AT&T

AMERICAN Telephone and Telegraph (AT&T) traces its roots back to founder Alexander Graham Bell's invention of the telephone in 1875. As a subsidiary of American Bell, AT&T began to manage long-distance services in 1884. Within four years, AT&T had become the parent company in a two-for-one swap.

Financial wizard J. P. Morgan took over the company in 1907. Morgan decided that AT&T would grow through acquisition, and AT&T developed a reputation as a “ruthless, grinding, oppressive monopoly.” AT&T resisted efforts to curtail its progress for the next 70 years.

By 1888, both the Democratic and Republican party platforms called for antitrust legislation, and the U.S. Congress complied with the Sherman Antitrust Act in 1890. Beginning with the presidency of Theodore Roosevelt, the U.S. government was determined to bring an end to the anticompetitive actions of large trusts. The federal government began to keep a watchful eye on AT&T after a 1909 merger with Western Union. The following year, the Interstate Commerce Commission (ICC) was given regulatory responsibility for telephone services. In 1911, Standard Oil and the American Tobacco Company were broken into smaller divisions. Even though AT&T had given up its controlling interest in Western Union, in 1913 the government filed an antitrust suit against AT&T.

The conclusion of the investigation was that AT&T was a “natural monopoly” that had formed in response to increased demands for communication services, and to the lack of competing companies that could meet those demands as efficiently as AT&T. As a “natural monopoly,” AT&T ruled the communications market for decades. However, as new technologies were developed, rivals appeared on the scene and began to challenge AT&T.

In 1934, as part of Franklin D. Roosevelt's New Deal, the Federal Communications Commission (FCC) was created and assumed regulatory responsibility for the communications industry, and AT&T became the target of its first investigation. In 1949, the government again sued AT&T for antitrust violations with the intention of forcing Western Electric and Bell Laboratories to break away from the rest of the system. The suit dragged on until 1956 when AT&T agreed to a consent decree that allowed the company to retain control of Western Electric and Bell Laboratories and promised to stop expanding into other fields of communication. However, AT&T argued that the government's actions were unfair because AT&T was prevented from expanding its services while rivals continued to make significant advances.

The federal government continued its interest into AT&T activities; in 1976, the FCC handed down what became known as Computer Inquiry II, officially ending AT&T's designation as a “natural monopoly” and nullifying the 1956 consent decree. The final element of Computer Inquiry II was handed down in 1980, making a distinction between “basic services,” which were subject to federal regulation under the Communications Act of 1934, and “enhanced services,” which were open to all competitors. Enhanced services included videotext, protocol conversion, information storage, packet switching, and data transmission.

While preventing AT&T from expanding into other fields, the FCC supported the expansion efforts of other companies, even when it meant using AT&T's technology and equipment. For example, in 1968, the FCC forced AT&T to allow Carter Electronics Corporation of Texas to plug the Carterfone into the AT&T telephone system. The [Page 63]following year, Microwave Communications, Inc. (MCI) was allowed to develop its point-to-point microwave line and to sell private-line services to both individuals and businesses, and the government required local companies to provide links for MCI's long-distance service. MCI then began to lobby the federal government to end AT&T's monopoly. In 1974, as AT&T was attempting to comply with Computer Inquiry II, the Department of Justice filed a new antitrust suit, charging the company with monopoly and conspiracy to monopolize telecommunication services and products.

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