The Death Of A Monopoly

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In 1959, faced with a rising tide of complaints against AT&T’s often high-handed ways, the FCC had allowed companies to establish their own microwave communications networks that bypassed AT&T, but only for internal use. This meant in effect that only very large companies with far-flung operations, such as Boeing, could afford them. MCI wanted to set up a microwave communications system between St. Louis and Chicago that would function as a common carrier. In other words, anyone could use it by paying a fee to MCI. AT&T, needless to say, was aghast at the prospect.

MCI had started as a store selling two-way radio service in Joliet, Illinois. Its owner, Jack Goeken, asked General Electric for the franchise in Springfield, Illinois, about 190 miles south of Joliet on the main route to St. Louis, and obtained it. Most of these radios were sold to truckers, but they had a range of only about fifteen miles. Worse, the dispatchers at each end of the St. Louis-Chicago corridor could not keep in touch with their truckers. Goeken figured if he could establish enough repeater stations along the route, he could sell a lot more radios. But to do this, he needed the approval of the FCC. So in 1963 he and four partners each put up six hundred dollars and, with this war chest, set off to get that approval. The FCC, of course, was not supposed to be in the business of protecting AT&T’s monopoly; its business was to see that the public interest was served. To prevent MCI from establishing a competitive system, therefore, AT&T had to show that MCI could not build its system at a cost that would allow it to charge competitive prices and that therefore the public would not be served by it and the license should be denied. Unfortunately for MCI, AT&T had virtually the only expertise in long-distance communications. The FCC had no choice but to rely on it when making decisions.

The FCC, all too used to saying, “How high?” when AT&T said, “Jump,” ruled against Hush-A-Phone.

AT&T buttressed its argument that MCI couldn’t operate at competitive prices with facts and figures that no one could effectively rebut. Then Jack Goeken had a stroke of luck, and an AT&T employee made the other mistake. Goeken had heard at the FCC about a confidential report on microwave communications systems that AT&T had prepared for internal use only. He figured that his only hope of getting a copy was the direct approach, so he flew to New York, went to AT&T, and asked for a copy. When he landed in New York it was cold and snowing, and he had accidentally left his overcoat at the Hartford airport. Because he didn’t have a coat, the person he talked to at AT&T simply assumed that he must be an employee and told him the report was in the company library. He asked where—meaning “Where is the library?”—and she apparently thought he meant where in the library. She wrote out an official interoffice request form with the document name and number. Goeken realized what was happening, had enough sense to shut up, and found the library on his own. The report was his—and in it AT&T itself estimated far lower costs.

It would take six years for the FCC to grant MCI a license to operate, but when it did, the camel’s nose was under AT&T’s tent. A little more than a decade later the greatest monopoly in history was history.

For AT&T, the result has been an epic episode of creative destruction as it seeks to remake itself for a new competitive world. The process is by no means over. The results for the people at large, however, have been greatly improved service, swiftly falling rates, and a staggering rise in the use of long distance over the last two decades. In 1970 there were only 23 million long-distance calls. By 1980 the number had risen to 200 million, and in 1994, the last year for which statistics are available, the number was 3.713 billion. Moreover, the cost has dropped dramatically. In 1970 the average overseas call cost $10.76. In 1994 it was $2.18. Add in the effects of inflation, and the cost of an overseas call is only about 5 percent of what it was two decades ago.

Many years ago the science writer Arthur C. Clarke predicted that long distance would disappear by the early years of the new millennium and a phone call would be a phone call whether it went next door or around the world. He might very well be right, thanks to an ill-advised lawsuit and a lost overcoat.