It's 2011, the Department of Justice (DoJ) has filed a suit against AT&T claiming its practices could harm consumer interests. Haven't we been here before?
It's 2011, the Department of Justice (DoJ) has filed a suit against AT&T claiming its practices could harm consumer interests. Haven't we been here before?
To air nationally on PBS World on September 13, is a new documentary titled "Long Distance Warrior," the story of the most famous business leader you've never heard of, Bill McGowan.
Bill McGowan was the leader of MCI, the company (and person) primarily responsible for the break-up of Ma Bell. Originally known as Microwave Communications Inc, MCI's original idea was to build microwave towers along highways to extend radio communications between trucks. AT&T thought this was a bad idea and moved to block FCC approval. Though never formally blocked, the FCC took more than five years to review while MCI ran out of cash. Left with few choices, MCI sought new investors.
McGowan was intrigued by MCI; he had a venture capitalist background and opted to buy his way into MCI as CEO. He concluded that AT&T's interest in such a small project was confirmation that MCI was on to something. The microwave towers could also carry voice traffic, but limited to companies along the tower route. McGowan got the FCC to admit that AT&T was enjoying an illegal monopoly, and gained approval for towers connecting Chicago and St. Louis.
Divestiture, or the break-up of Ma Bell is an amazing part of US telecom history. The DoJ sued AT&T for anti-competitive practices. To determine the issue of abusive practices, the trial also had to address if telephony was a monopoly, and if not, what were the potential consequences of allowing competition? AT&T insisted that its high long distances rates were necessary to subsidize cheap basic service (known as "universal service.") High long distance rates enabled AT&T to create a reliable and ubiquitous network envied by the world.
The DoJ argued competition was necessary to fuel innovation, and was legal because AT&T never had a legal monopoly. The key witness for the DoJ was Bill McGowan, with expertise and tales of abusive practices. McGowan had previously sued AT&T directly--and had won. The key witness for AT&T was the Pentagon, which insisted competition would weaken national security and military preparedness. The DoJ spent $15 million on the case to AT&T's $360 million. The case spanned 10 years, but never got to a verdict. The break-up was effectively a settlement.
After MCI got approval to build its towers, it did so quickly. The rapid growth required the company to borrow a lot of money, and the threat of banks calling the loans loomed over MCI. But McGowan always took a slightly different view of problems. He said borrow more--partner with the banks so they can't afford to let the company fail. Another example of his unique perspective was, instead of being intimidated by AT&T, which had 100% market share, McGowan figured they can only go down from there (and they did).
MCI was not content with direct microwave-to-microwave services; it wanted to connect to the Bell system. The first big step was Execunet. MCI customers had to dial 22 numbers instead of 10 (to become known as the calling card model), but could call anywhere--and at much lower rates. Customers started switching to MCI very rapidly, especially after seeing MCI's clever TV spots. So rapidly that AT&T (Mountain Bell in Denver) actually disconnected MCI's switchboards to slow the hemorrhaging. That action gave more credence to MCI's claim that AT&T was interfering with Execunet services.
Included in the documentary are some commercials from that period. Evidently, McGowan had a hand in those too, and some were instant classics, like the mother crying after talking to her son at college--because the bill was so high. The slogan: "You haven't been talking too much, you are just paying too much."
McGowan brought entrepreneurial spirit to telecom. He ran the company with little structure, particularly when compared to AT&T, which had a policy manual for everything. He used stock options heavily, and wanted potential CEOs as employees. The documentary shows examples of how MCI and AT&T differed--one being loyalty. If an employee left AT&T, it was a one-way door. Disloyalty was a sin. MCI welcomed back former employees, understanding loyalty sometimes takes a backseat to innovation and big ideas.
McGowan had big ideas, not just to take on the biggest corporation in the US. Under McGowan, MCI was the first to use single-mode fiber and the first national email service. Vint Cerf, a VP at MCI, retells how McGowan made his staff "learn how to use email." Soon after, MCI launched email as a service, but it didn't catch on. McGowan concluded he was 10 years too early--exactly.
MCI is gone now; it was effectively stolen by WorldCom which used fraudulent accounting practices to enable a stock swap purchase of MCI in 1998 ($34.7 billion valuation). After its bankruptcy, the remnants of WorldCom-MCI were acquired by Verizon and renamed Verizon Business. A sad ending to an incredible tale. Neither MCI nor Bill McGowan should be forgotten. A line from the film is, "Bill McGowan had a greater impact on telecommunications, not only in this country but worldwide, than Henry Ford did on the automobile industry."
McGowan died in 1992--MCI had 30,000 employees.
"Long Distance Warrior," underwritten by Hagley Museum and Library, will air on public television stations nationwide in September 2011, including PBS World on Tuesday, September 13, 2011 at 8 PM. Produced and directed by Emmy Award winner Sarah Holt, it will appeal to a broad audience and is highly recommended to telecommunications professionals.
