Divestiture Essay and More
"An Insiders View of Divestiture's Insanity"
AN INSIDER’S VIEW OF DIVESTITURE'S INSANITY
As 1983 winds down it brings dissolution of a
100+ year old and remarkably service-efficient Bell System. It seems appropriate
therefore, to record one “insider’s” thoughts regarding this exercise in Big
Government bureaucratic insanity.
This monograph offers some perspective and
predictions about divestiture - these, from an insider privileged to have worked
in many sectors of this remarkable enterprise - both in Operating Company
settings, plus, various Headquarters and overseas environments.
A career-long curiosity regarding this
organization and the strategic focus of its evolution, including recent work on
issues central to the Government’s case, make it seem obligatory that such a
record be compiled from a view not likely to be found in the legal briefs
surrounding the DOJ’s anti-trust case (with the FCC bureaucracy contributing as
Justice’s willing handmaiden-instigator).
In general terms, the DOJ has based its
justification for bringing the anti-trust suit against the Bell System, and
which resulted in this “divestiture insanity”, on these primary issues:
Foreign equipment (Carterfone) “network
for competitive long distance firms
Monopolization of equipment supply by Western
In reality, by the time the case reached its present stage,
much of the basis for the above complaints, had long since been eliminated.
Discussion of what has transpired to address DOJ concerns is offered in some
detail - this, to make clear how politics has been allowed to grossly override
long term interests of ratepayers and investors (not to mention the national
defense and economic competitiveness of America).
The Network “Harms” Issue
Despite those who claim the “harms” issue was a smoke screen
to keep out competition, the writer’s experience as a BOC District Maintenance
Engineer, provided abundant proof that indiscriminate connection of non-standard
or non-interoperable devices to the Bell Network, can and has caused harms of
one sort or other (service-affecting impairments, expense-causing compatibility
investigations) - these, ranging from excessive transmission levels, out of spec
dialing and signaling formats, poor or inadequate electrical protection designs
and the like.
Most of these matters have been rendered moot in recent years
- largely by widespread availability of Bell Standards and Technical
Requirements publications. This has ensured that non-Western products or
non-Bell communications links can be safely and cost-effectively connected to
This is another smoke screen by “technology carpetbaggers”
who want a free ride from a set of shareowners different than their own. The
present forms of two-wire of telephone number interconnection to the “Network”,
require only minimal investment. Providing “toll grade” connections like those
furnished to other regulated common carriers, require far more elegant and
pricey technology costs for the “carpetbaggers”.
Their demands are as
though Grand Union came into a “Pathmark town”, demanding under government
authority, that Pathmark provide floor space, carts and parking lot privileges
at cut rates (until GU can take enough Pathmark business to build its own store
Of all these complaints, the equipment supply matter makes
the least sense (yet carried much weight) - largely, because it has the least
foundation in reality. Since the BOCs for many years have, in fact, been making
significant “buys” of non-Western gear (in both customer equipment areas and
transmission products), the procurement issue has rapidly been rendered moot.
This, by selections of Bell-quality technology in the market. Even complete
central office switching systems are now installed by some of the Companies -
e.g., gear from suppliers such as Northern Telecom, ITT, North Electric, Nippon
Electric and Stromberg-Carlson.
Regrettably, until AT&T Headquarters established its full
fledged Bell System Purchased Products Division (BSPPD) to search out and
evaluate suitable technology, BOC attempts to introduce big ticket systems such
as C.O. switches, were not particularly effective - this, because of
reliability, compatibility, maintainability and other “standards-related” issues
(i.e., documentation, quality, support, training, etc.).
Some years before the divestiture mandate came into force,
very significant progress had been made in centrally contracting for and
“standardizing” major “outside” systems - i.e., technology of the sort Western
Electric would have historically built and sold to the Telcos.
For example, new digital central office products (both an
exchange central office switch and toll tandem machine) have been successfully
put through rigid competitive technical evaluations and deployment. In the case
of the Northern Telecom DMS-10 Local CO switch, it was found superior to
Western’s comparable 3A-ESS digital system. The DMS-200 toll switch was
determined to be fully compliant with the requirements which underlie Western’s
No. 4ESS machine, and the DMS100 with the 5ESS.
Similar major standardization decisions were made for a wide
range of other products. This included developing requirements for major systems
and subsystems that could be developed from scratch by any supplier willing to
undertake the design and development effort - that, normally reflected in
standard Western offerings. This includes 2nd generation Computerized
Directory Assistance systems, digital microwave radio, fiber optic systems, T-1
Carrier and a wide range of outside plant technology.
In effect, by the time divestiture was being considered, the
BOCs had “technically compliant”, and economically competitive, alternative
choices for virtually all Western product lines.
More important, using the processes developed by BSPPD and
the RS&E (Research & Systems Engineering) side of Bell Labs, a systematic form
of “requirements and technical evaluation” protocols have been put in place -
these, for use by any vendor seeking to sell to the BOCs. Central AT&T testing
and contracting in this fashion, has given the BOCs purchasing and pricing
leverage none of them will ever be able to realize singly (as stand alone
THE “INSANITY’S” PRINCIPAL
These “perceptions” treat “divestiture
insanity“ in the following contexts:
Customer and Ratepayer Impact
Network & Service Standards
Loss of a Unique and Irreplaceable Scientific
Exacerbating Already Counterproductive
Degradation of Service and Accountability to
Loss of 100 years of Telecom Institutional
With one or two exceptions, all of these
“perspectives” are demonstrably provable - not just speculation about what might
Customer & Ratepayer Impact
Absent a radical restructuring of state
regulatory policies, including elimination of predictable political delay in
removing artificial subsidy of local service by toll revenues, overall rates
will not decrease. No regulatory bureaucrat or politician is likely to want
“real cost” rate making that will raise local dial tone rates by a factor of two
Further, as each new part of the network is
disaggregated, end-to-end accountability for service will diminish. Service
delays and quality deterioration will follow as multiple standards and policies
materialize, absent the discipline of a single “quality controlled” and tightly
indexed “natural system”.
Finally, the “circular finger pointing”
phenomenon will increase as more players get into what has until now been a
single game. That is, as multiple carriers become involved in delivering a
ratepayer’s overall service, trouble clearing or service establishment becomes
the customer’s job to coordinate.
The concept of a “control office” tech, with
responsibility to act for the customer, including authority for escalating
service problems to some distant company CEO (to demand application of resources
needed to resolve an un-addressed service priority), will disappear with
divestiture. The rate payer will truly be on the outside, looking in.
Network & Service Standards
The existing Bell System structure provides for
common operating procedures and technical standards throughout the Companies. In
emerg- encies, every BOC can call on any other Bell Company for help with man-
power, equipment and facilities. This, knowing that tools, training and
practices are compatible and immediately usable to meet rebuilding and
Sharing costs of creating and maintaining the
practices and procedures for operating the Network, offer the economies of
scale not realizable by individual Telcos. The cost and overhead of developing
and maintaining such things as the traditional Bell System Practices (BSPs) will
become prohibitive. Plus, the ability to do things in a uniform fashion across
corporate boundaries, will have to give way to concerns for competitive security
and protection of trade secrets and markets. There will eventually have to be
some sort of re-aggregation to meet customer and shareowner expectations (but
likely on a contracted basis or the like).
Creation of the Central Services Organization (CSO),
made up of BTL Research and Systems Engineering (RS&E) personnel and ATT General
Dept’s specialists, may provide some of the traditional support services, and in
fact, may suffice for awhile. But, as the divested Companies begin to compete
with one another, CSO will be caught in conflicts of cost, service, priorities
It is not probable that study work funded by
one company, aimed at stealing the lunch of a neighbor, can result in the
economies of scale and cost effectiveness realized by doing such work just once
for an entire nationwide enterprise.
It is also not likely that an artificially
structured “standards” organization of this sort, will survive for long in a
real world market place. Worse, probably, most of the Companies will be forced
to establish their own standards and practices creation capability - that, or
rely on suppliers and contractors for such services. This observer’s guess is
that CSO will not last 10 years in its presently conceived form.
Loss of an Irreplaceable
The RS&E segment of Bell Labs is a unique and
never-to-be-replaced or duplicated national treasure. This segment of BTL has
traditionally been supported almost entirely by a small part of the “license
fee” which AT&T bills the Companies for its central support functions. This part
of the Labs does the basic research which underlies many of America’s most
valued technological advances - e.g., the transistor, cellular radio, the laser,
satellite communications, many vital defense technologies, etc. The “Labs” have
long been ranked among the world’s very top world scientific research
While much pure research is performed, when
discoveries having telephony or data systems potential are encountered, they are
“thrown over the wall” to the part of the Labs funded by Western Electric for
product development and manufacturing.
It is highly unlikely that any private
company, government or even university, will, in the future, ever be able to
undertake such wide ranging and valuable study and invention - both for civilian
and military use.
Regrettably, the big government aficionados of
the Washington bureaucracy, are incapable of comprehending the significance of
this tragic and disastrous consequence of their legal boondoggles. Some future
historian will, without doubt, equate this as near treasonous DOJ motivation
(driven by the New Deal and ‘60s campus radicalism, even now beginning to show
up in government telecom policies, regulation and strategies).
As an insider to the ATT technology evaluation
process, it has been possible to observe one of the most egregious examples of
heavy-handed and destructive Federal regulatory malfeasance - the FCC’s 10 year
long delay in allowing introduction of cellular radio communication service to
the US markets.
This is a technology conceived and developed by
BTL, yet the FCC (and likely the DOJ), with its near-socialist “anti-competitive
fears”, has let the Europeans and Asians, both, exploit markets and technology
manufacturing opportunities all over the world (except the US). Only in recent
months has the FCC set licensing and spectrum allocation decisions in place.
To illustrate, the first cellular radio product
“standardization evaluation” has just been done by ATT (BSPPD), and with a
Japanese product being the first selected (Oki Electric). The probable price of
near $4000, is likely far higher than a similar product would have been today,
if 10 years of market and technology development were behind us.
Similar stories can be told about the heavy
hand of government regulators in delaying introduction of other new telecom
products and services. The unrealistically long depreciation schedules and
“rate-of-return” rate setting in the local Telcos, have precluded timely
introduction of other innovative services and products…e.g., electronic
switching to supplant the outmoded, inefficient and labor-intensive
electromechanical systems - many, still widely deployed in most BOCs.
Degradation of Service
System-wide and world famous service and
maintenance quality standards, now found throughout the Nation, will be one of
the first casualties of the break up of Bell. For example, there are currently
rigid and demanding “bogies” for every facet of telecom service delivery and
To illustrate, service index penalties are
levied for slow answering time by telephone operators, Business Office reps or
Repair Service attendants. Similar penalties obtain for trouble reports which
are called in again within 30 days of a previous report. Manager paychecks and
career advancement are directly tied to such measurements...and, to be sure,
these are powerful personnel motivators!
Such quality measurements will be among the
first casualties of BOCs, cut loose from the funding and central support which
has enabled them to keep local costs minimized (and quality high).
Loss of “Institutional Memory”
The 100+ years of Bell System service and
operations continuity, represent a systematically refreshed and replenished flow
of skill and knowledge about how to plan, provision and operate an ever-more
complex, but reliable, network (and the services it provides). Already, there
are signs in the BOCs, that loss of this special continuity is being
Knowledgeable managers and occupational
personnel are being encouraged to take early retirement. These people typically
have the most knowledge and institutional background - the sorts of vital
knowledge which younger employees have traditionally absorbed by working
alongside them. Over time, this is certain to seriously compromise the BOCs
ability to maintain the standards of service and reliability Bell customers are
CONCLUSION & PREDICTIONS
It is doubtful that the US Government has ever
imposed a more destructive and counter productive piece of legal and regulatory
flim-flam on the American public. At a time when digital technology, the
microprocessor, software-defined networking, fiber optics, cellular and other
forms of radio-derived services, promise undreamed of gains in productivity and
flexibility, the social meddlers are doing to the telecom industry, what they
failed at in their effort to dismember IBM and it global computing reach.
The long promised cost reductions and service
improvement promised by computerization, electronic stored program switching and
wide band digital transmission, are finally just being realized. This, largely
because both product and market management “marketing” have come into play in
Bell. That is, customer needs and wants are finally driving technology, instead
of the reverse (which has been the historical course of service evolution in the
Casting the telcos loose, absent this central
vision and BTL RS&E systems research, will significantly slow the introduction
of many services and capabilities, just now being conceived by 295’s Market
Management planners - and, being “shopped” by BSPPD for development, to
Even more distressing, is unwillingness of
certain Headquarters leaders to authorize a rigorous and urgent tutoring program
to expose BOC Engineering and Purchasing personnel to the processes and skills
developed in recent years (to put non-Bell suppliers to work meeting new market
needs). From personal experience, this observer can state categorically, current
BOC engineers and planners simply don’t have the background and training to take
on this function, “cold”.
Finally, there has been no mechanism to apprise
the public (in relevant terms) of just how badly their government is affecting
the price and quality of their telecom service. They will only discover this
when cost and price of service begin to depart from the norm - the
“best-in-the-world” standards they’ve long been accustomed to. By then, those
responsible for this travesty will be long gone or their “trail” become cold.
1. Although creators
of the CSO believe it will become a “world class scientific organization”, it’s
doubtful that a competing clients-supported pure research and standards
enterprise, will survive the stresses of a multiple-owner constituency...
especially, when no bottom-line near term benefit can be seen by new managements
lacking 100+ years of historical perspective.
2. Benefits of
“competition” between carriers will not lower overall prices to
customers! State and Federal regulators wont allow the subsidies to be removed
or mass services priced at cost. It’s a good bet that the BOCs will also not be
allowed into long distance service for a long, long time. The DOJ and District
Court are not at all likely to let go of this goodie soon. “Freeing the BOCs”
could well drag on at least as long as has the “Case” itself, has.
3. Life for the
individual telephone user will become increasingly complicated as multi-vendor
service provisioning moves into the picture. The prompt and efficient Business
Office, Installation and Repair Service functions, so long the “gold standard”
of customer service, will doubtless deteriorate as competition and pressures on
4. The Courts and
regulators will continue to find reasons to hold control of what should be dealt
with like any other service or commodity in the marketplace...phony “consumer
groups” will take up where DOJ lawyers and judges have left off in brain washing
5. Ultimately, some
sort of telco re-aggregation will have to occur! Service which relies on
standards and consistency, and can prosper only with a correspondingly sized
headcount, will have to find ways to regain the economies of scale once enjoyed
The foregoing is not a sour grapes litany of
despair...only the conclusions of a long-experienced Bell upper middle manager
(with a lot of hands-on engineering and operations insight) - and, one, who has
had occasion to observe the best and worst of the Bell System from both inside
and from off-shore perspectives. For the good of Bell share- owners and
surviving employees, I can only hope my views turn out to be categorically and
Donald E. Lively - Div.
Organization - BSPPD
8 August 1983
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