AT&T: THE UNIFIED TELEPHONE REGIME

If ever there were an organizational field that approximated unity and stability, it would be the US telecommunications sector in the years following the Kingsbury Commitment. This 1913 agreement between the Bell System and the US government legitimated the company’s monopoly status while subjecting it at one and the same time to govern­ment regulation.

Even prior to the agreement the organization of the field was crafted to meet the needs of a rapidly expanding industrial society. Like many other industrial firms of the period, AT&T, the predominant telephone provider, sought to reduce complexity and uncer­tainty by vertically integrating all aspects of its business into one bureaucratic hierarchy (Chandler, 1977; Beniger, 1986; Lazonick, 1991). To do so, it had to subdue its rivals in the field, which it did relentlessly by denying interconnection to competitors unwilling to join the Bell System on its terms (Stone, 1991; Ryan, 2010, p. 67; Wu, 2011). AT&T’s successful dominance of the field had unintended consequences. As the value of the tel­ephone industry’s monopoly grew, so did the threat from competitors. Under challenge, Theodore Vail, the president of AT&T sought to head off the opposition by asking the US government to regulate the company. Acknowledging the benefits of monopoly, the government restructured the field, allowing AT&T to operate as a near monopoly, subject to government scrutiny (Galambos and Pratt, 1989; Stone, 1991; Wu, 2011). AT&T was required to provide services as a common carrier with the government assuring compli­ance.

Given its popularity, what accounted for the Bell System’s demise? It might be charac­terized as a phase transition, which is to say a gradual build up over time followed by a sudden and total restructuring of the field (Perez, 2010; Padgett and Powell, 2012). As its environment changed, AT&T was no longer fit to operate successfully (Kauffman, 1995). As described below, four interdependent factors accounted for this shift: technological developments, economic developments, changes in approaches to regulation, and the opening of the long-distance market to competition (Coll, 1986; Tunstall, 1986; Temin, 1988; Noam, 1988, 1995; Crandall, 1989; Geller, 1995).

Technological developments had a major impact, bringing about the convergence of the telecommunications and information technology fields. This convergence led to the unbundling of the network, allowing customers to purchase technologies and services as single units (OTA, 1990, pp. 50-51). In addition, as new technologies both increased in capabilities while costs declined, barriers to entry into telecommunications were greatly reduced. Hence, many newcomers made significant inroads into AT&T’s traditional markets. The entry of these competitors put pressure on the system of subsidized pricing that had been so elaborately constructed over the years (OTA, 1990).

Economic developments also greatly increased others’ incentives to enter the market. In particular, as information began to play a more strategic role in business, larger users began to seek more efficient ways of purchasing telecommunications services (Schiller, 1982; Noam, 1995).

Changes were also taking place in the way regulators and economists thought about regulation. As early as the 1940s, some began to challenge the public utility concept (Gray, 1940; Stigler and Friedland, 1962; Kahn, 1983; Coll, 1986). In the field of telephony, this attitude was reflected in the radical changes in the nature of the relationship between the Federal Communications Commission (FCC) and AT&T (Temin, 1988). Impressed by the innovative potential of new technology, the FCC issued a number of decisions

leading to the divestiture of the Bell System. In 1959 the FCC promulgated its ‘Above 890’ decision, liberalizing the licensing of private microwave systems and allowing the newly created Microwave Communications, Inc. (MCI) to offer private line service. With the subsequent Carterfone decision in 1969, the FCC opened the customer-premises market to entry. And finally, with the 1976 and 1978 decisions on ExecuNet requiring AT&T to provide connections to MCI, the FCC struck a final blow to the 100-year-old AT&T monopoly by opening the long-distance market to competition (Brock, 1981). Effective as of January 1984, after the approval of the Modification of Final Judgment (MFJ) by the United States District Court for the District of Columbia, settling the anti­trust law suit United States v. AT&T, the Bell System came to an end.

Organizational fields serve to coordinate actors’ efforts to accomplish a common goal. In the field of telephony, AT&T maintained the dominant role for 100 years, defining the narrative that legitimated its monopoly, incorporating all other players in its verti­cally integrated bureaucracy, and spawning a new regulatory framework that served to perpetuate its predominance. AT&T’s regulated monopoly was fitting for the times, and legitimate in the eyes of the public. Its elaborate structure of internal subsidies allowed it to cover its costs while meeting its goals of universal service. But AT&T’s fate was ulti­mately determined by new technologies that generated changes in its fitness landscape, leading to new competitors and more differentiated users, as well as new perspectives about the role of communications in society.

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