11/20/2017

April 27, 2000: Ma Bell and Bill Gates Share a Valuable Lesson

Have you lost any sleep over the recent developments between the US Government and Microsoft Corporation?  Chances are you slept a little less soundly because of the stock market gyrations of the past couple of weeks than over the catfight between the Justice Department and Bill Gates.

I suggest you pay attention to what happens because it will have a significant impact on your quality of life. I speak from experience.  Less than 20 years ago, I was a part of the Bell System.  We provided the best telephone service in the world and the most economical.  We were the largest private employer in the country.  We were the most community-minded citizen wherever we served (and we served most cities and hamlets in the US).  We were politically active.  Our people voted and the politicians knew it.

And we were broken up by the Justice Department.

Actually, they never got the chance because we ended up doing it to ourselves to avoid a protracted court case.  It was called divestiture and it changed forever the way we get our telephone services.  In my mind, the Microsoft case is just the next iteration of what happened to AT&T.  The technology has changed but not the principle.

The issue is about how you and I will communicate.

The Bell System lost out because of technology.  Years earlier, the government had made affordable telephone service a national policy, unlike almost anywhere else in the world.  To put telephone service in reach of the American public meant subsidizing the cost of local service, which is expensive to provide.  This we did by charging more for long distance than it cost, recovering the costs for our equipment over a long number of years and by charging business customers more for their service than we charged residential customers.  It worked and we used to brag that more people had telephones than bathtubs.

But having to keep equipment in place longer than necessary in order to recover our costs meant the Bell System was slow to introduce new and cheaper technologies to the marketplace because we hadn’t yet earned back on what we had in place. That was the beginning of the end.  The biggest corporation in the country and the most powerful government on earth cannot hold back technology.   While we were providing the best telephone system in the world, others were ready to provide something even better.

The result was the breakup of the Bell System in 1984, even though the American public was confused why the government would take one of the few things that worked well and break it.  I said at the time it happened that my mother, who was in her late 70’s then, would never see the technological benefits of divestiture but my grandchildren, who were yet to be, would.  I was right on both counts.

Back to Microsoft.  When you get beyond the legalities and the posturing, the issue is very similar to 1984 — market power.  Has Microsoft’s success in bringing us into the age of computers impeded the flow of new technologies because of their size?  And the questions are much the same as I heard during the divestiture fight.  First, who is going to be allowed to come into your home?  Will it be the telephone company?  The cable company?  An internet provider?  Second, how will they get there?  Through a copper telephone line?  A fiber optic cable?  Satellite?  Third, how will you receive it?  Over your telephone (wired or portable)?  Your television set?  Your computer?  Something you carry around with in your hand?  A combination of all of the above?  Fourth, and most important, what will the information be?  To that, the answer is, whatever you want.

All of the above is yet to be resolved.  That is what this fight is about.  And while it may be of scant interest to you, it is about you.  It is about how you will get information in the future. Granted, there are a lot of special interest hogs at the trough but in the end, you will be the winner.

It is tempting to rail at the government as we did in the early 80’s for meddling in the free enterprise system but I’ve got to give them a pass on this one.  What you are seeing is the marketplace at work and it is being driven by technology.

It is a lesson that Ma Bell and Bill Gates have had to learn the hard way.