting on the best face|
PAUL SOLMAN: The old monopolist is in fact putting the best face on a desperate need, born of its breakup in 1984, when the Baby Bells were given local service and Ma Bell got then lucrative long distance.
DAN SOMERS: Well, long distance business is a tough business these days.
PAUL SOLMAN: Chief financial officer Dan Somers.
DAN SOMERS: We have over 300 long distance providers in the US its pricing has become much more by the minute, so therefore more commodity, and that's the only product we sell our consumers, that plus some wireless and some Internet.
PAUL SOLMAN: So AT&T has been buying up cable companies, completely controlling the access to one out of every four US homes. But, if Ma Bell is dreaming of a new monopoly, Ma Cable, if you will, American Telephone & Television, for the foreseeable future, it's forced to fight. And in this age of convergence, with phone technology converging on cable TV and both converging on Internet technology, the fighting is door to door, wire to wire.
REPAIRMAN: This is Bell Atlantic's wire, this is a drop. We can't touch this, but we can drop her wires. This wire goes into her house.
PAUL SOLMAN: The prize is the last mile, that final stretch of telephone wire into your home, now owned by the Baby Bells here in Topsfield, Massachusetts by Bell Atlantic. But inside the house, the customer owns everything. Jane may want a phone service from her cable TV provider, so the cable guy is switching her phone from Bell Atlantic wires to the cable of Media One, recently bought by AT&T. Dan Somers says AT&T, thinking globally, had only two ways to pack locally.
DAN SOMERS: One, you lease or rent your competitors' lines, or you own it, and owning it meant that we had to pursue investments in and purchase the cable companies. That gives us the ownership of that last mile and allows us a fuller ability that deliver services to them our way, price it the way we want to price it, package it the way we want to package it.
|Controlling the last mile|
PAUL SOLMAN: Small wonder AT&T wants in to our homes because if it controls the last mile, it can sell us what phone companies really make money on these days: All the other services that could go over the lines. David Nagel is president of AT&T Labs.
DAVID NAGEL: A telephone line can carry one telephone call, a cable can carry the equivalent of 10,000 or more telephone calls. So over one line you can do telephony, you can have five telephones in your house, five separate numbers. You can have entertainment television, hundreds of channels if you want hundreds of channels you can have music services, you can have interactive video services, video conferencing.
PAUL SOLMAN: And because of the huge band width of coaxial cable, compared to copper telephone wire, you can get services like voicemail, say, in new ways.
WOMAN: Hi, this is Sandy, I'm just calling to let you know this week's team meeting has been canceled.
DAVID NAGEL: You see their name, you see how long the message is, you see when it was recorded.
PAUL SOLMAN: And what's the phone number up there, the blue one?
DAVID NAGEL: It's like caller ID. (Phone ringing )
DAVID NAGEL: So that phone number is now ringing, it happens to be a phone in this room, which is why you hear the ringing. But if someone picked up that, we could talk to them, because there's a microphone in this TV as well.
PAUL SOLMAN: Moreover, you could be talking in a language that you don't even know, like Chinese.
PIONEL SHAWE[ph]: What's the price of a first class ticket? (Speaking Chinese)
PAUL SOLMAN: Pionel Shawe is a researcher at AT&T Labs, where they've been working on voice recognition for two decades.
PIONEL SHAWE: As parts of the English sentence were coming out, they were being translated.
PAUL SOLMAN: And so that's what the person in China would be hearing.
PIONEL SHAWE: Yes.
PAUL SOLMAN: And the person on the other line would have heard it that quickly.
PIONEL SHAWE: Would have heard it and maybe have seen also the display.
|"The" phone company|
PAUL SOLMAN: And that's not all. Instead of waiting to connect to an Internet service provider, for instance, and waiting, and waiting, and waiting, and then waiting and waiting and waiting some more to get onto the Web, computers with a high band width Internet hookup are always online. Now, this may seem a far cry from reaching out and touching someone, but it's just what Alexander Graham Bell was doing last century, communicating electronically. (music in background) This pre-Lone Ranger Bell film from 1930 might have been the first docudrama. The telephone was such an astonishing success, Bell's new company - says historian Lou Galambos -- immediately faced competition.
LOU GALAMBOS: Intense competition. People cut prices, gave better service, and what it did was it drove the Bell company, then AT&T, nearly to the wall, and that puts pressure on you to change.
PAUL SOLMAN: AT&T was saved from bankruptcy in 1907 by banker J.P. Morgan. New management with new capital bought up rivals, improved service and laid the lines for national long distance, creating a virtual monopoly - a natural monopoly, the company argued. Competing phone lines would be as inefficient as competing railroad tracks, competing highways. And the government agreed, so long as AT&T kept prices low, profits regulated and it provided service for everyone.
SPOKESPERSON: Thanks for calling.
SPOKESMAN: Thanks for calling.
PAUL SOLMAN: For decades, peace reigned in the industry, as tucked away in the New Jersey countryside, did AT&T and if it gave great service, compared to that in other countries, say, it could treat customers with contempt.
LILY TOMLIN: You see, this phone system consists of a multi-billion dollar matrix of space age technology that is so sophisticated - that even we can't handle it, but that's your problem, isn't it? So the next time you complain about your phone service why don't you try using two Dixie cups with a string. We don't care; we don't have to. We're the phone company.
|Driving "a Mack truck of data"|
PAUL SOLMAN: Over the decades, however, AT&T was losing touch, its successive board chairman seemingly oblivious to new technology, the fresh winds of deregulation, whipper snapper competitors like MCI, all out of sight and out of mind. But finally, in 1984, under government pressure, the monopoly was forced to break itself up.
JIM CULLEN: Certainly in light of everything that's happened since it was a surreal yesterday world for us.
PAUL SOLMAN: Jim Cullen used to run strategic planning for AT&T; now he's the competition.
JIM CULLEN: I think Bell Atlantic has a better product and we're very aggressively investing.
PAUL SOLMAN: Bell Atlantic has a 10-year plan to replace all of its wire with optical fiber, which carries far more data. The fibers in this yellow sheath handle 80 times the traffic of the wires in those black ones. But for now, Bell Atlantic is upgrading, putting so-called DSL Technology at either end of the copper line to boost its capacity. Jeff Waldhuter is Bell Atlantic's chief technologist.
JEFF WALDHUTER: I have the ability today to drive a Mack truck of data over these copper wires by placing some smart electronics in our central office as well as placing a modem device in the home. Another way of looking at it is every copper pair that goes to every home and every business has the ability to actually carry 250 simultaneous voice conversations. But what would you do with 250 voice conversations? I'd rather have one in high speed data. So with our DSL technology, somebody could be in the kitchen on the phone with Grandma, somebody could be in the den surfing the net at high speed on the same pair of phone wires.
PAUL SOLMAN: Willis Emmons of the Harvard Business School says Bell Atlantic and the other Baby Bells could win the day.
WILLIS EMMONS: I still remember back in '84 when people said, look, AT&T is going to just rake in the money; they're going to be free now to do whatever they want and the Baby Bells are going to be boring, slow-footed monopolies that aren't going to do anything. And in fact, they've done quite well for themselves. I think the other issue with AT&T may be a generational issue. I think there's the sort of older consumers who have sort of fond memories of the years when AT&T was the only company offering any telecommunications service.
PAUL SOLMAN: Older like me.
WILLIS EMMONS: Yes. And I think the Generation Xers probably look more to AT&T as a bit of a fossil.
PAUL SOLMAN: Back at AT&T, however, Chief Financial Officer Dan Somers doesn't sound too worried.
DAN SOMERS: Well over 10 percent of American consumers still think we provide their local service, although we don't. And when we do market surveys, the majority of customers in the market would prefer to have AT&T be their supplier. It's our credibility, it's our quality, it's been our long-standing relationship with them.
PAUL SOLMAN: The Baby Bells' response? That telephone by cable will be subject to power outages, no problem for copper wire, run by its own generators. And if Ma Cable monopolizes Internet access, it could lock out rivals like America Online. On the other hand, Telecom Technology may be moving too fast for anyone to have a monopoly.
LOU GALAMBOS: The technology has gone too far. You're not going to have a restoration of the national monopoly system. I can't see that at any point in the future.
PAUL SOLMAN: In the end, thinks business historian Lou Galambos, the moral of the AT&T story depends on the time period in question.
PAUL SOLMAN: So your verdict in the 1890's is competition was good.
LOU GALAMBOS: Competition was good.
PAUL SOLMAN: Your verdict on the first half of the 20th century, monopoly was good.
LOU GALAMBOS: Monopoly, regulated monopoly, worked very well.
PAUL SOLMAN: So what s your verdict on what we've been experiencing these last 25 years, 30 years?
LOU GALAMBOS: Competition is working very well. The forces of competition are producing new structures, just as they are in the entire American economy.
PAUL SOLMAN: An economy which no one, it seems, rules forever.