| BUSINESSWEEK ONLINE : NOVEMBER 22, 1999 ISSUE | ||||||||
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| COVER STORY -- THE MICROSOFT RULING
Commentary: The Lessons of the AT&T Breakup It's 1981, and the Justice Dept. has a technology powerhouse tied up in knots as it tries to prove antitrust violations. Charles L. ''Charlie'' Brown, the chairman of American Telephone & Telegraph Co., can't understand why the government is picking on a company that has given the U.S. the world's best telephone service. While foes describe AT&T (T) as a monopolistic bully, its friends warn that breaking up Ma Bell would fragment the nation's infrastructure. In 1999, the issues being thrashed over in U.S. vs. Microsoft are remarkably similar, down to the core accusation--using a monopoly in one market to gain unfair advantage in related markets. The AT&T antitrust suit ended in January, 1982, with a court-approved settlement--a consent decree that broke the Bell System into a smaller AT&T, restricted to long-distance phone service but free to get into computers, and seven regional Baby Bells. Again, with Microsoft (MSFT), breakup--including into ''Baby Bills,'' is a possible remedy. Analogies can be stretched only so far. There are big differences between software and phones, not to mention between the independent Microsoft Corp. of today and the Bell System of the early 1980s, a government-sanctioned monopoly that was ill-prepared to compete. But you can learn a lot by studying the AT&T case. Here are a few of the lessons: -- Breaking up is not always bad. Defense Secretary Caspar W. Weinberger argued strenuously in 1981 that the Justice Dept. should drop its suit against AT&T because the military needed a single, integrated communications network. Arno A. Penzias, a Nobel laureate at Bell Laboratories, testified that the world-class labs would become a ''sinking ship'' if AT&T were broken up. Former AT&T CEO Robert E. Allen, who was a high-ranking Bell System executive in 1982, recalls that ''people were crying in the hallways'' after the settlement was announced. The breakup created an array of choices that consumers still find confusing. But it's widely agreed that it lowered long-distance prices and stimulated innovation. The companies created out of the Bell System, including those since swallowed up, are worth about $810 billion today, vs. $59 billion before the breakup. That 1,300% gain compares to a market-cap rise of just 140% for IBM over the same period. Penzias says the breakup got Bell Labs focused on customers: ''They still create jewels, but more of them are made into jewelry,'' he says. Weinberger, now chairman of Forbes Inc., hasn't decided whether the breakup was good, but says that the U.S. is ''back again where we do have reliability established.'' AT&T's record doesn't mean that a breakup is right for Microsoft. But it shows that plausible defenses of the status quo can turn out wrong. Says Allen: ''We really believed that we were doing the right thing for customers and for the country. I suspect that people at Microsoft have some of those same feelings.'' -- Monopolies resist containment. AT&T's most durable monopoly was in local phone service. The breakup gave each Baby Bell a regional slice of that dominance. As old-fashioned utilities, the Bells were to be tightly constrained. But within months, they sought to expand into the forbidden fields of information services, manufacturing, and long distance. It's an easy bet that an operating-system monopoly born out of Microsoft would also look beyond its court-prescribed scope eventually. -- Remedies should be simple. The worst feature of the AT&T breakup was the subsequent micromanagement of the industry by U.S. District Court Judge Harold H. Greene and the Federal Communications Commission. Something similar could happen if the remedy for Microsoft is overly detailed, warns Manhattan Institute for Policy Research senior fellow Peter W. Huber. The lessons of U.S. vs. AT&T don't all point in the same direction. Some seem to indicate activism, others forebearance. And it may be that none applies precisely to U.S. vs. Microsoft. But with stakes this big, all parties would do well to gain what insight they can from history. By Peter Coy _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Does a Breakup Make Sense? COVER IMAGE: Microsoft: Does a Breakup Make Sense? TABLE: No Easy Fixes Who Can Sue Commentary: The Burden of Being a Misunderstood Monopolist So What's in the Cards for Microsoft? TABLE: Reshuffling the Deck Commentary: How Intel Played It Right Commentary: The Lessons of the AT&T Breakup INTERACT E-Mail to Business Week Online | |||
