Thursday, March 09, 2006

The "New" AT&T Part 3 : Innovation

There is one other personal experienced-based observation I'd like to add in this series of posts. It concerns the old AT&T, and innovation.

The AT&T that I joined in 1979 was a very effective hindrance to telecommunication innovation. There is no doubt in my mind that, without the breakup of the firm in 1983, we would not be enjoying much of the information revolution that has occurred since then.

What most people probably do not recall is that the DOJ's requested remedy for AT&T's alleged monopolistic practices was the divestiture of the equipment design and manufacture business units. These were key to AT&T's profitability and control over the market.

By using creative and aggressive transfer pricing when "selling" equipment manufactured by AT&T's Western Electric unit to the wholly-owned operating telephone companies, AT&T boosted the fixed asset base on which it was allowed to collect a rate of return by the various regulatory authorities. The company zealously guarded this equipment monopoly by delaying the vetting of "foreign" equipment for safe connection to "the network." Thus, both price and non-price means assured AT&T of many years of control over its marketplace.

Thanks to this type of management, end users of telephones in the US saw, in the 1960s, the introduction of the Princess phone, with a lighted dial. That was about it. A decade later, you got a push-button phone, to replace the dial. That was because it was cheaper to produce and maintain the telephone you were forced to lease, rather than allowed to buy. It wasn't to give you more features.

I can attest, from my experience in the Business Marketing group of AT&T's premises equipment business, that we were seriously hampered in our plans to address the future without end-to-end control of information management. Of particular concern was our need to interface, and exchange and store content with and from, computers.

The mere lack of a single network management entity in the US post-1983 contributed a great deal to the growth in creative uses of information, if for no other reason than the removal of a skilled, experienced and monolithic influence on telecommunications policy and legislation- the old AT&T.

So, while it may appear that the 1980s era breakup of AT&T has now been substantially nullified, I don't think that's true. We are experiencing communications technology change and benefits at heretofore unheard of rates, and I believe that is the direct result of the demise of the "old" AT&T.

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