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Overview
Written by the two-time Pulitzer Prize–winning author of Ghost Wars and Private Empire, The Deal of the Century chronicles the decade-long war for control of AT&T.
When the US Department of Justice brought an antitrust lawsuit against AT&T in 1974, the telecommunications giant held a monopoly on phone service throughout the country. Over the following decade, an army of lawyers, executives, politicians, and judges spent countless hours clashing over what amounted to the biggest corporate breakup in American history. From boardroom to courtroom, Steve Coll untangles the myriad threads of this complex and critical case and gives readers “an excellent behind-the-scenes look” at the human drama involved in the remaking of an entire industry (The Philadelphia Inquirer).
Hailed by the New York Times Book Review as “rich, intricate and convincing,” The Deal of the Century is the definitive narrative of a momentous turning point in the way America does business.
Product Details
| ISBN-13: | 9781504045032 |
|---|---|
| Publisher: | Open Road Media |
| Publication date: | 06/13/2017 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 400 |
| Sales rank: | 463,241 |
| File size: | 2 MB |
About the Author
Read an Excerpt
The Deal of the Century
The Breakup of AT&T
By Steve Coll
OPEN ROAD INTEGRATED MEDIA
Copyright © 1986 Steve CollAll rights reserved.
ISBN: 978-1-5040-4503-2
CHAPTER 1
The Whites of Their Eyes
One by one, in their rented luxury sedans, the executives of American Telephone & Telegraph Company crossed the Card Sound Bridge and drove east into the morning sun, toward Crocodile Lake. There was a warm, salty breeze wafting from the ocean; palm trees along the road bowed politely to the passing cars. It was Monday, May 8, 1972, the dawn of another dazzling week in the paradisiacal tropics of Key Largo, Florida.
At the stop sign where Card Sound Road meets the Overseas Highway, the cars turned north, along the peninsula, tracing the road as it sliced through a reedy everglade. A few hundred yards to the right lay the Atlantic, its crystal waters washing over the largest living coral reef in the world. Not far to the left was the still, blue deep of Card Sound.
Two miles on, the cars slowed at the security gate of the Ocean Reef Club, a lush and exclusive resort frequented by Jacqueline Kennedy Onassis and President Richard Nixon's close friend Bebe Rebozo. The AT&T executives were checked for identification and then ushered in. Beyond the gate, the manicured fairways of the club's several golf courses came into view, and beyond them, the gleaming masts of yachts docked in Ocean Reef's private harbor.
It would be an idyllic week for golf, or for sailing, but not all the AT&T executives arriving in Key Largo for the company's semiannual Presidents' Conference were in a playful mood. Though they were calm and patrician men, well-drilled in the manners and mores of corporate eminence, some of them were girding for a fight. The uncharacteristic outrage and emotion they would display over the next five days had been brewing inside them for months, even years.
Nearly all of AT&T's key executives had worked for the company for two decades or more, and only a few had ever been employed by anyone else. They were the guardians, many of them strongly believed, of one of the most important public trusts in America, "Ma Bell," which happened also to be the largest corporation in the world. And now that public trust was under attack, from within and without, and was in danger of being destroyed.
Some of the executives arriving in Key Largo could see parallels between the challenges their company now faced and other assaults on public institutions that were depicted each evening on the television news. That Monday night, for example, as they sat in their hotel rooms, some of the executives watched news reports about antiwar protesters who had forced the closure of the United States Capitol. Later that same evening, President Nixon delivered a somber, nationally televised address announcing that he had ordered massive air strikes against North Vietnamese targets and had also ordered the mining of all North Vietnamese harbors. "At this moment, we must stand together in purpose and resolve," Nixon urged. Even in those turbulent times, AT&T itself was not often faced with angry demonstrations by student protestors. Nonetheless, some of the company's top executives felt that it was precisely a lack of "purpose and resolve" that was the cause of AT&T's problems. The dissenters had come to the Ocean Reef Club to confront AT&T's new chairman of the board with their views.
And that was exactly what John Dulany deButts, the new chairman, wanted. He had taken over the company only six weeks before, and he, too, was dissatisfied with its state of affairs. Indeed, he believed that AT&T had reached one of the lowest ebbs in its century of existence, and he was determined to turn things around — quickly. The Key Largo conference was an important part of his plan. For too long, deButts felt, the presidents of AT&T's basic operating companies — the local phone companies across the country such as New York Telephone, Pacific Bell, Illinois Bell, Mountain States Bell, and so on — had been stifling their ideas and complaints, unable to convey them to AT&T's centralized corporate management headquartered in New York City. That was one reason why morale among AT&T's one million employees was disintegrating into malaise and dissension. By inviting the presidents to Key Largo, and by encouraging them to air their opinions with impunity in an atmosphere of free exchange, deButts hoped both to reassure the presidents that their views were being heard and to gain new insights about how to meet the challenges facing his company.
And he knew the challenges were plentiful. The most visible of them, and the most vexatious to AT&T's chairman, was a precipitous and unprecedented decline in the quality of AT&T's basic phone service to the public — what deButts liked to call "pots," or "plain old telephone service." By 1970, two years before deButts ascended to the chairmanship, the decline had reached crisis proportions in a number of major cities, including New York. The basic problem was one of supply and demand: too much demand for new phone service and not enough AT&T facilities to accommodate all the new customers. The result had been horrendous delays and breakdowns, especially in Manhattan, the nation's media and financial capital. Television networks, banks, securities underwriters, and publishing companies — all of which wielded great influence over how AT&T was perceived by investors and the public — had experienced long, aggravating delays in obtaining new phone service and in having their phone systems repaired. These peeved and powerful customers lashed back at AT&T, publicly criticizing, even ridiculing the giant monopoly for its apparent arrogance and incompetence. Such criticism fueled the public's own growing suspicions in the late 1960s about the motivations and priorities of large corporations generally. Ma Bell quickly became a favorite object of jokes and political satire. Lily Tomlin, the "Laugh In" comedienne, had developed a popular routine around an insolent telephone operator which seemed to capture perfectly the widespread unrest over deteriorating phone service.
John deButts also knew that, like most business crises, AT&T's telephone service emergency in Manhattan and elsewhere had been caused by the company's own shortsightedness. The cost of providing basic telephone service to the country was enormous. AT&T had to build, install, maintain, and replace hundreds of thousands of miles of cable and wire, millions of residential telephones and business telephone systems, as well as a sophisticated network of switching stations that directed every call to its proper destination. Just to maintain a system of that magnitude and diversity required huge expenditures by AT&T every year — $7.5 billion in 1971, more money than some large companies would spend in a decade on plants and equipment. And when customers demanded more phone service, as they had throughout the 1960s, AT&T's capital requirements became astronomical. But if AT&T cheated on its investment, if it failed to spend the necessary money to build new phone lines and switching stations to accommodate new customers, the disastrous results would become quickly apparent. That was exactly what had happened by 1970. Inflation during the 1960s had driven up AT&T's costs and had squeezed the company's profits. Rather than raising phone rates to cover inflation, the operating company presidents had decided to cut costs and to stop investing so heavily in the upkeep of the phone system. In the short term, the companies' profits rose, and the presidents were praised for frugality. But in just a few years, the neglected phone system, unable to accommodate the new demand for telephones, had collapsed under pressure.
So that was John deButts' first priority as he arrived at the Ocean Reef Club on May 8, 1972 — to restore plain old telephone service and to redeem the Bell System's good name with the public. DeButts did not intend to approach this task with the cool detachment of a corporate turnaround artist; he regarded AT&T's service crisis as a kind of personal embarrassment. Animposing, broad-shouldered figure at six feet, two inches tall and weighing two hundred pounds, deButts seemed to embody the spirit of the Bell System. Reared in a comfortable, Old South railway family, he had taken his first job with AT&T more than thirty years before, immediately after he graduated as a captain from the Virginia Military Institute. Now in his fifties, deButts still retained the bearing of a military man. He exuded leadership, power, and privilege. He was a self-styled captain of industry, dressing in dark, conservative suits, flashing the obligatory gold cufflinks and watch. When he met a man, he shook his hand firmly and looked him in the eye; when he spoke, deButts' southern drawl carried the authority of a general's wartime orders.
On his way up AT&T's long executive ladder, deButts had worked in twenty-two different jobs and had seen every corner of the company's vast telecommunications empire. He had worked in the basic operating companies, starting as a traffic manager with the Chesapeake and Potomac Telephone Company in Virginia and rising eventually to the presidency of Illinois Bell. He had seen the Western Electric Company, AT&T's multibillion-dollar manufacturing subsidiary, which in May 1972 made virtually every telephone used in America, as well as nearly all the cable, wire, and switching systems that comprised the phone network. He had been involved, too, with the prestigious Bell Laboratories, AT&T's research and development arm, which by the end of the 1970s would hold more than 19,000 patents and which had been responsible since the early 1900s for such seminal technological advances as radio telephony, vacuum tube amplifiers, cable television, early digital computers, transistors, silicon chips, and lasers. For a time, he had headed AT&T's "government relations" office, the company's powerful lobbying operation in Washington. And most recently he had served apprenticeships in the New York-based Long Lines department, which was responsible for long distance service, and in the company's financial department, which had the unenviable task of raising billions of dollars in debt and equity financing on the public markets each year.
By the time H. I. Romnes, a brilliant engineer but a relatively ineffective chief executive, announced his retirement as AT&T's chairman at a February 1972 press conference, John deButts was ready — the sprawling operations and the sacred public mission of the Bell System not only had been drilled into his mind, but had seeped into his soul. Like a king ascending to a corrupted throne, deButts intended to reawaken the spirit of AT&T's declining empire. In his first weeks on the job, he made plans to travel around the country to deliver pep talks to AT&T employees about the history of the Bell System's public trust. He ordered emergency construction spending to restore quality phone service in major cities. And he made it plain that there would be no compromises on service —"pots" came first, profits would follow, deButts said.
But there was one other problem facing AT&T as its executives gathered in Florida that May. And John deButts did not appreciate just how large a problem it was about to become.
On March 30, in preparation for the Key Largo meeting, deButts' executive assistant in New York had written letters to all the participants asking if there were any special topics they thought should be included on the conference agenda. The response had been overwhelming. Many of the presidents of the basic operating companies, as well as some top officers of Western Electric, Bell Labs, Long Lines, and other divisions that made up the Presidents' Conference, agreed that there was one problem facing AT&T that demanded immediate and decisive action: competition.
John deButts understood why the presidents were upset. The competition AT&T was facing in the telecommunications industry made his blood boil. The new chairman, though, hadn't yet decided what to do about it.
The competition came in two varieties. In 1968, in a landmark decision known as Carterfone, the Federal Communications Commission (FCC), the federal government agency responsible for regulation of the communications industries, had ruled that the "terminal equipment" market should be opened up for the first time to companies other than AT&T. "Terminal equipment"— or "CPE" (customer premises equipment), as it was known inside AT&T — was really a bureaucratic euphemism for "telephones" or "telephone equipment."
Before Carterfone, AT&T had owned virtually every residential telephone and business switchboard in the country, and it leased the equipment to customers. But the FCC, which was under political pressure to do something about AT&T's deteriorating phone service and rising profits, and which felt that AT&T was unable to keep up with the explosion in new telecommunications technologies, decided that independent companies making new communications devices like answering machines and mobile radio phones should be allowed to interconnect with AT&T's switched phone network, a privilege that had been previously denied them. Suddenly, phone users could buy non-AT&T equipment and plug it into the telephone lines at their homes or businesses.
But another, even more threatening kind of competition had been nibbling away at AT&T prior to the Key Largo meeting. It was referred to in industry jargon as "intercity services." And on that clear May morning when the presidents of AT&T's operating companies gathered in the Ocean Reef Club's Everglades Meeting Complex for their long-awaited free exchange with John deButts, it quickly became obvious that intercity services competition was the root cause of the executives' simmering discontent.
Richard Hough, president of the Long Lines department, began the meeting by briefing his colleagues on where the situation stood. In 1969, one year after Carterfone, the FCC had handed down another decision that had stunned AT&T's executives: The commission had granted the application of an embryonic, underfinanced, and aggressive company called Microwave Communications, Incorporated, to enter the intercity "private line" business between Chicago and St. Louis. MCI, which then had only about two dozen employees, would sell private long-distance lines to companies with offices in both the cities MCI served, but it would not provide long-distance service to residential or business customers. For a flat monthly rate, a company could connect the phones in its St. Louis offices directly to the phones in its Chicago offices, and it could save money by avoiding AT&T's switched long-distance network. AT&T was also in the private-line business, but MCI promised the FCC that its prices would be lower than Bell's because it would operate more efficiently. While AT&T had to pay for the nation's basic local phone network — made up mainly of expensive copper wires — MCI would employ a new and cheaper technology: microwaves. MCI proposed to erect a string of microwave towers between Chicago and St. Louis and to "broadcast" its calls on a microwave beam. The technology had actually been developed by AT&T, and Bell also employed microwaves on many of its long-distance routes. But since MCI's costs were not inflated by the upkeep of the basic wire-and-cable phone network, it could reap savings by using microwaves exclusively, and thus could charge less for its private-line service than AT&T. At least, that is what MCI claimed.
Preoccupied with major service crises such as the one in New York, AT&T's executives had paid little attention to MCI after its application was granted. There was a serious question as to whether MCI could ever raise enough money to get started with its ambitious microwave construction project. And even if it did, there were doubts about whether the company could find enough customers to support its limited network.
Three years later, as Hough reminded the assembled membership of the Presidents' Conference, MCI was still around, and it was beginning to steal away a startling number of AT&T's Chicago and St. Louis customers by pre-selling its service. (MCI had not yet even begun to construct its microwave towers.) Hough told the AT&T presidents why MCI was having such early success: its monthly rates were at least $100 less than AT&T's. And then he asked the crucial question: "What should our response be?" There were two choices. The company could leave its prices alone and just absorb the loss of private-line revenues as AT&T's previous chairman, H. I. Romnes, had done. Or, the company could lower its private-line prices and go head-to-head with MCI. This was the strategy the operating company presidents intended to urge on deButts.
"There's been a change in MCI's position," one of the presidents pointed out as the discussion got under way. "Now they say that the viability of Chicago-St. Louis depends on interconnections with other MCI routes."
(Continues...)
Excerpted from The Deal of the Century by Steve Coll. Copyright © 1986 Steve Coll. Excerpted by permission of OPEN ROAD INTEGRATED MEDIA.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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