The coming breakup of American Telephone & Telegraph Co. promises to radically change the way this nation communicates.
Legislators, regulators and other policy makers will debate and most likely refine the structure of the telecommunications industry left in the wake of Friday's settlement of the government antitrust suit against the Bell System.
But no matter what changes are made, the divestiture plan contained in the settlement will revolutionize the way consumers use the telephone as well as the way the telecommunications industry has operated for more than a century.
For consumers, AT&T's agreement to spin off all of its 22 local operating companies guarantees higher phone bills for local calls. Sharp rate increases had already been requested before the settlement in most jurisdictions, but now AT&T officials and several economists predict local rates may well double within two years.
At the same time, the divestiture plan may lead to some lower long-distance bills, especially for calls between major metropolitan areas, as AT&T and its growing number of competitors vie for consumers' dollars. Rural area residents, however, will likely see rates for all their phone services increase, as few firms will be eager to serve these low-profit areas.
Additionally, just as consumers discovered when the airlines were deregulated, telephone users will have to shop around to find the best deals--in both long-distance service and telephone equipment, where bargains may also be widespread. The one-stop shopping to which telephone users have been accustomed for years will not be possible.
Now consumers "will have at least three and perhaps as many as six decisions to make" in deciding what kind of phone service they want and from whom, says Howard Anderson, managing director of the Yankee Group, a telecommunications industry market research firm. Not only will they have to decide where to buy or lease their phones, but also they will have to decide what types of new sophisticated equipment to use.
What's more, competition among long-distance firms probably will become more intense, offering consumers more choices. For local calls, businesses may also find a variety of services available, especially as mobile-radio systems become more developed.
For the telecommunications industry, the settlement heralds a new era, in which the changed AT&T will be allowed to compete freely in many business ventures it had been barred from entering, such as data processing, cable television and other information services.
Although industry officials say the settlement will result in fairer dealings among the local phone companies and all other telephone firms, many also acknowledge that the newly constituted AT&T, although smaller, may be an even more formidable giant.
The settlement, announced Friday by AT&T Chairman Charles L. Brown and the government's top trustbuster, William F. Baxter, ends the government's eight-year antitrust suit against the Bell System. The suit charged AT&T with monopolizing the telecommunicatons industry by trying to keep would-be competitors out of the market. The government had been calling for a breakup of AT&T, much along the lines of the divestiture plan achieved in the settlement.
Under the settlement, AT&T will dispose of about two-thirds of its assets, worth $80 billion, by divesting itself of the local telephone services of its 22 operating companies, including the Chesapeake & Potomac Co. The remaining company, which will bear AT&T's name, will include the most lucrative parts of the Bell System: the equipment manufacturing subsidiary, Western Electric; the long-distance division; and Bell Telephone Laboratories.
The settlement permits this newly formed company to enter any area of business it wants to by lifting the conditions of a previous antitrust settlement that had barred AT&T from offering any unregulated, non-telephone-related services, such as data processing.
It also requires the spun-off local companies to share facilities with AT&T and its long-distance competitors on equal terms.
The settlement is "a new order in the telephone industry which will encourage competition," said AT&T's Brown. "It will do so without sacrificing the American consumers' need for economical, dependable and readily available home service."
However, communications experts note that much of what Brown promises depends on how AT&T carries out the 13-page settlement, which only sets out the divestiture plan in principle, leaving most of the details up to AT&T.
Although the Justice Department will have to approve the spin-off of the 22 local operating companies, many of AT&T's competitors fear that instead of setting up 22 separate local telephone companies, AT&T will transfer the local phone firms to a single nationwide corporation.
"This would be a very material weakness," said Philip L. Verveer, a communications lawyer who served as the government's first chief counsel in the AT&T case after it was filed during the Ford administration.
Verveer and a number of other communication experts contend that a single local-operating concern could reduce the potential for competition because there would be only one large company--instead a number of smaller ones--buying telephone equipment and long-distance services from AT&T and other telecommunications firms. If a single local-service firm decides to buy from only one of these telecommunications companies, the others would have nobody else to sell to and could be squeezed out of the market.
As of now, this possible problem is being overlooked by several of AT&T's competitors who have been calling for more restraints on the Bell System. The chairman of MCI Communications Corp., William McGowan, for instance, praised the agreement, saying, "This is what we've been after all along . . . equal access and full divestiture."
Newspaper publishers who have been urging Congress to impose some restrictions on AT&T's ability to control infomation sent over its network--services such as electronic newspapers and Yellow Pages--say the agreement is a step in the right direction. Their reason: AT&T no longer would control the local phone lines over which these services are currently transmitted into homes and offices.
"In terms of local telephone service, the agreement appears to be consistent with the American Newspaper Publishers Association's efforts in the Congress to ensure a diversity of information sources," said Katharine Graham, chairman and president of the ANPA and chairman of The Washington Post Co.
Even so, many communications experts predict some of AT&T's would-be competitors, publishers and cable television operators for example, may press Congress to enact legislation restricting AT&T's role in the information services field.
Last fall, the Senate approved legislation that placed such restrictions on AT&T. That legislation would have restructured AT&T in less dramatic terms than the settlement does. Although the legislation appears to have been superseded by the agreement, many predict Congress will enact new legislation to give the publishers what they want.
One reason is the concerns many competitors express about the size of the new AT&T. Although the new AT&T will account for only a third of the company's current assets, its activities account for nearly two-thirds of the Bell System's revenues, according to Anderson of the Yankee Group. Although final figures are not available, AT&T's total revenues for 1981 were expected to be about $60 billion.
Additionally, Anderson notes, in getting rid of the local operations, AT&T will be relieved "of one of the more pressing headaches for the rest of this decade and the next," because the local operations are the most labor- and capital-intensive of the industry. Although they contribute one-third of revenues, they account for two-thirds of AT&T's operating costs, Anderson says.
As a result, communications expert Henry Geller predicts that the new AT&T will be a "very fat, lean competitor, one that no longer has to raise huge amounts of money for local needs. Freed of government restraints, they will be able to go out and really charge."
Thus, concludes Thomas Wheeler, president of the National Cable Television Association, the settlement "is not pro-competitive but a repositioning of AT&T's muscle to allow them to dominate the new services the way they dominated the old ones. This is the most important strategic undertaking they have made since" they decided to build the nation's telephone network.
Still, Anderson notes, AT&T will lose one of its biggest strengths in the divestiture: the local distribution system that gives it direct access to consumers.
It is that difference that promises to change dramatically the way consumers reach out and touch the Bell System.