Did AT&T Die in Vain? An Empirical Comparison of AT&T and Bell Canada

I. INTRODUCTION II. MARKET STRUCTURE III. GROWTH IV. PRICES V. EMPLOYMENT VI. MARKET CAPITALIZATION VII. OWNERSHIP VIII. TELECOMMUNICATIONS EQUIPMENT IX. RESEARCH AND DEVELOPMENT X. CONCLUSION I. INTRODUCTION Did the divestiture of ATT (2) negatively--the economies of scale of a natural monopoly will be lost; or (3) neutrally--it makes no difference in the end because the underlying technological and economic forces are determinative. Who was right? By now, a quarter century has passed, full of impassioned regulatory and legislative battles. We have some numbers to show for this period. But how can we measure that reality against an alternate reality so we can evaluate them? Fortunately, such an alternate reality exists--it is called Canada. Canada had a telecommunications structure very similar to that of the United States. In fact, the major Canadian carriers, Bell Canada (by far the largest company) and BC Telecom, were long owned by AT&T and GTE, as were the major telecommunications equipment makers. Canada had regional carriers along the U.S. model, closely associated with equipment manufacturers, plus many small, rural, independent companies, as well as several province-owned companies. (6) Its regulatory system was similar, with both a national and a provincial level of regulation. The major structural difference was the absence of a divestiture of Bell Canada. II. MARKET STRUCTURE AT&T's dominant position before the breakup was astonishing. It accounted for a full 38% of the entire media and information sector. (7) The next-largest media and information sector firm, IBM, accounted for 8.3% domestically. The second-largest telecommunications firm, GTE, had 2.2%. (8) AT&T was the world's largest private company, with over 1 million employees in the United States alone. (9) However, barely twenty years later, the company ceased to exist after successively shedding major parts and was absorbed for a mere $16 billion by its own offspring, SBC (formerly Southwestern Bell Corporation). SBC promptly renamed itself AT&T Inc., as distinguished from the historic AT&T Corp. The gradual demise of AT&T, however, does not mean a decline of industry concentration in telecommunications. …

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