| "The American Telephone and Telegraph Company is more powerful and skilled than any state government with which it has to deal." -Preliminary Report on Communication Companies, 73d Cong., H Rep No 1273 (1936) (Sam Rayburn) |
Sherman Act of 1890 enacted
US Telephone v Central Union, 171 F 130 (1909) (long distance carriers must interconnect, cannot discriminate against, local carriers)
Preamble: Patent Challenges
In 1879, Bell and Western Union settled out of court Western Union's challenge to AT&T's patent. AT&T and Western Union agree not to compete with each other. AT&T would depart from the telegraph market and Western Union would depart from the telephone market (note that at this time long distance communications was feasible only using a telegraph, not a telephone). Western Union agreed to recognize Bell's patent. AT&T agreed to pay 20% of its profits to Western Union for 17 years, and to buy 55 Western Union telephone exchanges.. [Sterling p 55] [Farley at 4] [Mueller p 33] [FCC 1939 p 124] [Catania]
1885: USG brings suit against Bell in the Southern District Court of Ohio, attempting to void his patents based on Antonio Meucci's prior caveats for the invention of the teletrofono. The suit is terminated in 1897 without resolution after Meucci died and the Bell patents expired. [Catania] According to author Basilio Catania, the motivation for the law suit was not so much from Meucci as from the USG which had grown weary of AT&T exercising its patent monopoly powers.
AntiTrust Suit I: Kingsbury Commitment 1913
US Attorney files antitrust suit in Portland, Oregon against AT&T in 1912 pursuant to the Sherman Act. Congressional discussion of nationalizing the long distance network brewed. Stockholders of squashed independant telcos began to file suit against AT&T. [Mueller]
1913 Kingsbury Commitment - Settlement of AT&T's first antitrust law suit. AT&T became the government sanctioned telephone monopoly "AT&T agreed to connect non-competing independent telephone companies to its network and divest its controlling interest in Western Union telegraph." [AT&T : History: The Bell System ]
[Cover of the Kingsbury Commitment]
AT&T had also acquired many of the independents, and bought control of Western Union, giving it a monopolistic position in both telephone and telegraph communication. A key strategy was to refuse to connect its long distance network -- technologically, by far the finest and most extensive in the land -- with local independent carriers. Without the prospect of long distance services, the market position of many independents became untenable. Vail stated that there should be "one policy, one system (AT&T's) and universal service, no collection of separate companies could give the public the service that [the] Bell... system could give."
AT&T's strategies prompted complaints and attracted the attention of the Justice Department. Faced with a government investigation for antitrust violations, AT&T entered into negotiations.
In the Kingsbury Commitment, actually a letter from AT&T VP Nathan Kingsbury of December 9, AT&T agreed with the Attorney General to divest itself of Western Union, to provide long-distance services to independent exchanges under certain conditions and to refrain from acquisitions if the Interstate Commerce Commission objected.
The Kingsbury Committment took the form of a letter from AT&T VP Nathan Kingsbury, who negotiated the terms of the agreement, dated Dec. 9, 1913. Provisions
- AT&T would divest itself of Western Union ($30 m of stock)
- AT&T would not acquire additional independant companies
- Exceptions were made by approval of DOJ and the ICC. Generally, if AT&T bought a new independant company, that had to sell off one they already had. By engaging in this shell game, AT&T could further its regional consolidation. The effect was that instead of having two cities with competitive service, after the swap one city would be an AT&T city and the other would be an independant city.
- It has been noted that this was not favored by financially struggling independents who wanted to sell out to AT&T instead of losing their entire investment.
- The provision was eliminated by federal law within seven years.
- AT&T would allow interconnect its long distance network (not its local networks) with independent local networks.
- The effect of this has been suggested to remove the incentive of independant telephone companies from attempting to establish rival long distance services.
- AT&T imposed an access charge.
- Independent subscribers could call Bell subscribers; but Bell subscribers could not call indie subscribers.
- Bell would not interconnect its local exchange with an independant local exchange in dual service markets
Sources: Sterling p. 80; [Mueller p 130] [Brands p 4] [Iardella 9]
Antitrust Suit II
1949: United States v. Western Electric, Co., filed in US District Court for NJ seeking the remedy of the separation of Western Electric (manufacturing) from AT&T (telephone service). The suit was brought under the Truman administration (democrat). DOJ's chief litigator Holmes Baldridge had been the FCC's principal investigator of AT&T in the 1930s. [Porticus Western Union]
As a result of the Korean War , the antitrust suit was delayed for several years. When it was restarted, the US was fully engaged in the Cold War and the Department of Defense considered the AT&T network vital. When it was restarted, it was prosecuted under the Eisenhower administration (republican).
1956 Consent Decree / Final Judgment [Iardella 107 (reprint of the Consent Decree)]
- AT&T was restricted to regulated telecommunications service (could not provide information service). (AT&T was not allowed into the computer business, and IBM would do its best to make sure this rule stood)
- This created an ironic turn in history.
- While AT&T was under the consent decree and could only offer regulated telecom services, it argued to the FCC that everything was a regulated title II service.
- When AT&T was relieved of the consent decree, it argued that everything was an unregulated information service.
- "In 1949, the Department of Justice wanted AT&T to divest itself of Western Electric.The court ignored the Department of Justice's request. Instead, as the result of the Consent Decree, AT&T got to keep WE; however, it could only stay in the field of telecommunications and it had to license its patents to others." - William von Alven, Bill's 200 Year Condensed History of Telecom, CCL 1998. Except over course that Western Electric could continue its service to the cold war efforts, selling equipment to the USG. [Iardella 40]
- The exception to the Consent Decree was military work. Western Electric was restricted to the production of regulated telephone equipment, except for production related to national defense. [Porticus Western Union]
- Western Electric had to divest itself of Northern Electric of Canada, which would become NORTEL. [Porticus Western Union]
- 1973: MCI begins to meet with DOJ to discuss AT&T
- 1974 AT&T disconnects MCI's Foreign Exchange customers [Brenner p 12]
- Mar 6, 1974 MCI files antitrust suit against AT&T. MCI v AT&T, 462 FSupp 1072 (ND Illinois) [Brenner p 12] At the time, AT&T is the largest corporation in the world. [Porticus Western Union]
- Nov 20, 1974 DOJ files antitrust suit against AT&T
- 1976: District Court Judge Waddy rules that AT&T status as an FCC regulated common carrier did not give it immunity from anti trust lawsuits. US v ATT, 427 F.Supp. 57, Sec II (DCDC 1976) ("The Court therefore concludes that the Communications Act does not expressly, or impliedly, repeal the antitrust laws. Neither the language, nor the legislative history of the Communications Act supports the conclusion that Congress intended by that Act to grant a total, blanket immunity to defendants from application of antitrust laws, and to place exclusive jurisdiction over all their conduct in the Federal Communications Commission.")
- 1978: Judge Waddy retires; Judge Harold Greene, on his first day on the Bench, draws the AT&T case.
- 1981 MCI wins antitrust suit
- 1981, March After pretrial attempts to settle failed, the US v ATT case went to trial.
- 1981, Sept 11: Judge Greene denies AT&T's motion to dismiss. 524 FSupp 1336 (1981)
- 1982, Jan 8 Antitrust suit settled with AT&T agreeing to divestiture of the BOCs. The theory was the separation of those parts of AT&T which constituted natural monopolies, the BOCs, and those parts of AT&T that were potentially competitive, the long distance service.
- AT&T would be broken into small companies, Bell Operating Companies. BOCs would be local operating companies that were not permitted to enter the long distance, information service or manufacturing markets. They would provide equal access to any long distance company . The BOCs got the use of the trademark and logo "Bell"
- The constraints of the 1956 consent decree would also be lifted, allowing AT&T to enter into the information services market. AT&T retained the long distance service and manufactoring. "Western Electric" was no longer a separate entity and become part of AT&T.
- 1982, Aug 24 The Modified Final Judgment
 was entered
- 1984, Jan 1 Divestiture took place. AT&T retained $34B in assests of the $149.5B in assets it had the day before. [AT&T: History: Post Divestiture] [AT&T History]
- United States v. W. Elec. Co., 673 F.Supp. 525 (D.D.C. 1987), aff’d in part, rev’d
in part, 900 F.2d 283 (D.C. Cir. 1990), cert denied MCI Comm. Corp. v. United States, 498
U.S. 911 (1990)
Caselaw
- United States v. AT&T, 552 F.Supp. 131 (DDC 1982)
- aff'd sub nom. Md. v. United States, 460 U.S. 1001 (1983)
- vacated sub nom. United States v. W. Elec. Co., No. 82-5192 (HHG), 1996 WL 255904 (DDC Apr. 11, 1996) (on account of the Telecommunications Act of 1996)
AT&T became AT&T and seven RBOCS:
The BOCs have engaged in merger and acquisition, and now there are only 2 remaining BOCs, and AT&T long distance was reacquired by SBC, eliminated the separation between local and long distance companies.
"Fred Henck, publisher of Telecommunications Reports and Bernie Strassburg, retired Chief of the Common Carrier Bureau, in their book covering the divestiture of AT&T estimated that legal fees and settlements cost AT&T more than $5 billion. (A Slippery Slope - The Long Road to the Breakup of AT&T)" - William von Alven, Bill's 200 Year Condensed History of Telecom, CCL 1998
Papers
- Richard T Shin & John S Ying, Unnatural Monopoloes in Local Telephone, 23 RAND J Econ 171 (1992).
- David Allen, New Telecommunications Services: Network Externalities and Critical Mass, 13 Telecomm. Policy 258 (1988)
- David S Evans & James J Heckman, A Test for Subadditivity of the Cost Function with an Application to the Bell System, 74 Am. Econ. Rev. 615 (1984)
- Baldev Raj & HD Vinod, Bell System Scale Economies from a Randomly Varying Parameter Model, J Econ Bus 247 (1982)
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