Ma Bell’s Breakup: 25 Years Later, Everything Old Is New Again

Despite a Surge in Innovation, Post-Divestiture Competition Is Not There

The Consolidation Factor

In spite of all of this, you could also say that competition, ironically, is the primary reason Ma Bell is back today. The post-Telecom Act CLEC era provided fodder for the RBOCs to justify consolidation, and then there’s the long-distance factor.

Back in 1984, AT&T divested its local business in return for the ability to get into the computing game. And, as we know, it became a long-distance player. When MCI and Sprint were created by entrepreneurs to challenge AT&T in the reach-out-and-touch-someone game, no one foresaw the fact that very little differentiation in long-distance POTS service meant an inevitable price war. It was a race to zero that forced all three to find an exit strategy. Sprint fled to business services and of course became Sprint-Nextel Corp., best known as a (struggling) wireless operator. But MCI and AT&T were ripe acquisition targets.

Regulators paved the way for RBOCs to offer data, VoIP and long-distance services out-of-region, but an already-built national long-distance network was an attractive proposition. When Southwestern Bell became SBC Communications Inc. it leaped at the chance to buy AT&T the long-distance company. Then it adopted the AT&T name for itself and bought BellSouth, and putting together its wireless network while it was at it.

Verizon followed a similar path: In 1997, Bell Atlantic acquired NYNEX, then merged with GTE in 2000 to form Verizon. After a bidding war with Qwest, Verizon bought MCI, meanwhile adding to its wireless assets.

And around the same time that AT&T and Verizon were being created, Qwest, a fiber-optic long-distance company, bought the RBOC US West, making for the same DNA as the others, without wireless: Qwest partners with Verizon (who else?) to provide wireless service to consumers.

New Competitive Hope

Ma Bell 25 years later? Alive and well. Competition? Not so much. The takeaway is that despite its stated goal of supporting competition, the FCC has created a communications landscape that is dominated by a handful of providers. But technological innovation, particularly in IP services and wireless, may provide avenues for more choices.

A handful of ideas:

1) Wireless. Despite the unrelenting domination of Verizon and AT&T in the market, consumers still can choose T-Mobile USA Inc. or Sprint to substitute their home lines with wireless service; both companies have rolled out programs to encourage consumers to do just that. T-Mobile’s Hotspot@Home offering uses Wi-Fi to supercharge in-home coverage and quality; Sprint does the same with its Airave femtocell service. The rise of mobile broadband is another pro-competitive phenomenon: Clearwire Corp. is poised to become a viable national competitor once its VoIP-ready WiMAX network is deployed. There’s also still life in the MVNO model.

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