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February, 2005: One Bell System - Can It Work Again?

Twenty-seven years ago I was privileged to join AT&T, a unique enterprise. More of an institution than a company, it was the world's largest corporation and most widely held security. The Bell System was a magnificent accomplishment by millions of people during the twentieth century, providing a proud American nation with the finest telephone service in the world, bar none.

Since then, as everyone knows, the scene has changed radically. The latest straw is the proposed acquisition of AT&T by SBC, the former Southwestern Bell company divested in the 1984 break-up of Ma Bell.

SBC has already managed to re-capture the former Bell companies in California, Illinois, Connecticut and other major territories across the country. Now SBC has nearly reassembled the franchise with the still-awesome AT&T core network.

The immediate reaction has been worse than anything I could have imagined in 1978. USA Today opined: “…few people are likely to mourn its demise as an independent company. It was an overbearing monopoly before its breakup, and a largely inept competitor ever since.” The AP reported the SBC deal “…saves Ma Bell from a nosedive into irrelevance.” And the San Francisco Chronicle concluded “…it's hard to find a clear winner in the proposed acquisition of AT&T by SBC Communications.”

When I joined the Bell System in 1978, it was like discovering an entire world that you always sort of knew existed but never really understood, a forest-for-the-trees like illusion. But I quickly came to understand that the Bell System was like a family, for all the good and bad that characterization can carry.

Southwestern Bell people always seemed to be very influential family members from my perspective. Their representation in AT&T’s senior leadership seemed disproportionately large, compared with the size and importance of their territory, Oklahoma and Texas. But it was an influential company in the Bell System in the same way that Illinois Bell – now part of SBC – always was, too. Most of the top leaders in the modern age came through Illinois, and many, many of their top lieutenants started out at SWB.

Then came the divestiture, unleashing seven “Baby Bells” from ma’s not-so-close knit family to pursue their own individual state-regulated futures, guided by a federal court and the severely over-worked FCC.

From New Year’s Day 1984 to today, Southwestern Bell has been the “Marlboro Man” of the Bell offspring, proudly riding their own way and tending their business while taking every opportunity to extend the acreage of the ranch. Zane Barnes, and later, Ed Whitacre, personified this cowboy attitude in the strategy they pursued.

For a long time, SBC was among the most conservative players, and their financial results were among the best before it became impossible to compare any Baby Bell to any other due to M&A.

Along the way, there have been plenty of people who have questioned the wisdom of this approach, especially around the time that Bell Atlantic said they were going to buy cable TV giant TCI from John Malone and started the chatter about 500 channels.

Today, there is still many a naysayer to be heard on the scene. People are questioning whether or not SBC’s big Bell reunion will only create a huge amount of negative growth. Optimists see a growth-producing fit between AT&T’s IP network and the SBC strategy known as Project Pronto.

Very little has been said so far about SBC’s wireless unit, Cingular, co-owned with former sister company BellSouth. Cingular is currently digesting a huge chunk of former AT&T itself, the AT&T Wireless business that grew out of McCaw Cellular in the 1980s.

From an historic perspective, AT&T has dropped out of the wireless business as often as it has entered it, even though the whole cellular radio thing was made up at Bell Labs. As the surviving partner, SBC is in the wireless business with Cingular. But given all that’s gone before, is it safe to conclude they will stay put?

The completion of the SBC/AT&T deal will most likely take a year or more, providing plenty of opportunities to analyze further this fascinating chapter of a very old family history. What do you think?


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