Fumbling the Future

An extraordinary event happened last week. AT&T, the shrunken telcoms behemoth, was bought for a mere $16 billion by one of the ‘Baby Bells’ spun out of it when the company was broken up in 1984. (‘Ma Bell’ was the universal nickname for the company, a legacy of its founder, Alexander Graham Bell.) It’s an amazing moment in corporate history — and a salutary warning for monopolists in high-tech industries. The AT&T name may live on if the new owners think it’s worth it, but effectively the company that once bestrode its industry has ceased to be.

This week’s Economist has a thoughtful piece about the story. “For much of the past century AT&T was the envy of the corporate world — the largest firm on the planet both by revenue and market capitalisation. No share was more widely held — the firm was so solid it was considered ideal for ‘widows and orphans’. Its legendary research arm, Bell Laboratories, was responsible for some of the 20th century’s greatest inventions, from the transistor to the laser, and fielded seven Nobel Prize winners. At the time of the break-up in 1984 AT&T boasted around 1m employees. So what went wrong?”

The answer, in a phrase, is that the world changed but AT&T didn’t. I came to a vivid appreciation of the extent of its corporate myopia when I was researching my history of the Net. And the funny thing is that they blew it not once, but twice.

Paul Baran, the guy who first conceived the idea of a packet-switched, digital network in the early 1960s, tried to persuade AT&T to adopt it — and was rejected. “First”, said Jack Osterman of AT&T, “it can’t possibly work, and if it did, damned if we are going to allow the creation of a competitor to ourselves”.

Note the monopolistic mindset implicit in the word ‘allow’. Although the Pentagon accepted Baran’s proposal for a new network, he withdrew it because he knew that the Department would contract AT&T to implement the design and he figured they would screw it up and that the idea of a digital network would thereby be discredited for a generation.

But the idea of a digital network was resurrected by ARPA in the mid-1960s. The ARPAnet was built (by Bolt Beranek and Newman and a team of academic researchers) and was fully operational by 1972 — at which point the DoD asked AT&T if they wanted to take it over and run it. Once again the company refused!

The story of AT&T’s fate is one of hubris and nemesis, larded with ironies and accidents. Bell Labs — the company’s R&D arm — was a wonderful ideas factory, but AT&T often failed to profit from the magic the Labs produced. They invented the transistor, for example, but it was Fairchild and later Intel who capitalised on the concept. And Bell Labs was where Unix was written. Same story: by the time the company was free to exploit the operating system the window had passed. The open source genie was out of the bottle. Sic transit gloria mundi.