A Blog by Jonathan Low


Mar 19, 2019

What Dissolving ATT 37 Years Ago Can Teach Us About Threats To Break Up Big Tech

Be careful what you wish for. JL

Robert Klara reports in Ad Week:

AT&T’s breakup did spur some free-market competition. But by the early 2000s, most of the Baby Bells found their way back together and became part of—can you guess?—AT&T. Experts now believe the undertaking was a waste of time. AT&T has reconstituted itself as a communications, media and technology company. Technology changes technology, and the pace of change itself might do a better job of busting up a monopoly than the government can. “Big tech’s dominance these days shouldn’t be taken for granted. Nor should its permanence.”
Sen. Elizabeth Warren made headlines last week on the heels of her March 8 call for the breakup of Google, Facebook and Amazon. In a Medium post, the presidential candidate went so far as to call the companies monopolies. It’s only the latest cry of foul against big tech, and it’s helped fuel much recent speculation that the tech giants could be heading for dismemberment.
Technology mavens wringing their hands over this calls to mind the last time the country was at a crossroads this fraught—37 years ago, when the government actually did bust up a monopoly: AT&T.
Adweek, which is celebrating four decades of publication this year, was among the hand wringers back then. The problem, as we saw it, wasn’t so much the corporate fortunes of AT&T, but what would happen to all those lucrative ad agency contracts once “Ma Bell” (as the company was nicknamed) got broken up.
The upshot? While not happy about the uncertainty, we concluded there wasn’t much cause for worry, quoting an A&T statement issued a week before our Jan. 18, 1982 cover story: “A restructured Bell System may ‘open a whole new world of communications.'” In other words, a Ma Bell breakup might shake things up a little but would ultimately yield more companies and, hence, more opportunities for ad agencies.
Does this prediction portend anything when it comes to the possible breakup of big tech? Perhaps. But first, a little background on the 1982 breakup is in order.
AT&T’s roots reach all the way back to when Alexander Graham Bell invented the telephone in 1876 and the subsequent organization of American Telephone and Telegraph (AT&T). For most of the 20th century, if you owned a phone and wanted to make a call, you were an AT&T customer—whether you liked it or not.
And that was the problem. By 1974, the Department of Justice decided AT&T, which had grown into a telecom monster with $70 billion in annual revenues, was a monopoly. Accordingly, the government dragged Ma Bell into court under the Sherman Antitrust Act.
It took until 1982 for a consent decree to finally settle the matter, and the government fed Ma Bell into the chopper. Under the terms of the agreement, the company gave up its regional service companies (these became known as the “Baby Bells”) while AT&T remained a provider of long-distance service. The divestiture was complete by Jan. 1, 1984, leaving AT&T and seven Baby Bells.
The breakup, much as Adweek expected, left one existing (and still very large) company in need of ad shops, plus seven new companies in need of ad shops.
Would a similar scenario play out if, say, big tech were broken up—if the giant Google monopoly became, in the words of tech investor Roger McNamee, “eight or 10 different monopolies”? Well sure, in theory. But that point misses a much more important one.
Breaking up a terrestrial telephone carrier in the mid 20th century is a very different thing than breaking up an internet colossus like Google or Amazon, which operate across the spectrum of retail, data analytics, social media, and so on. As National Review editor Rich Lowry argued recently, there’s not much evidence that a bunch of “platform utilities,” as Warren has called them, could function once broken off from their mother ships.
But setting aside the mechanics of how big tech could be broken up—and what would happen to advertising companies if it were—there are a couple of broadly applicable lessons from the Ma Bell breakup worth thinking about.
First, despite the Herculean effort it took to disperse Ma Bell, some experts now believe the undertaking was, ultimately, a waste of time.
Sure, AT&T’s breakup did spur some of the free-market competition the government had hoped to engender. In 2000, for example, GTE got together with Bell Atlantic, one of the Baby Bells, and had a child named Verizon. But by the early 2000s, most of the other Baby Bells (among them Pacific Telesis, Ameritech and Southwestern Bell) eventually found their way back together and became part of—can you guess?—AT&T.
In fact, AT&T has fully reconstituted itself, this time as a major communications, media and technology company. In 1982, its revenues stood at $65.8 billion. Adjusted for inflation, that’s $172.8 billion in today’s dollars, quite comparable to the $170.8 billion in revenue AT&T reported in 2018.
But perhaps more importantly, while many publications (including this one) fussed with predictions 37 years ago about what a post-AT&T America would look like with multiple landline carriers, nobody could see a future in which the coming of wireless technology changed the game and, in time, made landlines into a relic.
In other words, technology changes technology, and the pace of change itself might do a far better job of busting up a monopoly than the government can. Many are the corporate behemoths of yore—IBM, Kodak, Sears—felled by the coming of technology nobody saw coming, and there’s little reason to think the likes of Google or Facebook are any different. As columnist Dan Gallagher recently put it, “Big tech’s dominance these days certainly shouldn’t be taken for granted. Nor should its permanence.”


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