Where Did AT&T Go Wrong?

Hindsight is 20-20. However,
AT&T has made a series of miscalculations since its divestiture that have landed it in its present precarious circumstances. Further cost-cutting and workforce reductions were announced in October following the company’s high-profile exit from the residential telecommunications market this summer.

To an outsider it appears the company’s fundamental mistake was banking on regulation.

It seems that executives counted on the FCC to enforce the Telecom Act of 1996 - giving competitors cost-based access to ILEC facilities and not allowing ILECs into the long-distance market until their local markets were opened and competitive. Relying on this, AT&T appears to have turned its back on owning its own last-mile facilities by selling off its cable holdings and its wireless business.

While misguided, it’s easy to see how this was allowed to happen - particularly to this company. AT&T was classified as a dominant carrier until late 1995. During the previous 10 years it was made to open its network to competitors - a move it fought bitterly and that it lost. The company watched as hundreds of competitors entered the long-distance market, making money by reselling its facilities. Surely, it was reasonable for company executives to believe history would be repeated in the local markets. This time, AT&T would be on the other side of the equation.

I always felt it somehow awkward to listen to AT&T executives’ statements about the Bells and their treatment of competitors. Their assaults could have been lifted nearly word for word from those leveled in their direction for similar protectionist stances years earlier.

Maybe AT&T executives were hypocritical - changing position as it suited the business’ interests - or maybe they thought the system that had stood up to their company’s monopoly would stand up to the Bells’.

Of course, we now know this has not come to pass. Local markets are not competitive but the Bells are allowed to offer long-distance service in nearly every state.

Blaming AT&T for not foreseeing this future is equally uncomfortable for me. It sounds as if I am agreeing with the Bells, which have spent the past eight years arguing that basing a business on a regulatory construct (UNE-P) does not make sense. It turns out they were right, but for a different reason than they give, which is that it was a flawed model. Had the law, which still is in place, been enforced, the competitive environment would look much different for AT&T. Its gambles would not seem so risky.

In fact, things could have been dramatically different, and AT&T would have appeared prescient in lightening the load of a legacy infrastructure and relying on a sourcing strategy to keep the AT&T brand on the cutting-edge of technology.

This alternate reality of a competitive environment - layered with network providers, application providers, content providers and brand marketers - was predicted to develop by a number of analysts following the passage of the Telecom Act.

That it did not unfold and companies remain vertically integrated, ironically, could be attributed to artificial regulatory constructs preserving incumbent control.

Group Editor

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