Only a few years ago, it would have been
considered the deal of the century. In 1997, then-FCC chairman Reed
Hundt called it "unthinkable." Yet, when SBC's
purchase of AT&T was announced January 31, it wasn't even the
deal of the week. The total sale price-$16 billion-was a third of
what Proctor & Gamble paid for razor blade maker Gillette only
three days before. And Hundt himself called the AT&T purchase
"no big deal."
The deal says a lot about how far the
telecommunications industry has come since the days of monopoly.
For most of the 20th century, the Bell System, as AT&T was
known, controlled all long-distance telephone service in the
U.S. and the vast majority of local traffic. "Ma Bell" was
the telephone company, fittingly represented by its New York
stock exchange symbol: simply "T."
The change in telecommunications began
in the 1970s, when MCI and others were first allowed to compete in
long-distance markets. Then in 1984, AT&T, under the terms of a
consent decree with the Department of Justice, spun off its local
service operations to seven regional "Baby Bell"
companies-including what is now SBC. That makes SBC's deal a bit of
a "mother and child" reunion, as one newspaper headline put it. But
reunion or not, the telephone family will never again be what it
The fact is that AT&T is a shadow of its former self.
Rather than a returning matriarch, Ma Bell is more a frail, aging
parent who no longer can take care of herself. AT&T's deterioration has been steady
and remarkable: From over 365,000 employees in 1985, it has only
AT&T no longer dominates long-distance calling: She only has
only some 20 percent of that market. And the standalone
long-distance market is itself shrinking, as consumers increasingly
receive their long-distance services with other services, such as
wireless, as part of a bundle. Most of AT&T's operations in
more robust areas of the telecom world, notably wireless and
broadband Internet access, have already been sold off to
Nor is SBC likely to make itself into a
new Ma Bell. Like the other Bell children-Verizon, BellSouth, and
SBC-it faces increasing competitive challenges. The number of
subscriber lines the Bells serve is actually shrinking, as
Americans move over to wireless phone service and emerging Internet
telephone services. And cable TV firms have stolen a march on the
Bells in broadband connections, with some two-thirds of the
So what comes next? The SBC-AT&T
deal now faces a gauntlet of regulatory approvals: from the Federal
Communications Commission, the Department of Justice, and dozens of
state regulators. It is unlikely that any will reject the deal
outright. But the process could take a year or more, and regulators
could use the process to impose their own wish lists of regulations
on SBC-from subsidies to favored groups to increased investment in
specified areas. Other deals may also be coming in the next year:
MCI is already rumored to be looking for a merger
For the average American, however, the
SBC deal is unlikely to mean much. Consumers may be better off if
SBC can put AT&T's assets to better use than AT&T's current
management has (a low hurdle). But overall, the trends in
telecommunications are likely to stay the same. Today's telecom
industry is increasingly competitive and diverse, to the benefit of
consumers. Far from threatening those trends, SBC's acquisition of AT&T underscores them.
however, does provide an important lesson for policymakers. Despite
much populist rhetoric about the power of big corporations,
AT&T's massive size gave it no protection from the marketplace.
In the end, AT&T was worth less than a razor blade company.
Competitive markets should work that way, and do.
Gattuso is Research Fellow in Regulatory Policy in the Thomas A.
Roe Institute for Economic Policy Studies at the Heritage