According to the news media, the history of the Internet is straightforward. In the 1950s, the idea was opposed by the telephone companies, notably AT&T. In the 1960s, sponsored by the US military, the Internet started as an experiment to link scientists. This idea gained a wider audience. The breakup of AT&T in 1984 helped the process and the Internet was becoming a great success. All was well until 2000-2001 when there two great setbacks: 1) the dot.com bust and 2) a crisis in the telecommunications and specifically the telephone industry. Some link these events largely or even exclusively to the events of September 11, 2001. Since then, our safety has been jeopardized by terrorism and Internet developments have been correspondingly shaky.
This essay challenges the received wisdom concerning the Internet. There is strong evidence that there was support from telephone companies from the outset; that the breakup of AT&T did not immediately change the situation. Since 2000, there was no fundamental decline in the telecom markets. Indeed, the so called bubble might have been a diversionary tactic to take attention away from the real struggle: control of infrastructure. There have also been other important changes. Energy companies now play a central role in the media domain. In the US, the military is extending its activities in the civil sphere. Private investment firms are systematically buying up sections of the entire telecommunications infrastructure from cables to satellites. There is a case to be made that the myriad bankruptcies in the field are being planned. This plan extends far beyond new media and includes education, finance, health, law and other sectors. And while the surface transactions are legitimate, these developments are leading to a crisis of trust, which endangers all the noble values of liberty and freedom for which the United States has rightly become famous.
Acknowledgements
I am grateful to a number of individuals who have kindly read this paper and suggested improvements and references among whom: Nik Baerten, John Beckers, Hans Koolmees, Dominic Pinto, Chris Zielinski, the alias David Evans and especially . I am particularly to Jonathan Robin who provided several references and improvements. I also thank also others whose discretion leaves them unnamed. Finally I am grateful to Dean Tummers for giving me the freedom to write this little essay which goes slightly beyond the usual borders of cultural studies.
Since its beginnings in the 1960s there have been many stories about the Internet. One is that the Internet was a US invention. The story that officials in AT&T were once adamantly opposed to the Internet[1] led to a received wisdom that telephone or telecommunications companies (telcos or telecoms) and the Internet were unrelated. The telephone companies (telcos), we are told, were big monopolies, blind to innovation and the Internet was started on the sly by a few scientists and academics. The Federal Communications Commission (FCC) version was more subtle:[2] The telcos did infrastructure, while those who developed the Internet did applications.[3]
When one looks more closely at the evidence, a very different story emerges (§ 2). The Internet began in Europe. In the United States, which is the focus of this essay, the development of the Internet was dominated by the major telcos. While received wisdom tells us that AT&T was disbanded in 1984, AT&T remained one of the leading players in the field (§ 3). Also important until recently were competitors such as MCI/Worldcom (§4); AT&T’s Baby Bells, especially Bell Atlantic in its new guise as Verizon (§ 5) and AT&T’s BellCore in its new guise as Telcordia (§ 6). In theory, these were four sets of players. With the bankruptcy of MCI/Worldcom, there was effectively only one major player on the home front: AT&T in the various guises as itself, the Baby Bells, and its research labs (Lucent, Telcordia and SAIC). There was significantly more cohesion between the parts of AT&T than would at first sight appear. AT&T was a telecommunications company with Internet interests. Through its divisions AT&T became involved in business solutions, cable and broadband content as well as mobile communications and satellites. Through its various subsidiaries AT&T became intimately involved in education; Next Generation Internet (NGI); Electronic Numbering: to achieve Internet Telephony[4] and Domain Name Systems.
2. Background of the Internet
The origins of the Internet[6] are frequently linked with As we may think (1945), the famous essay of Vannevar Bush in which he described his Memex device that used microfiche and “in which an individual stores all his books, records and communications and which is mechanized so that it may be consulted with exceeding speed and flexibility.”More than a decade earlier, Paul Otlet (1934),[7] who had worked with Lafontaine in establishing a universal bibliographical organization of intellectual work (figure 2),[8] had envisaged a machine for reading:
Soon television will be a problem that has essentially been resolved just as it is already from a scientific viewpoint: the image reproduces itself at a distance, wireless. One can imagine an electric telescope which allows one to read at home pre-ordered pages of the books exhibited in the “teleg” room of large libraries. This will be the telephoned book.[9]
This led to “a machine to think/imagine the world” (la machine à penser le monde, 1943)[10]as part of his larger vision of a Mundaneum for access to all human knowledge. This was a large, television-like sphere that allowed viewers to study information literally from all sides. Neither of these machines were developed directly as Otlet or Bush envisaged. Nonetheless, Vannevar Bush’s student, Claude Shannon, applied the principles of Boolean logic to define bits and bytes as they are now used in computers. Bush’s essay also inspired Douglas Engelbart, Ted Nelson and most of the pioneers of what has since been called hypertext and hypermedia. By 1968 the Internet became a reality.
We are almost always told that the Internet began solely in America. This is not really true. The earliest pioneers included a Frenchman, Louis Pouzin,[11] who introduced the idea of data grams and an Englishman, Donald W. Davies,[12] who was one of the inventors of packet-switching. Indeed, Davies is credited with renaming what had been called data grams as packets in 1976.[13] Another of the great pioneers in Britain was Peter T. Kirstein,[14] who went to America at the beginning of the Arpanet in 1969 when it was decided that Davies could not go for reasons of national security.[15] According to Bruce Sterling: “The National Physical Laboratory in Great Britain set up the first test network on these principles [of packet switching] in 1968. Shortly afterward, the Pentagon's Advanced Research Projects Agency decided to fund a larger, more ambitious project in the USA.”[16]
Hence an English project[17] of 1968 inspired the ARPAnet in 1969, which marked the beginnings of the US Internet. It was false to claim that America invented the Internet and it was simply misleading to argue that because America invented the Internet, it was their right to control its governance through organizations such as the Internet Assigned Names Authority (IANA) and more recently the Internet Corporation for Assigned Names and Numbers (ICANN).
3. AT&T
Long before the Internet began, AT&T founded Bell Labs in 1925. In the 1930s, Vannevar Bush was a professor at the Massachussets Institute of technology (MIT) working on a Differential Analyser machine that led to the Electronic Numerical Integrator and Computer (ENIAC).[18] In 1945, Bush went on to write As we may Think, which was one of the first published visions of what the Internet might become. Vannevar Bush’s[19] student at MIT in the 1930s was Claude Shannon who recognized a close similarity between the Boolean algebra that he had learned as an undergraduate and an electric current. “The next obvious step would be to lay out circuitry according to Boolean principles, allowing the circuits to binary-test propositions as well as calculate problems.”[20] Claude Shannon, Vannevar Bush and Norbert Wiener, the father of cybernetics, all knew each other well.[21]
Shannon graduated from MIT in 1940, and in 1941 joined the Bell Telephone Laboratories, where he was “charged with the tasks of developing more efficient information transmitting methods and improving the reliability of long-distance telephone and telegraph lines.”[22]Information was taken in its widest possible sense to include messages occurring in any communications medium - television, radio, telephone, data-processing devices such as computers and servomechanisms, even neural networks. This quest for multi-media avant la lettre, led Shannon and his colleague Weaver, to develop information theory (1948)[23], which is the cornerstone for the digital, electronic communication of information. Wiener’s book on Cybernetics was published in the same year. Hence, the context for the internet was prepared at AT&T’s Bell Labs.
The same Bell Labs did some of the first digital transmission and switching in 1962, seven years before the US Internet began. When the Department of Defense (DoD) commissioned the Advanced Research Project Agency’s Network (ARPANET) to do research into networking, it was AT&T that provided 50kbps lines. In 1969, the year that the Internet began, AT&T’s Bell Labs developed Unix, which was “the operating system behind the early Internet, and was one of the key operating systems in the middle and late ARPANET.”
John Quarterman has noted that Ken Thompson and Dennis M. Ritchie “originally managed to develop [the] UNIX [software], starting on a machine in an attic, largely by convincing AT&T Bell Labs that they were really working on a text-processing system for handling patents.”[24] This led later to RFC 681, “Network Unix,” (May 1975),[25] the operating system behind Usenet. Quarterman noted that “AT&T itself often didn't seem to know half of what its own people were doing. For several significant years, a sizeable proportion of USENET was supported for free by AT&T.”[26] In Quarterman’s version, AT&T had a few bright visionaries working away while the management was blind.
There are reasons to believe that management must have been aware of something. Between 1969 and 1972, Bell Labs developed the C programming language basic to much of Internet software. In 1970, AT&T installed the first cross-country link between the University of California at Los Angeles (UCLA) and Bolt, Beranek and Newman (BBN) in Boston. In 1976, AT&T’s Bell Labs developed (Unix-to-Unix CoPy (UUCP), which was distributed with UNIX one year later. A more recent survey of AT&Ts achievements reminded us that it: “It launched commercial radio-telephony services across the Atlantic (with what is now British Telecom) in 1927. AT&T commissioned the first commercial communications satellite, Telstar I, in 1962 and was active in development of the internet.”[27]
In the 1960's, Michael Lesk “worked for the SMART project, wrote much of their retrieval code and did many of the retrieval experiments, as well as obtaining a PhD in Chemical Physics.” He joined Bell Core and in the 1970s he “worked in the group that built Unix.” He wrote Unix tools for word processing (tbl, refer), compiling (lex), and networking (uucp). In the 1980s, he “worked on specific information systems applications, mostly with geography (a system for driving directions) and dictionaries (a system for disambiguating words in context).[28] He went on to become Chief Scientist of Bellcore[29] and later became the Division Director, Information and Intelligent Systems at the National Science Foundation (NSF).[30]
At the time of the divestiture of in 1984, AT&T changed its Central Services Organisation (CSO) into Bell Communications Research (BCR) “to serve the Bell operating companies providing a center for technological expertise and innovation.” That same year, AT&T introduced the North American Numbering Plan.
Another scientist, Dr. Bruce R. Schatz, also “spent ten years in industrial R&D at Bellcore and Bell Labs, where he built prototypes of networked digital libraries which served as a foundation of current Internet services through the Telesophy project.[31] It has been claimed that this project on multimedia information retrieval across networks “showed the feasibility of what became the World-Wide Web 10 years later.”[32] In an e-mail of 1 February 1985 18:52, Dr. Schatz described his vision of the Telesophy project as a “worldwide information community, a greatly generalized USENET.”[33] At the time, the Telesophy project was not seen as a priority at Bell Labs. Accordingly, William Y. Arms, then the Vice President, Academic, of Carnegie Mellon University, wrote a letter of support.[34]Professor Arms went on to become the Director of Library Systems (1995-1997) and later the Vice-President of the Corporation for National Research Initiatives (CNRI, Reston, VA). Meanwhile, Dr. Schatz went on to develop the WCS [the Worm Community System]. [35]
Dr Schatz went on to become scientific advisor for digital libraries and information systems
at NCSA when they developed the Mosaic browser. He also became Principal Investigator of the NSF/DARPA/ NASA Digital Libraries Initiative project and subsequently developed the Interspace project, which plays a role in visions for a Next Generation Internet. (Cf. below § 4). More recently, NASA has also been exploring an interplanetary Internet, which may potentially replace the idea of packet switching.
In 1986, when New England was cut off from the net, it turned out that all seven of the ARPA trunk lines were in one large AT&T cable. According to their own website, from 1984 until 1996, “AT&T was an integrated provider of communications services and products, network equipment and computer systems.”[36] Could all of this have been allowed to evolve without any knowledge and endorsement by the management?
In 1991, AT&T merged with National Cash Register (NCR) “in a $7.3 billion deal that gave AT&T the ability to better meet customers' needs for networked computing, globally.”[37] It is striking, that when InterNic was established by the National Science Foundation (NSF) in 1993, the directory and database services were given to AT&T. In 1994, AT&T became one of the first companies to experiment with Internet banner ads. AT&T’s Worldnet – also the name of Schatz’s vision outlined above-- was one of the early Internet Service Providers (ISPs). In 1996, the corporation voluntarily split into three companies:
1. AT&T communication services
2. Lucent communications products
3. National Cash Register (NCR) Corp. computer business.
In theory, there was now a clear distinction between 1) telephony interests (AT&T); 2) related software products (Lucent) and 3) computer/Internet interests (NCR). In practice, the situation remained more complex for at least three reasons. First, AT&T itself today had three Internet related research laboratories: a) Research Internet and Network Systems Research[38]; b) Voice Enabled Services Research[39] and c) Information and Software Systems Research.[40]
Second, Lucent, a spinoff from the old Bell Labs, in addition to its work on data networking and integrated circuits, had no less than eight sets of products related to the Internet.[41] Third, and perhaps most significantly, AT&T’s Central Services Organisation (CSO), which became Bell Communications Research (BCR or Bellcore) was officially sold to Science Applications International Corporation (SAIC, cf. §6), but continued to have goals very close to those of AT&T, particularly in fields such as ENUM. After 1997, AT&T was officially only a “communications services” company. Nonetheless, it continued to expand its interests beyond the narrow confines of telephony. For instance, in 1998, AT&T bought the cable company, MediaOne. According, to Clay Shirky, the motivation for this move came from AT&T’s plans to become “the sole provider for high-speed internet access for a sizable chunk of the country.[42] In January 1999, Lucent Technologies acquired “Ascend for a sum of $20 billion, thus obtaining products and skills in the IP, ATM and xDSL sectors. Also in January 1999, Lucent became “the world's leading equipment manufacturer ahead of Ericsson, with revenues of $26.845 billion, representing a 17% increase over a year.”[43] In March 1999, Lucent acquired “Kenan Systems ($1.48 billion), a leader in billing and customer management systems.”[44]
In the past five years, there has been enormous activity to extend networks beyond computers to include all information appliances. Here, the Home Audio Visual Information (HAVI)[45] consortium, which includes Philips, was a pioneer. Others such as the Universal Plug and Play Forum[46]wanted to extend this concept to smart objects and intelligent devices – especially attractive under an IPv6 architecture where the slogan “IP Everywhere” is no exaggeration with the possibility of several billion IP numbers per mm² of the Earth’s surface.Low-level artificial intelligence systems “currently monitor military systems, optimize the water level in dishwashers, control the actions of simulated pets, and help predict natural disasters.”[47] This is an area in which the research labs of AT&T have been working for decades under the title of telemetry.[48] For instance, in 1999, Lucent's Kenan Systems and Whisper Communications entered into a global marketing agreement for utilities and energy service providers to:
answer the specific billing, customer care, order management, decision-support and usage mediation requirements of leading service providers in the communications and utility industries world-wide, including gas, electric, water, mobile and wireline voice and data services, broadband, Internet, and value-added services.[49]
If these developments are considered from a global level there are six sets of players in the global ICT game: 1) the telcos which now include cable interests (AT&T, Sprint, NTT, British Telecom, Deutsche Telecom, France Telecom, Cable and Wireless etc.); 2) the computer companies (IBM, Compaq/HP, Sun, Microsoft, Apple); 3) the carrier equipment companies (Cisco, Lucent, Nortel, Alcatel, Ericsson); 4) the content holders (Reed/Elsevier, Thomson, Murdoch, Bertelsmann, and AOL/Time Warner and Vivendi/Universal); 5) the home entertainment companies (Sony, Philips, Samsung etc.) and 6) the satellite companies (e.g. SES Global). Together these players represent different aspects of the digital knowledge production chain or knowledge life-cycle.
Theoretically these sets of players are all in competition with one another. In practice AT&T has links with all parts of this knowledge life-cycle. For instance, with respect to computer companies, AT&T has links with Microsoft[50] and long-standing links with IBM. Already in 1991, IBM and AT&T Paradyne announced that they would develop mainframe network technology together.[51] On December 8, 1998 AT&T and IBM announced a series of strategic agreements under which AT&T would acquire IBM's Global Network business for $5 billion in cash, and the two companies would enter into outsourcing contracts with each other. The contract for AT&T to acquire IBM's network was completed in the US on April 30, 1999.[52]
In 1999, AT&T and IBM also made an E-Commerce alliance.[53] In 2000, AT&T and IBM announced that they would work together in providing wireless solutions.[54] In September of 2000 IBM and AT&T signed a $450 million web hosting deal.[55] In 2001, IBM, AT&T and Lotus (owned by IBM) announced an Application Service Provider (ASP) Enablement Suite.[56] In 2002, IBM and AT&T released free privacy tools together.[57] In addition, there were a series of further links through IBM. In 2002, IBM acquired PriceWaterhouse- Coopers in order that, among other things, their educational solutions will be aligned.
With respect to carrier equipment, both AT&T, and IBM have close links with Cisco. With respect to content holders AT&T and AOL were poised to launch an IPO together.[58] AOL has made links with Legend Computers in China. With respect to home entertainment IBM has links with Toshiba and Sony for making Playstation 3.[59] In this constellation, pipelines and content are integrated. IBM was theoretically in competition with EDS and SAP but was also partnered with them.[60] Through a nexus of AT&T, IBM, Cisco, AOL, and Sony five sets of players were linked. Hence, even the sale of MGM to Sony did not threaten this inner circle.
From all this[61] it is clear that a) AT&T’s interests in networked computing existed well before the Internet; b) AT&T’s interests played a significant role in the development of the Internet and c) neither the forced split up in 1984, nor the voluntary partitioning into communications services (AT&T), communications products (Lucent) and computers (NCR) in 1996 changed this fundamentally. In short, AT&T[62] was and remains centrally active in the development of the Internet.[63]
Restructuring
In 1999, Deutsche Telekom announced that it was restructuring into four divisions. In October 2000, AT&T announced that it was (also) restructuring into four businesses, namely, AT&T Consumer, AT&T Business, AT&T Wireless, and AT&T Broadband. It is striking that preparations for this separation appear to have evolved carefully over the past decade.
AT&T Consumer
In 22 July 2004, AT&T announced that it was no longer seeking residential customers.[64] This was slightly misleading. In December 2004, AT&T’s Consumer section called: At Home and on the Go claimed it was “for Voice over IP, calling plans, Internet and more.”[65] Meanwhile four of the largest media mergers in the past decade related directly to this focus on consumers, and to the quest for Broadband (cf. below) namely, a) TCI/Liberty; b) Time-Warner-AOL; c) Twentieth Century Fox and Newscorp and d) Metro-Goldwyn-Mayer (MGM).
TCI/Liberty
Telecommunications Inc. (TCI) began in the 1950s. Liberty Media was founded in 1990 as TCI’s programming arm. In 1988, like Comcast, TCI/Liberty also bought a part of Storer from KKR. In 1999, AT&T bought John Malone’s Telecommunications Inc. (TCI) for $48 billion (some say $54 billion, while others claim the deal was worth $68 billion[66]). This provided AT&T with Liberty Media and “with a substantial stake in Murdoch-controlled News Corporation, a 25% share of Time Warner Cable and 39% of cable ISP @Home.”[67] It also set the stage for a new division called AT&T Consumer Services.
In 2001, AT&T spun off Liberty Media. In 2001, Liberty also took a $1.4 billion stake in UnitedGlobalCom/United PanEurope Communications cable group and in 2004 it gained control of same. Meanwhile in 2001, it bought “nine German regional cable networks from Deutsche Telekom for $5 billion and Deutsche Bank's Tele Columbus and SMARTcom AG cable subsidiaries for $1 billion. In 2003, it bought the remaining 57% of QVC from Qualcomm. By 2004, it had increased its stakes in New Corp to 17% and there were rumors that Liberty was trying to take over News Corp.[68]
AT&T research into communications technology was reflected in partnership between Western Electric and Warner Bros subsidiary Vitaphone about sound recording and speakers for motion films. That was used for the landmark 1926 Don Juan and 1927 Jazz Singer, with AT&T's Electrical Research Products Inc (ERPI) being established in 1927 to service and distribute Western Electric sound equipment.
By the end of the following year over 1,000 cinemas used that gear and most Hollywood studios were leaning to Western Electric as a supplier in the transition to sound production. That drove RCA's acquisition of a stake in FBO during 1927 and creation with Joseph Kennedy of the Radio Keith Orpheum (RKO) film production, distribution and exhibition group. AT&T in turn financed studios and cinema chain purchases of its equipment through loans from ERPI or taking a stake in the film companies.[69]
America OnLine (AOL)
airline reservations, restaurant reviews, banking information” into per sons homes.[70] In 1982, the Control Video [71]
Time-Warner-AOL
February 1999, AT&T announced an agreement with Time Warner to set up a joint venture for providing cable operator subscribers (12.6 million in 20 States) with telephone services. AT&T had a 75.5% stake in the new company.[72]the conglomerate had a market value of US$300 billion in January 2000 but had slumped to US$105 billion two years later.” [73]
Under the agreement, for its 27.64 percent stake in TWE, AT&T Broadband will receive $2.1 billion in cash, $1.5 billion in common stock of AOL Time Warner Inc., valued as of the time of closing, and a 21 percent equity interest (with less than five percent voting power in the election of directors) in a new cable company serving about 10.8 million subscribers.[74]
In September 2003, dissatisfaction with AOL’s role was manifested through the Board's decision to remove 'AOL' from the AOL Time Warner corporate title.[75]regulatory and legal action over accounting practices at its America Online division”[76]
Twentieth Century Fox and Newscorp
[77]substantial stake in Murdoch-controlled News Corporation. the three largest international media groups, operating in most sectors and most continents.”[78] In July 2003 News Corp. “signed a seven-year, $150 million deal with the telecom carrier [AT&T] for voice and international data services.”[79]
Meanwhile, in 2001, Newscorp sold its 49.5% stake in Fox Family Worldwide to Disney for $5.3 billion. In 2003, it bought a 34% controlling stake in Hughes Electronics (satellite broadcaster DirectTV) for $6.6 billion.[80] Hence, the attempts of Comcast to acquire Disney and of Liberty to acquire Newscorp may have been part of a bigger picture, which aimed to get back DirectTV that initially belonged to Hughes, a subsidiary of General Motors, another of the very big players behind the scenes.
MGM (Metro-Goldwyn-Mayer)
In 1997, MGM purchased Metromedia International's studio properties (Orion Pictures, Goldwyn Entertainment, and the Motion Picture Corporation of America).”[81] In 2004, MGM was sold to Sony. As we shall see below under AT&T Broadcast, Comcast, played a significant role in this venture.
Meanwhile, in 1997, C. Michael Armstrong, CEO of General Motors (GM) Hughes Electronics, “led a great new product launch--DirecTV, a satellite-to-home television service that beams crystal-clear programming to rooftop dishes.”[82] We shall show later that the privatization of satellites represented another important dimension to the struggle for communications channels (§10). While the above developments were momentous in themselves they represented only a quarter of the complete AT&T vision.
AT&T Business
Some aspects of AT&T’s business section have been mentioned above in the discussion of links with IBM. There were a number of other elements. In 1996 J.P. Morgan, CSC, Andersen Consulting, AT&T Solutions and Bell Atlantic Network Integration formed the Pinnacle Alliance to manage parts of J.P. Morgan’s global technology infrastructure.[83] In 1998, AT&T bought IBM’s global network for $5 billion. It went on to make a $10 billion dollar joint venture with British Telecom for one stop shopping for big businesses.
On 23 January 2002, AT&T’s Enterprise Business announced a) Managed Services Portfolio, and a Strategic Approach To Serving Business Customers Worldwide; b) New High Availability And Security Services To Its Business Continuity Portfolio; c) Enhanced Capabilities to its Hosting Services Portfolio; and d) the debut of its First Two Global Virtual Private Network Services.[84] Their Enterprise business section addressed government, wholesale, resellers, VARS and agents. It also had a separate site for Small and Medium Business.[85]
AT&T Wireless
A third division focused on wireless communications. AT&T claimed to have invented cellular service at its Bell Labs in 1947 and to have built the first cellular systems in Chicago and Washington in 1984. In 1994, it acquired McCaw Cellular Communications for $11.5 billion.[86] On 3 May 1999, AT&T acquired Vanguard Wireless for $1.7 billion including about $600 million in assumed debt.[87] On November 30, 2000, AT&T and NTT DoCoMo announced the formation of a strategic alliance to develop the next generation of mobile multimedia services. NTTDoCoMo invested nearly $10 billion for a 16 percent stake in AT&T Wireless.[88] In 2002, AT&T Wireless acquired TeleCorp PCS. In 2002, AT&T Wireless made a strategic alliance with Microsoft. In 2003, AT&T Wireless made a strategic alliance with IBM. In 2004, AT&T Wireless (AWE) launched the first UMTS service in the United States.
SBC helped to develop and had a 60% ownership of the Cingular Wireless Network. Cingular was acquired by LCC International, which then proposed to buy AT&T Wireless. By 1 November 2004, federal regulators allowed LCC’s[89] Cingular to buy AT&T’s wireless services for $41 billion.[90] Conveniently, Colin Powell’s son, Michael Powell, was the head of the FCC. Meanwhile, on 19 May 2004, AT&T announced that it had “taken its first step in re-entering the wireless market by reaching an agreement with Sprint that would allow AT&T to sell AT&T-branded wireless service to its over 30 million business and consumer customers.”[91]
AT&T Broadband
AT&T’s fourth division focused on broadband in the form of cable. Here AT&T’s role in media conglomerates such as Time-Warner were important, but its activities centred on three major deals with Teleport, Media One and with Comcast respectively.
Teleport
On 12 January 1998, AT&T bought Teleport Communications Group, Inc. (TCG), for $11 billion.[92]Under the deal, TCG’s three cable owners, Telecommunications Inc. (TCI), Comcast and Cox Communications held a 10% stake in AT&T. Within two years AT&T had also bought TCI and Comcast. Robert Annunziata, TCG's chairman and CEO, became executive vice president of AT&T and led the company's local services unit. The TSG deal gave AT&T “networks that cover 66 markets and pass more than 13,000 buildings.[93]
Media One
Charles Lillis was serving as president and CEO of US West Media Group. In 1998, MediaOne split from US West to become the nation’s fourth cable company. Lillis became the CEO of Media One, which employed 16,000 people, operated in ten countries and generated more than $7 billion in annual revenues through domestic and international cable as well as telephone communications, international wireless and interactive multimedia services.[94] In late 1999-early 2000, AT&T was said to have paid $44 billion to buy the Media-One Group.[95] Others claimed that “AT&T acquired the Media-One Group for $62.5 billion.” [96] The deal gave AT&T:
ownership of all or part of the cables reaching into 60 percent of American homes. Through its ownership of Liberty Media, AT&T is an owner of MacNeil-Lehrer Productions, the co-producer of this program. As a result of that deal, Microsoft announced it was investing $5 billion in AT&T, a move that gave the software manufacturer a strong position in the market for operating systems used in set-top boxes for cable television. [97]
AT&T was now a very significant player in the cable world. Within two years it seemed to have thrown away what it had acquired.
Comcast
In November 2002, Comcast officially acquired AT&T Broadband (i.e. its cable assets) for $70 billion.[98] A lawsuit “accused the company and its top officers of keeping the share price up” while these two deals were made. AT&T and Comcast removed this hurdle with a $100 million settlement.[99]
The American Cable Systems began in 1963 and was renamed Comcast in 1969. In 1986, it doubled in size by a 26% stake of Westinghouse's Group W Cable operations. In 1988, it bought 50% of Storer Communications from KKR, making it the fifth largest cable operator in the US. In 1997, Comcast took a 40% stake in E! Entertainment along with Disney. As noted above, that same year Microsoft invested $1 billion in Comcast. In 1999, Comcast sold Comcast cellular to SBC Communications. It also announced a $60 billion merger with MediaOne, did not go ahead and received instead a $1.5 billion settlement and 2 million AT&T customers.
In 2000, Comcast did cable system swaps with Adelphia and AT&T. In 2001, Comcast bought AT&T’s broadband arm (i.e. its cable TV) for $44.5 billion. By co-incidence the man who had been CEO of AT&T (1997-2002), became the chairman of AT&T Comcast[100]and became CEO of Comcast in 2002. To some the deal between AT&T and Comcast was not a surprise: “The two companies are no strangers. Most recently, on July 2 they closed a deal under which Comcast purchased an AT&T-owned cable TV system in Baltimore for $518 million in cash. The system had 115,000 subscribers. At the beginning of this year, Comcast sold its stake in cable Internet provider Excite@Home to AT&T in exchange for AT&T stock.”[101]On the surface, AT&T had sold its jewels to Comcast. Even so, the deal gave AT&T shareholders a majority of the economic and voting interests in the combined company.
On 17 February 2004, Comcast offered to buy Disney for $54 billion to create the world’s largest media company.[102] Disney rejected the offer. On 21 August, Comcast “announced a deal to acquire TV and Internet content as part of a licensing agreement that will create a new suite of programming for Comcast's broadband subscribers. The new package will be dubbed Disney Connection.”[103] On 13 September 2004, while attention was focused on Sony’s takeover of MGM, Comcast made agreements with Sony to distribute their videos in the US.[104] Comcast played a significant role in this $5 billion buyout of the Metro-Goldwyn-Mayer studios announced in the fall of 2004. Comcast invested $300 million in the bid led by Sony Corp. “The deal gives the cable operator the right to buy a 20 percent stake in MGM. Plus, it allows Comcast to distribute MGM's content through its new video-on-demand, or VOD, service.”[105]
On 18 October 2004, Comcast and Walt Disney Co. launched a “broadband portal Comcast Kids Channel on Monday, part of the cabler's broader effort to cater to tots, which will include a 24/7 children's cable network”[106] In November 2004, “Comcast Cable (formerly AT&T Broadband, Media One and Time Warner Cable)” described itself as providing public access by contract” and insisted that “Public Access is an extension of the First Amendment to the U.S. Constitution.”[107]
Comcast still owned a 21% stake in Time-Warner which it could reduce to 17% in order to make a deal with Time Warner re: Adelphia. In November 2004, Comcast and Time Warner were planning to buy Adelphia Communications, which was also the fifth largest Cable TV company in the country, but faced with creditors claiming $3 trillion.[108] The head of Adelphia's management team, William T. Schleyer, who formerly ran AT&T's cable business,[109] was rumoured to favour a buyout by private equity firms such as Thomas H. Lee Partners; Providence Equity Partners; and Kohlberg Kravis Roberts (KKR). On 8 November 2004, Comcast, as the largest cable TV provider, announced a deal with Microsoft to work together.[110]
From the above it is clear that AT&T remained a very major player. In an article on the top 25 digital economy companies in 1999, Business Week, basing its claims on Morgan Stanley Capital International ranked AT&T in third place (after Microsoft and IBM), with a
market value of $186.14 billion.[111] In 1999, the International Telecommunications Union (ITU) ranked AT&T as number 2 (after NTT) of the top 20 public telecom operators: as number 1 of the top 20 international telecom operators; and number 9 of the top 20 mobile telecom operators with net incomes of $147.8 billion; $3.489 billion and $7.627 billion respectively.
By contrast, according to the Forbes list of the top 2000 global companies in 2004, AT&T ranked number 439 (although in terms of sales it was number 85 in the world) while Verizon, SBC Communications and Bell South were now said to be the top telecoms in the world arena and appeared in positions 11, 12 and 74 respectively.[112] Perhaps as a consolation, in the period 2001-2003 AT&T received $4.6 billion in tax rebates, while Verizon received 4.3 billion.[113] Meanwhile in 2004, Lucent was due to receive a $816 million tax refund.[114]
If we stand back to assess these developments several interpretations are possible. A negative view would be that the former monopoly holder in telephony saw its markets fragmented into a thousand fiefdoms and was desperately hanging on by making alliances with the big players in the field. A more positive interpretation would note that AT&T had serious stakes in all the big media conglomerates in the US. Perhaps it did not own them 100%, but then no global player today does. Indeed, the former telephony company had now expanded into cable, television and Internet, or as one observer put it, Ma Bell was becoming Ma Bel, Ma Cable and Ma Internet.[115] At a superficial level AT&T was a monopoly telecom operator until 1984 and then faced increasing competition from MCI, Worldcom, Sprint and others.
There is clearly some truth to this as becomes evident if one looks at basic statistics concerning telephone, cable and mobile telephone operators (figures 1a-c). Of course, some looked at these same statistics to suggest that Comcast was now the central company and that AT&T was effectively a thing of the past (figure 1d).
We are told that in an effort to regain some of its lost ground, AT&T made bold moves into both the cable and the wireless sectors in the period 1999-2001. Having made this immense leap, they then sold off their assets in these two vitally important sectors between 2002 and 2004. If this were true, then the image of AT&T as a monolithic mastodon incapable of adapting to new developments was well deserved. From any point of view there were a bewildering number of deals going on between many competing partners.
But as we stand back to take a long term view another picture emerges. There are only a handful of giants, AT&T, General Electric, Westinghouse, General Motors, IBM and more recently Microsoft. Two things are notable. First, the number of close links among this inner circle of the very big players continued undiminished. Second, and even more fascinating, is how these companies “lose” assets and then regain them. For instance, as we shall see presently (§ 7), General Electric helped to found NBC, lost it in 1932 and gained it back in 1985. By 2004, it owned not only NBC but also Vivendi-Universal. It was also a central player in SES Global, a key satellite consortium. In the past decades, the time frame may have accelerated but the basic approach remained the same: divide and conquer using ever new company names responsible to the same old headquarters.
Telephone Companies Millions of customers
1. Verizon 28.2
2. SBC 24.3
3. Bellsouth 12.7
4. Qwest 8.8
5. Sprint 7.8
6. Century Tel 3
7. Comcast 1.3
8. Cox 0.9
9. Adelphia 0.9
Cable Companies Millions of customers
1. Comcast 21.5
2. Time Warner 10.5
3. Cox 6.6
4. Charter 6.5
5. Adelphia 5.2
6. Cablevision 3.0
Wireless Company Millions of customers
1. Cingular-AT&T 46
2. Verizon 40
3. Sprint 22
4. T-Mobile USA 15.4
5. Nextel 15.3
6. Alltell 12
Figure 1a) Largest telephone companies;[116] b) cable companies[117] and c) wireless companies[118] in the US in 2004;[119] d) Another view of Televison, Internet and Telephone in the US in 2004.[120]
As noted earlier, according to Morgan Stanley’s ranking of the top 25 digital economy companies, the top three were Microsoft, IBM and AT&T respectively. We noted that AT&T made various partnerships with Microsoft and IBM. Is it likely that it would simply hand over its crown jewels to Comcast and Verizon if they were outright competitors? Or is it more than a co-incidence that the head of AT&T went on to become the head of Comcast at the critical moment when this handover occurred? Was there an entente between Ma Bell (AT&T) and her not so baby Bells? Whichever interpretation one favours AT&T remained one of the largest telecoms of the world with stakes in telephony, cable, wireless, Internet, internet telephony in the form of Voice over Internet Protocol (VOIP) and even satellites, something which they began with Telstar in 1962.
4. Competitors
The breakup of AT&T in 1984 opened the doors for hundreds of competitors. Most of these were small and short lived. On the US scene, there were three more serious competitors: MCI, Worldcom and Sprint. On the world scene, there were a half dozen serious players: NTT, British Telecom, Deutsche Telecom, France Telecom and Cable&Wireless. In the past decade, most of these have been outplayed or played out, some would claim very deliberately, and have diminished in power with respect to AT&T.
MCI
Microwave Communications of America, Inc. (MCI) was founded in 1968 to help truckers communicate via two-way radios. In 1969, the FCC approved MCI's application to provide private microwave service between Chicago and St. Louis. MCI went public in 1972 and in 1973 became “the first telecommunications company to market specialized services to the public.” In 1974, MCI began a series of lawsuits against AT&T that led to its divestiture in 1984.
In 1975, MCI activated its first computer switch. This became the cornerstone of MCI’s network. In 1983, MCI made the largest order of fiber optic cable ever placed thus far of more than 150,000 miles. By 1987, MCI’s new coast-to-coast fiber optic network began operations. On 3 November 1996, British Telecom agreed to a merger whereby it would acquire MCI for $20 billion.[121] This would have created a major competition for AT&T. The combined BT-MCI would have been “one of the largest companies in the world, with annual revenues of $40.6 billion, 181,000 employees, and 43 million customers in 72 countries.”[122] Some spoke of a new world order.
In May 1997, the EU gave its consent. In July 1997, the US Justice Department agreed to the merger[123]and in July the FCC also agreed to the merger. Then, on 10 July, 1997 MCI warned “shareholders that it was running up unexpectedly large losses as it tried to break into the local phone business. The company said those losses could reach $800 million in 1997 alone.” On 21 August 1997, the deal was in disarray; there was discussion that if British Telecom bought MCI, it would pay “from 10 percent to 25 percent less for the company than the original terms of the deal. That consensus knocked “$3.4 billion off the company's market value in one frantic trading session.”[124] The next day BT renegotiated saying it would “pay about $17 billion [rather than $20 billion] to buy MCI and create a joint entity, to be known as Concert Plc.” BT already owned about 20 percent of MCI.[125]
In October 1997, presumably of their own accord, Worldcom announced plans for a hostile takeover of MCI for $40 billion that threw into question the planned BT-MCI merger. By July 1998 the MCI-Worldcom deal was done; Cable and Wireless had bought MCI’s Internet assets and BT was looking for a new partner. On 10 November, 1998, AT&T and BT applied to the FCC for a joint venture, called Concert which lasted until 16 October 2001.[126] Two years and one week after MCI planned serious competition to AT&T through a merger with BT, AT&T had created its own joint venture with BT against MCI.
Worldcom
Although founded in 1983 by Bernie Ebbers, Worldcom’s website used to claim that during the 1960s and 1970s, Worldcom itself had pioneered packet services and the use of international X.25 standards for public packet services for point of sale and credit card transactions. In 1977, Worldcom introduced the first internal e-mail service (INFOPLEX); in 1979, the first online consumer service; in 1983, the first e-commerce application with an e-mall of 100 stores, where orders could be placed and in 1988, the first Internet access service and first commercial connection to the Internet. The company went public in August 1989.
In the decade that followed, WorldCom became involved in a number of pioneering experiments leading to higher bandwidth such as the National Science Foundation Network (NSFNET linked with Compuserve, 1989); a long-haul Synchronous Optical Network (SONET, 1990); a public Frame Relay service (1991); a commercial version of frame relay on a cell-based network platform (1992); a dedicated, multipoint, Internet Protocol Virtual Private Network (IP VPN, 1994); integrated service for voice, data and video transmission over an ATM network (1994); combined Synchronous Optical Network (SONET) and Asynchronous Transfer Mode (ATM) technologies and the first 10 Gbps data transmission on an enterprise network (1995) and high-speed Frame Relay service (1996).
UUNet, founded in 1987, became the first business Internet Service Provider (ISP) with a backbone network.[127] They too claimed to have introduced a number of firsts: a first commercial connection to the Internet (1988); commercial application-layer firewall services for Internet Protocol (IP) Networks (1992); significantly higher Internet backbone access speed level, from a T-1 (1.544 Mbps) in 1993 up to the current 10 Gbps OC-192c level (1993); designed and installed the first dedicated multi-point Internet Protocol Virtual Private Network (IP VPN) Service (1994); the first profitable ISP (1995) and the first ISP to offer Extranet VPNs and Web Hosting services (1996). That same year WorldCom bought Uunet.
MCI/Worldcom introduced commercial Internet traffic on a backbone network at OC-192 speed of 10 Gbps (2000) and initiated an all optical network (Terabit Challenge) to optimize use of available bandwidth (2001).[128] In the next years, Worldcomalso focussed increasingly on infrastructure. In 1997, they had the first undersea (Gemini) cable system network to carry production traffic, connecting city centres in New York and London. In 1999, they began building the Southern Cross Cable Network, the first undersea cable network system primarily for Internet and data use between the United States, New Zealand and Australia.
In 1998, MCI acquired the ailing Cable and Wireless company “for $1.8 billion dollars” and subsequently “acquired Exodus Communications and Digital Island for a total outlay of $1.19 billion dollars.”[129] In 1998 also, in order to help the MCI/Wordcom merger MCI sold its backbone to Cable and Wireless for $625 million.[130] By 22 July 2002, MCI/Worldcom was bankrupt:[131] Some spoke of an $11 billion accounting fraud.[132] Others noted that it had over $1 trillion dollars of intercompany debts, of which $380 billion involved unidentified entities within the company.[133] To be “worldconned” became a new expression for persons who were conned “big time.”
World Scene: NTT
On the world scene, Nippon Telephone and Telegraph (NT&T) is the only company operating at the scale and size of AT&T. As one might expect these giants have been co-operating happily. In 1996, they worked together in creating a new kind of fibre optic wire (cf. below § 10). On 28 April 1999, the two companies announced that they would “develop agreements and business ventures that provide value-added networking solutions for large and mid-sized multinational businesses and industries in the Asia Pacific….The first priority of the two companies will be to collaborate on the operation and development of the IBM Global Network (IGN) in Japan which AT&T is in the process of acquiring.”[146] On 30 November, 2000 NTT DoCOMO and AT&T announced:
a long-term partnership to develop wireless multimedia applications. The alliance will enable users to access HTML applications and content on mobile wireless terminals and allow the two companies to promote common global standards. As part of the deal, NTT DoCoMo will invest nearly $10 billion for AT&T referred stock, equivalent to 406 million shares of AT&T Wireless tracking stock.[147]
As a result NTT’s DoCoMo had a 16% stake in AT&T Wireless.[148] On 26 December 2002 AT&T Wireless and NTT DoCoMo outlined “plans for targeted rollout of W-CDMA services in four US cities by 2004.[149]
British Telecom
A number of private telegraph companies emerged from 1846 onwards. The Telegraph Act of 1865 passed control of these to the General Post Office (GPO). This was renamed the Post Office in 1969 with a separate division called Post Office Telecommunications (PTO). This division was renamed British Telecom in 1980-1981. It was privatized in 1984 and renamed BT in 1991.[150]
Although much smaller than AT&T, BT operates around the world. In 2004, its global services department had 20,000 employees on four of the five continents (not in Africa).[151] On 29 March 1996, British Telecom and Cable & Wireless “restarted discussions about a merger which would see C&W acquire BT in a reverse takeover.”[152] In 1993, BT announced an alliance with MCI. In 5 November 1996, they announced a definitive merger:
They announced Concert, a new high-growth global communications powerhouse borne from the union of British Telecom and MCI. This is different from the "Concert" they created three years ago. That organization will now be called Concert Communications Services. This new global company will provide local, long distance, and international services including voice, data, wireless, Internet, information technologies, and outsourcing.[153]
This merger would have posed serious competition for AT&T. Indeed, BT planned to become “the leading global telecommunications operator” with “network related products and services.”[154] By 1998, this plan was definitively derailed by the Worldcom/MCI merger. In July 1998, BT announced a joint venture with AT&T. In September 1998, BT bought the Concert Business Services back from MCI. On 16 November, AT&T announced that it would: “beef up its international business services by integrating the Concert global telecom products of its joint venture partner, BT.”[155] But there was much more to this alliance than a simple joint venture by two companies. Three other companies were involved: 1) VLT Co. L. L. C., (a Delaware limited liability corporation, which was a subsidiary of a holding company based in the Netherlands) 2) Violet License Co. LLC, (a wholly owned subsidiary of VLT) and 3) TLTD, (a Bahamas- based corporation, was also a subsidiary of a holding company based in the Netherlands). In February 1999, the five companies made an application “to assign to VLT ownership interests of AT&T:
a) of authorization in international cable facilities within United States territorial limits”:
AT&T Corporation (multiple authorizations)
AT&T Alascom (multiple authorizations)
AT&T Puerto Rico, Inc. (multiple authorizations)
AT&T of the Virgin Islands, Inc. (multiple authorizations)
b) of licence applications of cable landing licences:
AT&T Corporation (multiple licenses)
Transoceanic Communications, Inc. (multiple licenses)
AT&T Puerto Rico, Inc. (multiple licenses) and in addition
c) to License Co. earth station radio licenses held by AT&T or its subsidiaries:
AT&T Corporation (multiple licenses)
AT&T Alascom, Inc. (multiple licenses)[156]