Friday, July 21, 2006

Divestment Rewards?

There is a reason why there is antitrust legislation on the books of our nation’s laws. Many decades ago, as the industrial revolution was peaking, there was a lot of wealth and power concentrated in few people. This is the era of huge fortunes and names like Rockefeller, Getty, Carnegie, and Morgan. It was creating a monopoly of power in key United States industries, like steel, oil, transportation, and communications. So the government, in a magnanimous sign of socialism, enacted these laws in order to help keep the American dream alive for the majority of the people. Some people have claimed that it merely puts capital into inefficient hands, thus hampering the progress of an industrial nation, but I would argue that by lifting up the bottom of the economic sectors, we can only better ourselves in the long run. That is still up to debate.

Fast forward nearly 70 years, to the 1984 divestment of AT&T, aka Ma Bell. At the order of the government seven spin-offs were generated to handle local telephone service. They included Pacific Bell, Bellsouth, Bell Atlantic, NYNEX, USWest, Ameritech, and Southwestern Bell. AT&T held on to its long-distance services, which were immediately faced with competition from companies like Sprint and MC
I. Good for competition, right? But the wheels of capitalism move in much more subtle ways. Over the years, the “baby bells” have been slowly merging, re-grouping, enlarging their holdings. In the late 1990s, Southwest Bell purchases Pacific Telesis (PacBell), Southern New England Telecommunications and then Ameritech. Under the name SBC, the group now consists of 3 of the original 7 spin-offs. Then SBC joins cellular plans with BellSouth in a 60/40 split. By 2004 it has merged with AT&T Wireless into one unit. It is not done yet. In 2005, SBC reaches an agreement to merge with AT&T, its former parent company. It is approved, and rebrands to AT&T for unity sake.

And now we come to the present. It was announced today that BellSouth shareholders ok a merger with AT&T (the one-time SBC). Should the SEC approve the merger, this would mean that the wireless company would finally come home to roost under one management structure. And it would mean that 4 of the 7 baby bells have regrouped with the parent company and added the major wireless network to its holdings. All in under 24 years. What was the original divestment for, if it was only to buy two decades of “competition” before allowing them to consolidate once more? Talk about inefficiency in economics.

Should the merger go through, AT&T (blue) would be merged with BellSouth (yellow). Image courtesy of

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