[Research] IEEE Spectrum: The End of AT&T

http://www.spectrum.ieee.org/WEBONLY/publicfeature/jul05/0705att.html

At the time, Bell Labs managers generally regarded their company as a quasi-public institution contributing to the national welfare by enriching the country's science and technology. Seen in that light, AT&T's vigorous promotion of semiconductor technology made good sense—especially during a time the company was churning out profits and didn't feel any competition breathing down its neck.

But such generosity may have been one of the crucial forces behind its eventual downfall, as smaller, nimbler, and more legally unfettered firms seized the opportunity to develop and deploy innovations that would help undermine AT&T's dominance of U.S. telecommunications. "After its forced breakup in 1984," The Wall Street Journal's Rhoads wrote, "it was slowly crushed by technologies that drove down the price of a long-distance call, and more recently by wireless calling and Internet phoning."

At the same time Bell Labs and Western Electric were working on their many innovations, there was a resistance to rapid change rooted deep within the parent company's culture. According to Sheldon Hochheiser, former AT&T corporate historian, "a service ethos and the absence of the countervailing pressures of competition produced a corporate culture dominated to a great degree by an engineering mentality." That culture, he adds, "encouraged a value system where managers tended to take the time to get innovations right, as an engineer would define right."

Thus, AT&T engineers usually emphasized reliability and robustness of the network over the rapid introduction of advanced technologies. Often a decade or more passed before new features, such as long-distance direct dialing and touch-tone phones, would finally percolate throughout the system. And cellular telephony, first described in detail by Bell Labs engineers in 1947, never gained widespread commercial operation as part of the Bell System.

IN RETROSPECT, IT SEEMS UNREASONABLE to expect that a publicly held corporation can devote so much money to long-term research when facing the ruthless forces of the marketplace. AT&T added tremendous value to society, but as a condition of its regulated monopoly status, the company was not allowed to commercialize new technology that was not directly related to telephony.

Nor could AT&T charge customers for the technology except through its fees for telephone equipment and services. When it was a regulated monopoly, the company could build into those charges a pittance devoted to risky future-oriented research, such as setting up a solid-state physics department in the postwar years. But as ordinary corporations competing for customer dollars after the breakup and later spin-off, AT&T and Lucent could afford no such luxury.

We the customers are the ultimate losers. A vigorous, forward-looking society needs mechanisms like this to set aside funds for its long-term technological future. Letting governments serve the purpose is an imperfect alternative at best, fraught with the difficulty of making wise choices. The peer-review process widely used to select projects may be able to direct public funds to worthwhile research, but it usually favors established scientists and often overlooks bright young researchers—such as Chu—with bold but risky ideas.

AT&T, Bell Labs, and Western Electric effectively diverted a tiny fraction of our everyday expenses—and from all corners of the U.S. economy—into long-term R&D projects in an industrial setting that could, and often did, make major improvements in our lives. Today we are eating up the technological capital they built during those amazingly productive years. Are we doing anything to replace it?