Divestiture, 20 years later

Twenty years after divestiture, many of us are reflecting on this event that changed the telecom world forever. From my perspective there’s one result of divestiture that outweighs all others: the linkage of service offerings and service prices.

That sounds elementary, right? But remember that in a non-competitive telecom environment, there is no pressure to offer the best service at the best price. This point came to light many years ago when I taught a class on frame relay for a major service provider. After I spent the better part of a day discussing the bandwidth efficiencies of packet switching and how users could do more with less bandwidth, one researcher said: “But couldn’t we accomplish the same thing by lowering prices on dedicated bandwidth services?”

This attitude, where the connection between services, competition and pricing barely exists, was not uncommon in the pre-divestiture world. There was little or no service competition, so there was no price pressure. You either took what the phone company offered, or you did without. We would not have the rapid service deployment that we have today without competition.

Let’s take frame relay as an example. In early 1991, two start-ups, WilTel and CompuServe, offered frame relay services. The still-dominant phone company – AT&T – had not yet committed to offering frame relay service. In fact, there was considerable internal pressure within AT&T not to deploy frame relay services because the hardware AT&T’s hardware division was developing was not ready to support frame relay.

So AT&T was faced with a difficult decision: whether to offer frame relay service using another manufacturer’s switches, possibly cannibalizing its own private-line revenue; or lose the business altogether. Thanks to some clear, post-divestiture thinking by some renegades at AT&T, the company decided to roll out frame relay services a couple of years before the planned rollout schedule, thus pushing along market acceptance of this now-standard service. Once AT&T decided to offer the service, it became a leader in the market, including lending extensive support to the Frame Relay Forum.

This frame relay rollout paved the way for other services introduced in the 1990s, much earlier than they would have been without divestiture. From ATM to private IP to Internet-based VPNs, the relatively rapid availability of these services can be attributed to the competitive telecom marketplace.

Now before we get too misty eyed and thank Judge Harold Greene for solving all our problems, we also need to look at the downside of this rapid deployment. In a pre-divestiture world, the concept of leading-edge and “bleeding-edge” adoption of services simply didn’t exist. With no competition, there was no pressure to release a service before it was rock solid.

Nevertheless, the overall effect is quite positive. You have a sometimes dizzying array of services from which to choose, and the competitive price pressure has driven down the cost per bit/sec for WAN services beyond even the wildest dreams from 20 years ago.