The NYT reported on 11/24/11 "The companies said they had withdrawn their application to the F.C.C. to join their cellular phone operations but still plan to contest a federal antitrust lawsuit and pursue their $39 billion deal"
To me it seems if the whole point of the Bell System Divesture was that public interest required smaller competing companies, then this merger should not be allowed. Aren't both wireless companies big enough on their own to compete successfully?
I'm not sure your characterization of the point of the breakup is completely correct. My understanding is that the issue was not size, but that fact that AT&T owned not only long distance and equipment manuracturing. but local service. Creative accounting could cause the regulated local services to subsidize the other parts of the business, particularly long distance, at the expense of local rate-payers, so fair competition for long distance services would not be possible as long as it remained one company.
My take, based on news reports and general "reading-between-the-lines" experience: "big enough" has nothing to do with it; rather, 1) Deutsche Telekom (DE) just wants out of the US [T-Mobile (USA)] market; and 2) at&t would rather exploit others' towers, spectrum, and backhaul than pay to erect/develop their own.
Other forces may be at play too, of course. Cheers, -- tlvp
It's the former, not the latter. The US has two big mobile carriers, AT&T and Verizon, and two small ones, Sprint and T-Mo. The big ones control all of the older 800MHz spectrum and some 1900 MHz, the small ones are all 1900 MHz. (As new spectrum is auctioned, the big two seem to be buying it and doing nothing with it.) Since 800MHz goes through trees and such much better than 1900, it provides much better coverage, if not as high top speeds.
The obvious approach of T-Mo and Sprint merging to get bigger scale doesn't work, because Sprint is CDMA and T-Mo is GSM, and the costs of converting one network to the other band would be enormous. Sprint hasn't even finished figuring out what it's going to do with Nextel's network. DT, which is a strong player in other markets, doesn't want to own a weak player here, so they want to get rid of it.
Technically it makes some sense to merge T-Mo and AT&T, since they're both GSM, but the main reason AT&T is interested is to knock out a competitor which has historically offered lower prices. I can't find the reference now, but AT&T let slip at one point that they could build out the equivalent facilities they'd get from T-Mo for about 1/10 of what they're offering to spend for T-Mo.
So the merger seems to be dead, since it would be egregiously anti-competitive, and DT will have to decide whether to invest in T-Mo, spin it off, or just let it stumble along as is.
It was the other way around. Long distance subsidized local service. It was set up that way deliberately, partly because the FCC wanted universal service. Pre-divestiture, some long distance calls within California were over $3/min, while measured service (non-Lifeline) could be had for under $4/month.
As soon as MCI won the right to compete, that subsidy became untenable -- it just made Ma Bell's own long distance rates uncompetitive. This is why we now have much higher monthly service rates, but much cheaper long distance rates.
I thought the principle behind the AT&T divestiture was that a company which derives income from a monopoly (explicit or de facto) in one market should not be permitted to compete in another market. So, AT&T could not leverage their 'our way (or price) or the highway' position with local services to gain an advantage when competing in the computer (or long distance) markets. As to why the local business had to be broken into regional companies and not just one local service company, that's not so obvious to me.
I thought exactly the same thing when Bell Canada Mobility and Telus announced a couple of years ago that they would be installing a GSM network alongside their CDMA networks. As I understood it, when Rogers acquired Microcell Communications (original owner of the Fido brand), Canada's only two GSM-based carriers became one, and that one company was the only one that could provide roaming service for GSM customers from around the globe. Now, I understand that roaming rates may be profitable compared to local service, but I had a hard time believing that it would make economic sense to build out a GSM network alongside the CDMA network that the telcos had spent so many years building, even more so if you expected that they'd have to do it all over again in a couple of years with LTE.
It just goes to show you what I know about telecom and economics: Bell and Telus now sell GSM phones, though they continue to operate their CDMA networks for those of us who haven't traded in our phones yet.
Speaking of which, Telus (by way of acquiring Clearnet Communications) operates the iDEN network in Canada under the brand name "Mike." Apparently it's still available, though it's been years since I've heard or seen it advertised.
Is there a significant amount of support that there was a cross subsidy between fees paid by local rate payers benefiting long distance rate payers?
I thought the fairness issue, still not resolved today, was what contribution long distance should make to the cost of the calling party and the called party's switches and if local calling rates on either end should be charged in addition to the long distance charge.
The cost of operating Long Lines themselves probably weren't charged to any local ratepayers.
As I recall, MCI wasn't exactly competing, because they weren't paying terminal fees. We used to bypass the local telephone network entirely when accessing their network, and I don't think they were contributing to the local end on an originating call.
We're both right. Long distance DID subsidize local service. But if AT&T were to be allowed to compete in the new environment, it would mean that the cross-subsidy would need to be stopped, therefore local rates would rise. But if you were an AT&T competitor, you would always be suspicious that the rates that AT&T would ask the PUCs for would be higher than necessary, and that the excess would subsidize the other way. That is, local service would subsidize AT&T's long distance and therefore AT&T would compete unfairly in the long-distance market.
It wasn't just the FCC that wanted local service as cheap as possible, it w= as also the state commissions, which didn't want rates for local service an= y higher than they could possibly be, Neither did the telcos, who were als= o interested in universal service.
And the charge for the Universal Service Fund, to subsidize high cost areas= (mostly smaller towns, which were formerly subsidized by the higher intras= tate long distance rates).
$3/minute for an instate call? Sounds awfully high. Admittedly, California is a big state, but back then (1970s) AT&T charged $2.00 for 3 minutes for a coast-to-coast call, and less for shorter distances (down to 5c a minute).
But yes, universal service--where almost everyone could afford a telephone--was a major goal of regulators (and the phone company, too). Bare bones phone service (party line, measured service, plus one telephone set and all maintenance) was available for as low as $3 a month in some places, and there was no qualification. Indeed, single-line flat rate service for residences wasn't too much more. But service and equipment above the bare bones cost more--a $1/month for each extension, most business services and equipment, and another $1/month for Trimline or Princess phoens. This rate structure was all be design to provide universal service.
Ironically, we still cross-subsidize it today, only now it's a line item on our local service, and individuals must qualify to get low- income "lifeline" phone service.
Regarding the issue of "questionable accounting", going way back many people felt Western Electric should've been an independent separate company and that they charged too much for equipment--costs which were passed to subscribers. Repeated audits showed those claims were not true, but suspicions still lingered. Over the decades govt anti-trust officials sought for AT&T to sell off Western Electric, which AT&T did not want to do.
Returning to the original question, at Divesture, the "Baby Bells' were split up into multiple companies (Bell Atlantic, NYNEX, Bell South, etc.) Later, many were allowed to merge back together, such as Bell Atlantic and NYNEX merging and then acquiring GTE.
I understand separating out local service from long distance, thus the creation of the Baby Bells. But why didn't they merely make a "Local service" company instead of several of them? Why did they later allow them to merge back together?
AT&T wouldn't have needed to do any such thing. Around the time of the breakup, my employer's AT&T rep told me why: "All the new long distance companies are still paying off their switches. Ours have been in place for 40+ years and the mortgages are paid for. So if we were allowed to set our own rates, we'd cut them by half for six months and every one of our competitors would be bankrupt."
30 years later, this may no longer be true. But I suspect that the same situation -- this time working against AT&T -- may be why its Uverse TV service costs twice as much as older cable TV services in places that have them.
Demonstrating merely that you don't know what you don't know.
Illinois had in-state rates that approached that in some cases.
And the cost for an *instate* one-minute long-distance 'station-to-station' could easily exceed that figure.
"Irrelevant and Immaterial"
It was something like FIVE times as expensive to place a call from Chicago to Rock Island, Illinois as it was to call Davenport, Iowa, across the river from Rock Island.
It _was_ cheaper to call Los Angeles from Chicago, than it was to call Springfield. Or even Urbana. *MUCH* cheaper. (Latter part of the 1970s, Chicago to L.A. was 10c/minute after the first 3 minutes; Calling from one edge of the Chicago LATA to the far edge could be over 30c/min. I don't have figures handy for any INTER-lata/IN-state calls.)
That's why I put a question mark at the end of the statement.
I presume you are talking about dialed direct station-to-station rates.
In those days rates were usually in steps broken down by mileage. Could you provide a rate step schedule for a year that reflects those high figures for California and Illinois? At $3/minute, a three minute call would cost $9.00.
FWIW, Pennsylvania's rates mirroed AT&T rates. New Jersey was less.
Back in 1976 or so, I was living in a student frat-type building in NYC. I had a girlfriend in Newark, NJ. A friend had one up in Buffalo.
We checked out the various costs. It turned out that getting a Foreign Exchange line from our building to Newark, NJ, would have let my GF and I talk using an untimed local call, and let him and his... make a long distance _interstate_ call.
The call pricing was so much better that we were seriously considering getting that FX circuit.
Afraid I no longer remember the cost structure, but if we'd have stayed there longer, and if our relationships had continued, we might have gone for it. Well, at least until Execunet came out...
I remember the year I spent in Chicago, academic year 1964-5, seeing adverts for reduced-price calls within Illinois: services would route calls through switches they controlled in CA or GA or NY, charge the r/t tariff plus a service fee, and come in well under the in-state tariff for such in-state calls.
Your 'disbelief' was obvious in your next words "Sounds awfully high."
For once, you presume correctly. The bleep-bleep '3 minute initial rate' that was charged the instant somebody answered the call, could make a one-minute duration call -very- expensive.
'No #$*&, Sherlock" applies.
FIRST, It was a call 'across the county', not to the far end of the state (which, being more than 10 times the distance 'as the crow flies', was _much_ more expensive). The numbers I cited were for two calls I made with some regularity, "back when", and for which I remember the costs.
SECOND, those rates I quoted were _after_ AT&T LD rates had plummeted, and were strictly for showing that in-state rates were rapaciously higher than inter-state ones.
What you think you know about INTER-state rates is irrelevant to INTRA-state rates, as demonstrated by an intra-state, intra-LATA rate more than 3x higher than an inter-state rate, for roughly 0.2% of the distance. Call it FIVE HUNDRED times higher 'per mile'.