Who’s Afraid of AT&T?

Who’s afraid of AT&T? Verizon? Nope. T-Mobile? Certainly not…Sprint? Read on…(courtesy of GSM Mobile Business Briefing)

AT&T is denoted on the New York stock exchange simply by the letter ‘T’ – for ‘Telephone.’ As with Internet domain names, you suspect the firm must have been around at the very beginning to snap up such a premium moniker. But we’re not talking “early” in Internet terms: we’re talking the 1880s, not the 1980s.

Founded in 1885 as the American Telephone & Telegraph Company, AT&T was the company behind the regional Bell telephone operators in the US and existed for the best part of a century as a virtual monopoly player in local and long-distance calls. Such was its ubiquity in everyday American life, it soon earned itself the affectionately matriarchal nickname, ‘Ma Bell.’

Seen as a benign “natural” monopoly power, it was a long time before people started seeing AT&T in the same light as, say, Microsoft today. Indeed, it wasn’t until the 1970s that regulators set about breaking the company up, culminating (in 1984) in the divesture of AT&T’s local businesses into seven independent Regional Bell Operating Companies (RBOCs) – aka the ‘Baby Bells.’ This left AT&T free to move into a number of new areas, such as computing, networking and – eventually – mobile, which it did to varying degrees of success. Meanwhile, further deregulation in the industry meant that the Baby Bells went through a wave of M&A activity, most of them today either gone or unrecognisable from their original incarnations (see here for a handy visual guide).

This shifting landscape meant that, by 2005, one of the former Baby Bells – Southwestern Bell (by this point renamed SBC Communications) was able to buy its former parent, inheriting the AT&T name – and that iconic ‘T’ ticker – in the process. SBC’s Cingular arm had earlier acquired AT&T Wireless, the mobile business that AT&T had sold-off in 2000, meaning that it too was now reunited with its former parent.

You’ll have guessed by now where I’m going with this history lesson. AT&T’s proposed US$39 billion acquisition of T-Mobile USA means that the firm once again finds itself accused of becoming a dangerously dominant power. The service offerings may have changed – it’s now about mobile broadband rather than landline phones – but the arguments for and against remain pretty much the same.

As expected, Sprint – the nationwide player most at risk if the deal goes through – is leading the campaign to get regulators to block it. What was most interesting about Sprint’s formal complaint this week, however, was how it deliberately referenced the campaign to break-up AT&T in the ‘70s and early ‘80s. If the AT&T/T-Mobile merger is allowed, an indignant Sprint said in a statement, “it would reverse nearly three decades of actions by the US government and the courts that modernised and opened US communications markets to competition.” Vonya McCann, Sprint’s SVP of Government Affairs, turned up the dramatic heat further still: “on behalf of our customers, our industry and our country, Sprint will fight this attempt by AT&T to undo the progress of the past 25 years and create a new Ma Bell duopoly.”

There are, of course, plenty of differences between now and then, not least the fact that a combined AT&T/T-Mobile would still have a formidable competitor in Verizon (Sprint’s dreaded ‘duopoly’). The barriers to entry for new market entrants are also lower today. Sure, building a mobile network from scratch is no easy task, but – as LightSquared is hoping to prove – it’s not impossible given the right circumstances and adequate funding. It’s certainly more viable than digging up the roads and laying cables to every single prospective customer, which was what was required back in the old days.

Nevertheless, when regulators sit down to evaluate the merger they will be careful not to reverse decades of pro-competition regulation that has led to greater choice and cheaper prices for end–consumers. But, as the Baby Bell experiment 30 years ago showed, things can pan out in unforeseen ways; and the danger is that by the time complex regulatory initiatives have been implemented, developments in operator business models and the ongoing evolution of new technologies will have moved the goalposts once again. Even in a mature market such as the US, mobile broadband is in its infancy and so the regulators’ decision could shape the direction of the country’s digital economy for a generation or more. No pressure then.

The only certainty is that, even within the context of AT&T’s 126-year history, the next 12 months will be interesting.

Matt Ablott

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