“If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life,” said Senator John Sherman in urging Congress to pass the Sherman Antitrust Act in 1890. By the time of the near-unanimous passage of the Antitrust Act, Americans were beside themselves with fury over the brutal power robber barons and monopolies — called trusts — held over their lives. One of the most notorious robber barons was J.P. Morgan, who by the early 1900s had gained control over the dominant telephone trust, American Telegraph and Telephone.
The AT&T trust was split up in 1984, but it is recombining, leading the New York Times to ask, “Is Antitrust No Longer the Issue?” The name AT&T was recently taken by one of its former subsidiaries — SBC — which purchased the struggling telecommunications company. Now SBC/AT&T has announced the intended purchase of BellSouth. This would make the new AT&T the largest telecommunications corporation in the United States. The proposed merger would recombine four of the old Baby Bells. The new AT&T would provide local and long distance wireline telephone service in 22 states. AT&T would also control the largest wireless telephone service, Cingular. And, as mentioned in a previous column, AT&T seeks to control a sizeable share of our broadband access to the Internet, and to provide television service. In short, AT&T seeks to become what Sherman most feared, a king over the sale of communications services, surely one of the “necessaries” of modern life.
But not to worry, former Chairman of the Federal Communications Commission during the first term of the Clinton administration, Reed E. Hundt, said he would “bless the deal.” And while current FCC Chairman Kevin Martin would not be so blunt or cavalier, he offered the view that “the FCC’s primary responsibility is to determine whether the proposed transaction is in the best interest of consumers.” As if the best interests of consumers and the public interest were identical.
Putting aside the fact that FCC chairmen, whether past or present, do not determine antitrust violations, antitrust law has never had much impact on communications policy.
The Bell Company skirted antitrust law for years until their purchase of the telegraph giant Western Union prompted the Wilson administration to file suit. That case was settled out of court in 1913 in an agreement known as the Kingsbury Commitment, negotiated by an AT&T corporate vice president, Nathan Kingsbury. Except for the forced sale of its shares in Western Union, the Kingsbury Commitment was interpreted by regulators as an agreement to allow Bell and its competitors to establish independent geographical monopolies.
During the Roaring Twenties, despite the development of robust competition from hundreds of independent telephone companies, Congress adopted the view that “telephoning is a natural monopoly” and passed the Willis-Graham Act. As a House of Representative committee report noted, “There is nothing to be gained by local competition in the telephone business.” The Willis-Graham Act allowed AT&T to begin acquiring more local telephone systems with the genial oversight of the Interstate Commerce Commission. By 1924, the ICC approved AT&T’s acquisition of 223 of the 234 independent telephone companies.
Even the 1984 agreement between AT&T and federal court judge Harold Greene that broke up the giant telephone trust was prompted less by vigorous government enforcement of antitrust law than the pressure created by new communications companies to provide alternative communications service to business. The 1984 break up introduced a dramatic increase in competition, resulting in greater consumer choice and innovation, if not necessarily lower prices.
Regarding antitrust law and the telecommunications industry, the practice has long been in line with the views expressed by Alan Greenspan in an essay entitled “Antitrust.” “No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible.” For Greenspan, Milton Friedman and other high priests of the Chicago temple, the market should always rule. Antitrust law just gets in the way of lower prices.
But antitrust legislation was not passed to achieve lower prices or to protect consumers. Americans in the Gilded Age had not yet come to think of themselves as consumers. Antitrust legislation was passed to curb the ills many Americans thought would result from the accumulation of great power and the distorting impact such power would have on individual freedom and democracy. As one of the great antitrust lawyers Louis Brandeis would argue, “We can have a democratic society or we can have great concentrated wealth in the hands of a few. We cannot have both.”
Communication services are vital to our safety; indeed they are vital to the flow of information so necessary to the very functioning of our republic. The emergence of a king of communications should send shivers through the spine of the nation.
Mark Lloyd is a Senior Fellow at the Center for American Progress