PDF Summary:The Deal of the Century, by Steve Coll

When AT&T maintained a monopoly over the nation's telephone services, no one imagined its powerful grip would ever loosen. But in the late 1960s, challengers emerged—and a remarkable antitrust case, explored in The Deal of the Century by Steve Coll, lay ahead.

Chronicling a turbulent period, the book reveals the factors that precipitated the landmark 1974 lawsuit against AT&T and ultimately led to the company's dissolution in 1982. From shifts in public sentiment to the rise of consumer advocacy and civil liberties movements, Coll examines how cultural and political winds turned against monopolistic AT&T. He also dissects AT&T's internal conflicts, catalyzed by new technologies and competitors like MCI, that forced the telecom giant's hand.

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Saunders' courtroom tactics had a considerable impact on how AT&T's defensive measures were shaped.

Saunders' courtroom style and his intellectual gifts as a lawyer perfectly complemented his strategy of educating Judge Greene. Saunders, unlike Gerry Connell, gave extensive, multi-hour presentations from memory, deftly weaving together intricate and related points and arguments that he had carefully crafted and committed to memory for his legal discussions. Saunders, considering his role to be that of a legal strategist, meticulously outlined his positions on legal issues to Greene, setting them against the context of historical and political events such as the 1960 presidential campaign and the prevalent optimism of that period, and then contrasting those times with his present, more doubtful viewpoint. Coll contends that Saunders' distinctive approach to legal practice, along with his guiding principles in life, was indeed successful and had a real impact. Saunders, a distinguished attorney, believed the company had faced unfair treatment and was confident that his intellectual prowess could overturn the prolonged and unwarranted interference by the government that AT&T had experienced.

The gathering of presidents in 1972 significantly influenced the unfolding events overseen by Judge Greene.

AT&T's defense was marked by a more engaging strategy compared to the previous remarks, which were more theoretical and not as compelling, initially offered by Saunders. On July 9, 1981, while cross-examining Bill McGowan, Saunders presented a pivotal paper that shed light on the commercial strategies prevalent at that period and simultaneously unveiled how John deButts personally responded to the rise of a formidable rival within the telecommunications sector. Saunders presented to Judge Greene, from the notes of AT&T's May 1972 Key Largo Presidents' Conference, the strategies discussed by Bell to counteract MCI's incursion into the profitable niche of private line services. The company leaders held the view that MCI was encroaching on their customer base and argued that the telephone corporation needed to directly challenge McGowan's lower prices for dedicated lines. Certain executives believed that the survival of MCI was in jeopardy. The leader of the nation expressed concerns about the consequences of postponing a response until the opposition was nearly upon them. Saunders conveyed to Greene in the notes that deButts was simply adapting as a businessperson to changes within the industry, instead of participating in practices that hinder competition.

Other Perspectives

• The government's allegations of antitrust law breaches against AT&T could be seen as an overreach or misinterpretation of antitrust laws, especially if AT&T's actions were within the complex regulatory framework set by the FCC.
• AT&T's strategies to delay the legal process might be viewed as a legitimate use of their legal rights to defend themselves in court.
• The argument that regulatory bodies like the FCC, rather than courts, should evaluate AT&T's actions could be supported by the principle that specialized regulatory agencies have the expertise to oversee industry-specific issues.
• The role of Judge Waddy could be criticized for potentially overstepping the bounds of judicial discretion if he appeared too sympathetic to AT&T's regulatory compliance arguments.
• MCI's role in the lawsuit might be seen as that of an aggressive competitor rather than a victim, depending on one's interpretation of the competitive dynamics and legal standards at the time.
• The issues related to MCI's sales pitches and international communication networks could be argued as part of the competitive practices that were common in the rapidly evolving telecommunications industry.
• Bill McGowan's testimony could be challenged on the grounds of bias or self-interest as the principal witness for the government.
• Judge Greene's rulings, while significant, could be subject to criticism for judicial activism or for having a disproportionate impact on the telecommunications industry.
• AT&T's strategy to protect its position and discredit MCI could be defended as a standard corporate practice to maintain market position and shareholder value.
• Saunders' defense strategy and courtroom tactics could be criticized for being too aggressive or for attempting to influence the court beyond the merits of the case.
• The influence of the gathering of presidents in 1972 could be interpreted as a normal strategic planning session rather than an anti-competitive conspiracy.

The secret negotiations and pact that led to the dissolution of AT&T.

This section of the story describes how, in December 1981, Charlie Brown took decisive action leading to the dismantling of the American Telephone & Telegraph Corporation. Upon taking the helm in 1979, Brown was intent on preserving the company's dominant position in the communications industry. He sought to pass laws in Congress that would permit AT&T to actively participate in the computer and telecommunications equipment industries, while also retaining dominion over the nation's essential local telephone networks. By autumn 1981, Brown had determined that the most prudent approach for AT&T was to acquiesce to all of Justice's demands in court.

AT&T faced internal conflicts over how to handle competitive challenges.

Brown's decision was shaped more by the transformative events that took place inside AT&T throughout the 1970s than by worries over losing the legal battle with the U.S. government. Upon John deButts' retirement in 1979, it became clear that his inflexible approach to industry rivalry was counterproductive. Charles Hugel, a key member of the "blue team," noted that the prior generation's leadership in the telecommunication sector failed to understand that terminal equipment was not an integral part of the network. Executives from Brown's time recognized the necessity for AT&T to adapt in order to prosper in the face of increasing market challenges, concluding that divesting from the provision of community-based telecommunications would be the most direct strategy.

The company's future ignited differing opinions between the red team and others.

Steve Coll describes how the faction led by deButts, referred to as the "red team," firmly advocated for AT&T to maintain its regulated monopoly status in harmony with the FCC's oversight, while the "blue team," which included younger executives such as Charles Brown and Charles Hugel, anticipated the certainty of a competitive phone market that would permit AT&T to venture into additional fields like computing. The leadership of the blue team was unfazed by the possibility of divesting.

The question of whether local units ought to be divided

AT&T internally debated whether to welcome competition, even though it might result in the company's fragmentation. The blue team believed that gaining independence from the regional service corporations linked to Bell was crucial for successfully engaging and establishing a presence in the profitable sectors of computer and communications technology. The costs of maintaining the nation's main telephone network considerably diminished the profits derived from the various lucrative operations of AT&T.

The evolving political atmosphere in Washington had an impact on the case.

Charlie Brown was considerably swayed by the changing political climate in Washington during the early 1980s, which led him to consider the option of divestiture to achieve his goals at AT&T. In the fall of 1981, Brown concluded that the disassembly of the telephone company was crucial, acknowledging that competitors of AT&T had advanced beyond the existing regulatory measures in Washington, and that legislative obstruction in hindering the deal would be excessively burdensome, thus eliminating significant obstacles.

The administration under Reagan favored specific policies related to regulation and endorsed AT&T.

After Ronald Reagan secured victory in the 1980 presidential race, the executives at AT&T were under the impression that the growing conservative trend in favor of deregulation would likely mitigate their competitive hurdles. Throughout his campaign, Reagan consistently voiced his disapproval of the legal proceedings against the telephone corporation, labeling them as illogical. The selection of a conservative figurehead at the Justice Department, renowned for their stance against regulation, quickly dashed any hopes that the lawsuit would be dropped due to ideological reasons. The steadfast convictions held by the new head of Antitrust inadvertently created a foundation that facilitated the advancement of Brown's deal.

Bill Baxter's commitment to conservative values shaped his strategy throughout the discussions with AT&T.

Baxter concluded that a company's large size or market control did not inherently violate the law, leading to the dismissal of the antitrust case the Justice Department had initiated against IBM. Baxter's approach to antitrust was solely based on the principle that prioritizes economic efficiency. IBM's dominance in the mainframe computer sector, with a market share surpassing 70 percent, did not stem from deceptive or unjust business practices. In the mid-1970s, IBM rose to prominence in the computer industry through innovative strategies, advanced management, and sharp business acumen. Baxter acknowledged IBM's considerable size as justifiable but also advocated for the dismantling of AT&T, urging for the division of its local subsidiaries. His stance was influenced by his agreement with MCI and the government's legal representatives that AT&T was leveraging profits from its lucrative long-distance sector to suppress competition in local services, telephone equipment, and to some degree, the long-distance market too.

The financial terms for Crimson Sky and Quagmire II

In this part of the story, the discussions led to Brown abandoning his quest for a legislative approach to regulatory equilibrium, thereby establishing Bill Baxter as the key governmental authority in the telecommunications sector during 1981 and 1982. The history of these negotiations, and their impact on the complex and sometimes absurd factors that shaped Brown's choice, including a series of missteps, intra-governmental disputes within the leadership of the United States during Reagan's presidency, and the tactics employed by Baxter, along with the self-destructive tendencies of the company, all played a role in the disintegration of the conglomerate known as the network of companies associated with Bell.

Attempts to resolve the situation by means of court orders, without mandating the sale of assets, did not succeed.

When Brown took over as chairman of AT&T in late 1979, his main goal was to reach a settlement with the Department of Justice that would allow the company to remain intact. In the year leading up to the crucial December deal, there were two instances where possible talks for a settlement fell through, solidifying the conviction within the headquarters of AT&T that the destiny of the company was growing more erratic and less controllable by Washington.

The Reagan administration and Baxter played a pivotal role in shaping the terms of the agreement with AT&T.

Ultimately, Baxter's terms were the ones that Brown had to agree to. Baxter played a pivotal role in the thorough disassembly of the telephone corporation. Baxter played a pivotal role in steering the discussions within Congress. Baxter played the most pivotal and authoritative role in securing a lasting resolution with AT&T.

Other Perspectives

• The decision to acquiesce to the Justice Department's demands could be seen as a lack of fight or surrender, rather than a strategic move.
• It could be argued that John deButts' approach was not counterproductive but rather a product of its time, and that the industry's evolution required a different strategy rather than a complete overhaul.
• Some might contend that AT&T could have adapted to market challenges without a full divestiture, perhaps by restructuring rather than dismantling.
• The anticipation of a competitive phone market by the "blue team" might be criticized for not fully considering the potential negative impacts on service quality and employment.
• The debate within AT&T about fragmentation could be criticized for potentially overlooking the benefits of scale and integration in telecommunications.
• The influence of the political climate on AT&T's decision-making could be seen as a company being too swayed by external factors rather than its own strategic planning.
• The Reagan administration's deregulation policies might be criticized for potentially leading to less oversight and consumer protection in the telecommunications industry.
• Bill Baxter's conservative approach to antitrust issues could be challenged for possibly favoring big business interests over competition and consumer choice.
• Baxter's advocacy for dismantling AT&T could be criticized for potentially reducing the company's ability to provide comprehensive national service.
• The abandonment of a legislative approach by Brown could be seen as a missed opportunity to create a more balanced regulatory framework.
• The failure to resolve the situation through court orders without asset sales might be criticized as a lack of creativity or flexibility in finding a solution.
• Baxter's pivotal role in the agreement with AT&T could be viewed as too much influence concentrated in the hands of one individual, potentially overlooking other perspectives.

The enduring consequences and subsequent developments following the dissolution of the Bell System.

The division that persisted into 1985 and the subsequent years resulted in AT&T grappling with significant reputational challenges, which stemmed from decisions attributed to Charlie Brown. Before unveiling the deal, the telecommunications firm meticulously orchestrated how it would introduce the news to the public. The portrayal of the division by AT&T as a positive change for consumers led to the rise of doubts about its effects among the customers, legislators, and market experts who had once been in favor of the deal, despite assertions that it would also benefit the company.

The continued survival of the operating companies

Opinions varied on the results of the breakup, with local telephone users and the executives of the operating companies holding different perspectives, the prevailing sentiment being that AT&T had emerged in a stronger position.

Rising expenses for community services and the impact of political factions on state regulatory bodies are causing alarm.

After the announcement on January 8, many leaders of operating firms predicted to the media that the cost for local telephone services was set to rise significantly. Following the dissolution of the company, both Congress and state authorities, already in a heightened state of alert, enacted additional regulatory measures. AT&T encountered a contradictory circumstance: while expecting diminished regulatory scrutiny post-agreement, the company's executives were confronted with demands for heightened market competition and lower prices, alongside calls for the preservation of the existing regulated framework.

The company enjoyed a surprising surge in success in the twelve months subsequent to its split.

Prices for local telephone services saw a marked rise across almost all states in the four-year period following the split, but contrary to many forecasts, the company in charge of managing these services prospered despite the lack of its former monetary backing.

The investigation focused on the remaining competitive edges of AT&T.

The investigation into AT&T's prospects after being compelled to divest its local affiliates represented a notable transition away from the dismantling of the Bell System. Charlie Brown was optimistic about his company's prospects for success in an unregulated economic system. The events of 1984 and 1985, however, clashed with his optimistic outlook.

The firm's waning influence in the hardware sector and its unfortunate venture into the realm of computer technology.

Though Brown was deeply committed to AT&T's success in the competitive computer and high-technology markets that were emerging after the breakup, these dreams were not realized. Following the rebranding to AT&T Technologies, Inc., the market presence of Western Electric in the telephone equipment sector persisted in its decline, while AT&T's initial forays into the personal computer market failed to yield successful outcomes.

The unwavering actions of the Federal Communications Commission, along with the increasing costs of using local exchanges, showed no signs of abating.

The Federal Communications Commission stood firm on the position that the restructured AT&T should continue to be subject to the oversight and constraints that had governed its dealings with the government for more than four decades. Brown, unlike deButts, managed to align with the FCC's regulatory requirements after the split in the industry, primarily because he was the main force driving the major overhaul of the telecommunications industry, rather than the FCC, the Justice Department, or legislative entities.

The telecommunications sector's growth proved to be tumultuous yet beneficial for professionals in legal and advisory capacities.

After AT&T was broken up on January 8, 1982, the company, along with its competitors in the field of long-distance communications, encountered a unique scenario that necessitated a considerable amount of legal and technical assistance.

Clients were unhappy because the heightened costs and disruptions compromised the standard of service provided.

For the average telephone user, the division between local and long-distance services signified a significant disruption of a previously efficient system, and a clear deficiency was their failure to establish a unified regulatory framework for the emerging industry or to consider upholding the company's longstanding dedication to offering cost-effective, dependable nationwide communication.

MCI was on the brink of bankruptcy due to the regulatory limitations imposed on AT&T.

The author suggests that the outcome of breaking up the Bell System may not foster a telecommunications sector teeming with competition and lower prices for customers, but rather could create a situation in which AT&T faces restrictions and MCI experiences financial difficulties. Before the divestiture, MCI had reaped the advantages of a rate and regulatory system that enabled it to offer long-distance services at significantly reduced costs compared to AT&T. Yet, there was an impending risk to its competitive advantage, and the possibility of jeopardizing its ongoing business viability if it were forced to bear the expenses related to establishing equivalent access to regional telephone networks, a situation that might erode its capacity to sustain lower prices. AT&T, on the other hand, well capitalized and protected by its immense long-distance market share and revenue, might well return to its former state as a protected monopoly, if only because Congress and the FCC would feel obliged to regulate the industry in a way that prevented those competitors who benefited significantly from the division of AT&T from succumbing to the difficulties associated with their newfound advantages.

Other Perspectives

• Doubts about the division's effects might have been a natural response to any major corporate restructuring, not necessarily a reflection of AT&T's specific actions or the deal's merits.
• The perspective that AT&T emerged stronger post-breakup could be challenged by considering the long-term impacts on innovation and competition in the telecommunications industry.
• The prediction of rising costs for local telephone services could be seen as a typical concern following deregulation, which might be offset by increased competition and improved services over time.
• The additional regulatory measures enacted by Congress and state authorities post-breakup could be argued as necessary to ensure a fair and competitive market, rather than a contradiction to the expected diminished regulatory scrutiny.
• The success of AT&T Technologies, Inc. might be attributed to factors other than the breakup, such as market dynamics or strategic business decisions made post-divestiture.
• The decline in AT&T's influence in the hardware sector could be viewed as part of the natural ebb and flow of corporate market share in a competitive environment.
• The unsuccessful venture into computer technology could be defended as a strategic risk that many companies take when exploring new markets, which does not always lead to success.
• The FCC's continued oversight of AT&T could be justified as a means to protect consumer interests and ensure fair competition, rather than an unwarranted action.
• The growth of the telecommunications sector and the need for legal and technical assistance could be seen as a sign of a healthy, evolving industry rather than a negative consequence of the breakup.
• The disruption of service standards for clients could be interpreted as a short-term issue that is common in periods of industry transition, with the potential for long-term improvement.
• MCI's financial difficulties could be considered part of the competitive challenges any firm faces in a deregulated environment, and not solely as a result of regulatory limitations on AT&T.