The Breakup of Ma Bell: As the FCC Looks to Regulate the Internet-Because, We're Told, Deregulation Doesn't Work-It Pays to Review Past Government Involvement in the Communications Industry

By Adelmann, Bob | The New American, May 24, 2010 | Go to article overview

The Breakup of Ma Bell: As the FCC Looks to Regulate the Internet-Because, We're Told, Deregulation Doesn't Work-It Pays to Review Past Government Involvement in the Communications Industry


Adelmann, Bob, The New American


Ten years into the 20th century, the United States citizenry were still enjoying the afterglow of a remarkable generation of economic growth, innovation, and expansion. Popular interests consisted of going to the movies, doing the Tango, and reading the Saturday Evening Post. A hands-off President, William Howard Taft, was in the White House, and people were enjoying clever inventions such as traffic lights, the refrigerator, and the telephone.

Alexander Graham Bell patented the telephone on March 7, 1876, but initially it was considered no more than a passing novelty. In fact, Western Union passed up the opportunity to purchase the Bell patents for $100,000. But when those patents held by American Telephone and Telegraph Company expired in 1894, competition entered the market and the availability of telephone service and the number of telephones exploded. The telephone moved from novelty to necessity. According to Adam Thierer of the Cato Institute, there were, at the time, more than 3,000 telephone companies vying for customers. Author G. W. Brock, in his book The Telecommunications Industry, pointed out the difference competition made:

[ILLUSTRATION OMITTED]

  After seventeen years of monopoly [thanks to the patents held
  by AT&T from 1877 - 1894], the United States had a limited
  telephone system of 270,000 phones [mostly concentrated] in the
  centers of the cities, with service generally unavailable
  in the outlying areas. After thirteen years of competition [1907],
  the United States had an extensive system of six million
  telephones, almost evenly divided between Bell and
  [its competitors], with service available practically anywhere
  in the country. [Emphasis added.]

Writing in The New Telecommunications Industry, authors Leonard Hyman, Richard Toole, and Rosemary Avellis concluded that "competition helped to expand the market, bring down costs, and lower prices to consumers." Because of the negative impact upon AT&T by its competitors, the president of AT&T, Theodore Newton Vail, changed the focus of the company from competition to consolidation. As noted by Thierer, "Vail's most important goals upon taking over AT&T were the elimination of competitors, the befriending of policymakers and regulators, and the expansion of telephone service to the general public." Vail's belief in the superiority of a single monopolistic system was reflected in the company's new corporate slogan, "One Policy, One System, Universal Service." In the company's 1910 annual report, Vail wrote:

  It is believed that the telephone system should be universal,
  interdependent and intercommunicating, affording opportunity for
  any subscriber of any exchange to communicate with any other
  subscriber of any other exchange. ... It is believed that some
  sort of a connection with the telephone system should be within
  reach of all. ...
  It is not believed that this can be accomplished by
  separately controlled or distinct systems nor that there
  can be competition in the accepted sense of
  competition. ... Emphasis added.]
  It is believed that all this can be accomplished to the
  reasonable satisfaction of the public with its acquiescence, under
  .such control and regulation as will afford the public much
  better service at less cost than any competition or
  government-owned monopoly could permanently
  afford. ... [Emphasis added.]
  Effective, aggressive competition and regulation and
  control are inconsistent with each other, and cannot be had
  at the same time.

Author R.H.K. Vietor, writing in Contrived Competition, said, "Vail chose at this time to put AT&T squarely behind government regulation, as the quid pro quo for avoiding competition. This was the only politically acceptable way for AT&T to monopolize telephony." In fact, without government regulations eliminating the competition, the reinstitution of the AT&T monopoly would have been impossible. …

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