Unleashing AT&T holds no terror for one small rival
With the proposed breakup of the Bell system, telecommunications is entering a whole new era. Many industries adapt to new technology and competition gradually, over a period of years; but change is coming to the communications business with the suddenness of an earthquake.
''It's going to be a fascinating industry to watch,'' says William McGowan, chief executive officer of MCI Communications Corporation. Long an industry dominated by one company, telecommunications will ''end up with changes in the industry that reach 8 or 9 on the Richter scale.''
Perhaps the biggest shock has already occurred. By agreeing to divest itself of its 22 local operating companies, American Telephone & Telegraph Company will receive permission to enter unregulated fields.
''Right before Christmas, AT&T senior executives were saying, 'If you ever touch any part of Bell, Western civilization may not survive.' They now say, 'Oh no, it's OK.' I think it was Christmas. Santa Claus came and did it.''
Mr. McGowan reads from a leaked Federal Communications Commission document discussing the settlement: ''Quote, 'Generically, AT&T will be transformed into an MCI,' unquote.'' He laughs. ''A much larger MCI, of course.''
Ninety-six percent of all long-distance calls made in the United States go through AT&T's long lines, which it will retain. MCI, with microwave relay towers serving more than 4,000 cities, has 2 percent of the market. Similar private companies account for the remaining 2 percent. Will the newly freed giant swat little concerns like MCI out of business?
McGowan says it won't happen. MCI is nimble, he says; Bell, clumsy.
''We've been pushing for this for a long time. Their whole world is this highly structured environment. We don't have that. I say to people, 'You figure it out.' They cannot do that. They cannot divide their minds,'' he claims.
Dividing your mind is necessary to see that telecommunications is not a seamless whole. The growing segmentation of the industry, says McGowan, made the sundering of AT&T inevitable.
''There are, if you think about it, three different telecommunications industries: equipment, local service, and long distance,'' he says. ''They have different technologies, degrees of competition, rates of growth, and methods of distribution. Just like it takes a number of industries to get around the country - taxicabs, airlines - it can take a number of industries to communicate.''
But drawing the lines among types of telecommunications isn't as easy as pulling apart the segments of an orange. The settlement still has a long way to go: It must be reviewed for approval by US District Court Judge Harold Greene, who will determine if it is in the public interest; and innumerable technical matters must be settled. How will stock be exchanged? How will the local operating companies be spun off?
One sticking point in particular concerns McGowan.
''The real fight now is going to be over the proper distribution of revenue, assets, and costs,'' he says. If AT&T unloads a lot of interconnective equipment to the local companies, McGowan's costs may go up.
''My concern goes to what they leave behind in the way of equipment, because I have to pay that local phone company for connections relative to costs.''
But McGowan disagrees with those who described the spun-off operating companies as dogs, devoid of subsidies from long distance. No one has ever proved long-distance revenues were subsidizing local service, he says - repeating an opinion aired in front of many congressional committees.
''(The local companies) are going to be a thriving business with one danger. AT&T has not been paying attention to modernizing the local plant.''
The local operators will have to sink some cash into research and development , McGowan says, because ''their real growth is going to come from providing local interconnection for all these new uses of telecommunication - delivery mechanisms for communication services, videotex, etc.,'' and they'll need more sophisticated equipment to handle the business.
MCI intends to stick strictly to offering lower-cost long-distance service to homes and business, McGowan says. It's been a successful format: From 1979 through '81, profits tripled. Changing social forces may make long distance an even more lucrative growth field.
''Anybody who's classified as 'baby boom' has grown up with entirely different telephone habits than their predecessors,'' says McGowan. ''They think of long distance like I grew up thinking of a local call.
''Those people bring the same habits with them into business. And the country has not become less mobile, so, as people are moving around, communication becomes the way to stay together.''