AT&T/BellSouth merger: How we got to this point in the telecoms industry

Last year was characterized by the coalescence of some of the largest of the U.S.-based WAN service providers. In one megadeal, Verizon acquired MCI. In another megadeal, SBC acquired AT&T and soon thereafter renamed itself AT&T.

In case anybody thought things were going to slow down, the newly constituted AT&T recently announced its intention to acquire BellSouth for $67 billion. That figure is more than four times what SBC paid last year to acquire what was then AT&T.

This spate of megamergers raises all kinds of very interesting questions about where the telecom industry is headed. In order to answer these questions it is important to know how we got to our current environment. In the early 1980s, AT&T was a fully integrated company. It had Bell Labs to do basic and applied research, and Western Electric to manufacture the equipment that it used. It had 20 tightly held Bell Operating Companies (BOC) to provide local connectivity, along with two loosely held operating companies – Southern New England Telephone Company and Cincinnati Bell. It also had the AT&T Long Lines department to interconnect the BOCs.

But there was trouble in paradise. A company that was then called Microwave Communications Inc. (MCI) began to offer point-to-point service between selected cities using a disruptive technology – microwave. While it was building its own nationwide network, MCI was able to offer a nationwide service by supplementing their microwave facilities with AT&T WATS (Wide Area Transmission Service) lines. At this time, MCI sued AT&T repeatedly in order to get equal access to the facilities of the BOCs.

The government decided competition was an important public policy goal and that, in order to encourage competition, it was necessary to split up AT&T – a fate that Microsoft faced a couple of years ago, but avoided.

The divestiture of AT&T occurred on Jan. 1, 1984. The 20 BOCs became seven RBOCs and we got used to new and confusing concepts such as a Local Access and Transport Area (LATA). As a point of reference, a LATA was defined to be the geographic area in which an RBOC could offer services. Any traffic that went between LATAs required an Interexchange Company (IXC) such as AT&T, MCI or Sprint.

In the next two decades, the RBOCs grew by devouring other RBOCs. In 2005, SBC, the offspring of AT&T acquired both AT&T and MCI.

With this history behind us, the next step is to look at where we go from here, and that will be the subject of the next newsletter. In the meantime, we invite you to weigh in with your opinions at our forum.

* Editor’s note: For ongoing coverage plus additional analysis and commentary of the AT&T/BellSouth deal, check out NetworkWorld.com.