AT&T Fumbles: the Tyranny of Big Telecom

David Rosen

In February 2022, AT&T completed the spinoff of its holdings in WarnerMedia to Discovery, a $43 billion transaction creating Warner Bros. Discovery, Inc.  In 2016, AT&T announced its intention to acquire Time Warner and the deal was completed in 2018.  AT&T promoted the spinoff as a way to ensure that WarnerMedia would be in a better position to compete with Netflix and Disney, the top video streaming services.  However, a different story was at play.

Postmodern America is a telecom enabled nation.  In the U.S., there are more telecom subscribers — 518 million subscriber to wireless, wirelines and cable services – than people; for 2021, the Census Bureau estimates the U.S. population at 332 million.

Tele-connectivity mediates, electronically facilitates, nearly every aspect of contemporary communications — whether private, education, business, health or government; whether voice, internet, social media or streaming; whether online retail, distant learning or Zoom meeting; and whatever the content, be it the latest news headline, a presidential address, a promotional offering, a dating service listing or a porn flick.  And telecommunications make nearly every place and person on the globe nearly instantaneously accessible.

Big Telecom consists of four conglomerates with total 2020 revenues at nearly $430 billion. The individual telecom’s 2020 revenues were: AT&T ($181.2 billion), Comcast ($108.9 billion), Charter Communications ($45.8 billion) and Verizon ($131.9 billion). Their combined “market value” was nearly $1 trillion.

For a decade, Big Telecom has sought to combine its core business of content distribution with content ownership. Except for Comcast, the efforts of AT&T and Verizon have failed; Charter/Spectrum has not sought to acquire media companies.

AT&T acquires DirecTV for $67.1 billion in 2015; it bought Time Warner for $85 billion in 2018; and acquired AppNexus, a digital ad exchange that competes with Google and Facebook, for between $1.6 and $2 billion in 2018. Verizon acquired AOL in 2015 for $4.4 billion and Yahoo! in 2017 for $4.8 billion; in May 2021, Verizon sold its media assets.

Comcast succeeded in building a diverse combination of media holdings that include AT&T Broadband; Sky Broadcasting; NBCUniversal (Telemundo, TeleXitos, and Cozi TV), cable services (MSNBC, CNBC, Oxygen, Bravo, G4 and E!); Universal Pictures; Peacock; animation studios (DreamWorks, Illumination and Universal Animation); and XUMO.  It also controls Universal Parks and Resorts.

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A century ago, the United States brought the world the first nationwide telephone system. A century later, the U.S. is a second-tier telecom country, falling behind advanced industrial countries in Europe and Asia providing high-quality and affordable fiber-based telecom services.  And in the U.S., “digital inequality” – between those having affordable broadband internet services and those who do not – is deepening. Why did this happen and what role did AT&T play in the decline of American telecom services?

AT&T was founded in 1887 and for decades it operated as a legal – if moderately regulated — monopoly.  In 1984, AT&T was the largest corporation in the U.S. and the largest company in the world with over 1 million employees.  Yet, after years of legal and political wrangling, it was broken up by Judge Harold H. Greene.  In what formally known as the Modification of Final Judgment (MFJ) that broke-up AT&T’s 22 local and operating companies — i.e., Regional Holding Companies (RHC or RBOCs) — into seven separate companies. “What the Bell System did was illegal,” Greene noted. “It abused its monopoly in local service to keep out competitors in other areas. Competition will give this country the most advanced, best, cheapest telephone network.”

The rechristened AT&T consisted of Western Electric, Bell Labs and long-line services; however, Western Electric exclusive supply contracts with the RBOCs were terminated.  The seven RBOCs could not provide Title II “information services” (e.g., cable television) or manufacture equipment; but they got the Yellow Pages and had to provide equal access to their networks for all interexchange carriers (AT&T, MCI, Sprint, etc.) who wished to connect to them.

A decade after the MFJ, Pres. Bill Clinton signed the Telecommunications Act of 1996 that was envisioned bringing telecom service into the 21^st century.  Clinton argued that it would “promote competition as the key to opening new markets and new opportunities.”  He insisted, deregulation “will protect consumers by regulating the remaining monopolies for a time and by providing a roadmap for deregulation in the future.” Well, that future never arrived.

The Act “deregulated” innovate telecom service (e.g., internet, video streaming) and fostered a wave of mergers and acquisitions (M&As) leading to the restructuring of the telecom industry.  Over the following few decades, the telecom industry was recast and four corporations – two telco (AT&T and Verizon) and two cable (Comcast and Charter) — came to dominate, controlling wireline and wireless services as well as internet and streaming services, and moving to acquire media/content businesses and theme parks. In the wake of the break-up of AT&T and deregulation, the U.S. has become a second-tier telecom nation.

Two further developments contributed to the reshaping of the telecom marketplace.  First, the establishment of AT&T Wireless (1987) and Verizon Wireless (2000) used wireline utility construction budgets and staff to build out the wireless networks and not pay market prices to use the networks.

Second, AT&T rolled out U-Verse and told the public it was a fiber-optic service; however, it was a copper-to-the-home service, using the existing state utility wires, with a fiber optic “node” within a half-mile from the premises.  And Verizon rolled out FiOS, a fiber optic service, but it would be done as a “Title II” or “common carrier” service and part of the state utility to be charged to phone customers as an upgrade; Verizon finished less than half the territories and left many cities not upgraded.

Today, two mega telecoms, AT&T and Verizon, have operational control over America’s telecommunications network of wireline and wireless services.  However, their efforts to control over media content failed.  Even though AT&T and Verizon “guaranteed” that each would compete for wireline, broadband, Internet and cable television, competition has been replaced by a “gentleman’s agreement” that simply splits up America into fiefdoms.

The traditional telecom duopoly of phone and cable companies is giving way to integrated voice, video, internet and wireless telecom trusts.  AT&T and Verizon dominate the nation’s wireless and wireline networks; Comcast and Charter/Spectrum cable MSOs control the full-screen, full-length video signal.  Following merger after merger over the last two decades, the trust came to not only control wireless services and broadband, internet and telephone (local and long-distance) service – and the U.S. became a second-tier telecom nation.