AT&T was finally done in by forces that built its success

WASHINGTON — Last week, AT&T, better known as Ma Bell, agreed to be eaten by one of its progeny, the Baby Bell named SBC. The Oedipal irony is more than just another story about mergers and acquisitions. It's an epic saga about Washington and its fickle relations with the world of commerce.

It's also a grand object lesson in lobbying. AT&T is not only an American icon; it was once the world's largest company and unquestionably the nation's most powerful lobby. To reach that pinnacle, it made a devil's bargain with the U.S. government.

In exchange for being allowed monopoly status nearly a century ago, it agreed to be highly regulated. But when times changed and lawmakers fell under the sway of its enemies, not even AT&T's legendary powers of political persuasion could save it. Here's what happened to AT&T.

From 1894 to 1904, more than 6,000 independent telephone firms went into business in the United States. Considering that Alexander Graham Bell had invented the telephone fewer than 20 years before, in 1876, the proliferation was impressive.

It also was very messy. The economic marketplace tends to be that way. Government, on the other hand, has the power to tidy things up, and that's precisely what Theodore Vail, one of AT&T's early presidents, wanted. Unfortunately for his company, that's also what he got.

In 1913, Vail won a major concession from the capital city. He had argued for years that telephone service was a "natural monopoly" and should be authorized as such if it was to function efficiently. So in return for its help in keeping competitors away, Uncle Sam was given leave to scrutinize Ma Bell closely.

The government forced AT&T to divest its stake in the Western Union telegraph company and invited independent phone companies to interconnect with Ma Bell's long-distance network as part of the new monopoly.

For decades the arrangement worked exceptionally well. AT&T's hegemony was so protected that it was even permitted to own the black telephones that were a fixture in almost every household. Residents paid a monthly fee for the privilege of using them.

To keep such control, the company paid a lot of attention to Washington, D.C., the source of its financial well-being, and until recently remained on the cutting edge of influence.

The memories of modern-day lobbyists go back only so far, but everyone interviewed for this column agrees on one recollection: As recently as the 1970s, AT&T was considered invincible — but not because of its D.C.-based lobbyists. Its entire strength rested with the thousands of Ma Bell employees who lived in virtually every city and burg in the country.

But with the rise of long-distance competitor MCI and, more important, of computers, AT&T had trouble making a compelling case that it had to control everything about telecommunications to keep people connected.

The government sued to break up the company and, after many years of wrangling (a debate prolonged, no doubt, because AT&T was so huge and influential), the phone company was forced in 1984 to divest its seven local phone companies.

It was the beginning of the end. AT&T's homegrown lobbying network was inherited by the Baby Bells, which deployed it to batter their former parent. AT&T added a layer of lobbying talent in Washington itself, something it hadn't needed before.

But personal respect wasn't enough to hold back the tide. The telecommunications act of 1996 demonstrated the Baby Bells' growing clout, and AT&T made one last stab at restoring its prowess. In 1998 it hired a former White House deputy chief of staff, James Cicconi, to reorganize its D.C. presence.

The former aide to George H.W. Bush put together what stands to this day as the model of a contemporary lobbying campaign. AT&T dispensed tons of campaign cash, formed coalitions with sympathetic-sounding organizations, hired some of the biggest names in downtown Washington as lobbyists and spent millions of dollars on television advertising.

But the Baby Bells did the same things, only with greater ferocity and in superior volume. The battle between them was pitched enough to stall for the better part of a decade legislation that would have made matters even worse for AT&T.

But finally regulators sided with the Baby Bells and took away the discount rates that allowed AT&T to provide local phone service in addition to long distance. Ma Bell was finally unmasked as a humbled giant.

AT&T may well be gobbled up by SBC and its voice of opposition to the Baby Bells will be silenced. The fate of its lobbying program, however, is still up in the air. The Baby Bells will need all the help they can get.