Chapter 8 - Retrospective Strategy

The storied American Telephone & Telegraph Company (AT&T) was arguably the competitor with the best opening cards, the most hesitant gambles, and the worst relative losses. In 1979, the year before the antitrust judgment that broke up Ma Bell’s extended family, AT&T was still a giant. Its telecommunications revenues (excluding Western Electric) totaled $45.4 billion, making it 50 percent larger than fellow monolith IBM. Its profits of $5.7 billion were equal to the raw revenues of the sixty-seventh largest company in the Forbes annual review. Its more than one million employees outnumbered those of IBM, DEC, and HP combined—enough to represent one percent of the entire U.S. labor force.

Structurally, the key elements of the so-called Bell System were Bell Labs for research and engineering, Western Electric for manufacturing, Long Lines for the network infrastructure, and twenty-three Bell operating companies (BOCs), which provided local services such as last-mile connection, installation and repair, and the yellow-pages phone book. AT&T executives liked to remind the regulators that the local market was also shared with 1,600 independents, but only General Telephone, United Telephone, and Continental had any significant scale. As one measure of dominance, the 138 million telephones in Ma Bell’s system represented 79 percent of the U.S. handset market.

AT&T had plenty of punch in computing as well. The world- renowned Bell Labs had perfected the vacuum tube, invented the transistor, and operated a capable semiconductor facility that produced

AT&T’s own 3B microprocessor. Its engineers had also developed Unix software in the late 1960s, salvaging it from the wreckage of the Honeywell Multix project and using Digital Equipment’s early minicomputers as the platform. In 1973 (coincidentally, the year Imsai brought out the first PC), the new operating system was rewritten in the higher-level C programming language, making it portable across different hardware in a matter of months, not years. Unfortunately, the successes of those early years were wasted, because corporate AT&T was futilely preoccupied with preserving a monopoly in voice telephony. When what was left of Ma Bell was swallowed up by one of its former operating companies in 2005, the one-time giant’s sorry end aptly demonstrated the enormous difficulty of turning a successful monopoly into a lively competitor.

The First Hundred Years

AT&T was blessed from its earliest days, recounts John Brooks in his book Telephone: The First Hundred Years.1 On February 14, 1876, hearing specialist Alexander Graham Bell rushed to the patent office with his new invention just hours before Elisha Grey, the cofounder of Western Electric, sought to file his patent, and three weeks before Bell could actually demonstrate that his contraption worked by uttering, “Mr. Watson, come here—I want to see you.”

The following year, Bell, Watson, and two financial angels, Thomas Sanders and Gardner Hubbard—both fathers of deaf children who had studied with Bell—formed National Bell Telephone, an unincorporated association. One of those children, Mabel Hubbard, married her teacher just two days after the association was formalized. The new company distributed 5,000 shares to the company’s first seven shareholders. Hubbard received 1,387 and his daughter, the new Mrs. Bell, got 1,497, while her husband received only 10.

Within two years, a group of Boston financiers had forced out Hubbard, followed by Bell and Watson. By 1880, with just 47,000 phones in the United States, all the AT&T founders had left the company for comfortable lives, but with nothing like the dynastic fortunes amassed by the families of other technology pioneers.