The AT&T Story

In my view, The Master Switch is required reading for those interested in Internet and information policy.  In fact, in my Telecoms and Internet Policy seminar this semester, I have required it, for I think that those who practice, work in, or just care about Internet policy must know the historical episodes that Tim Wu so wonderfully relates.  It is simply the “walking around knowledge” of our field in much the way that Vosburg v. Putney and Fletcher v. Rylands are in Torts.

I will have much to say about the conclusions of the book, but for the moment want to focus a little more deeply on one of the central stories Wu tells — the rise, consolidation, break up, and re-invigoration of AT&T.  (Disclosure:  I was, from 1993-1998, a private-practicing lawyer at a big firm, helping to represent, among other clients, the company then known as AT&T, first in matters under the Consent Decree and then in the first throes of the 1996 Act, together with a smattering of important regulatory controversies such as the death of long-distance tariffing.)

I have no brief with the basic story as Wu tells it:  of the Bell System’s ruthless elimination of some competitors, in several different periods; of the FCC’s sometimes ineffective regulation (especially of attachments); of divestiture’s ushering in more competitive long-distance, manufacturing, and consumer equipment markets; or even of the Baby Bells’ ability, after the 1996 Act, to reclaim much of the vertical and horizontal scope lost at the Break Up (see this great summary by Colbert of the re-building of AT&T, starting at 2:20).  I share Wu’s admiration for the public spirit of the Bell System, and its awesome engineering accomplishments.  Nearly universal telephone service came to the U.S. long before most of industrialized Europe.

What I think, however, may be lost in the retelling is the enormous difficulty of discerning the errors in the moments in which the regulatory policy is being made or decided.  Hush-a-Phone is a fun case, but it is not a morality play.  Regulation kept the price of basic telephone service low, through aggressive cross-subsidies, which gave Bell an incentive to keep others out of the adjacent, potentially competitive markets such as attachments.  But, prices of basic telephone service were in fact quite low.  Was this bad social policy?  Indeed, although the book’s stance is basically to condemn the regulation that perpetuated the Bell System for so long, it is not clear whether this is because local service was never (or no longer at some point) a natural monopoly, or because the regulators did not recognize the exclusion arising from the protection of cross-subsidy.  At what point should regulators have decided that long-distance was competitive, before they did?  Or is it even the point that long-distance became potentially competitive (at least for a time, at least until high-capacity fiber optics are deployed)?

Do not misunderstand:  I do not think the antitrust case against the Bell System was misguided (although it is an interesting exercise to consider whether it was based on good antitrust law, at least under today’s precedents – probably not).   But I am not sure what, exactly, in the story of AT&T convinces that regulators ought to have known what we know now, much earlier than we knew it — and convinces that we know the basis on which they ought to have known it.  Those broader questions I will return to in a future post.

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