Systems Development Models

SYSTEMS DEVELOPMENT MODELS

COMPETITIVE PUBLIC INTEREST

Free enterprise philosophy. Public service philosophy.

Technology. Policy making body.

Market structure. Policy.

Infrastructure and services. Market structure.

Policy making body. Infrastructure and services.

Policy. Technology.

1820s telegraph in England

1844 Samuel F.B. Morse Baltimore-Washington Morse code message

1876 Alexander Graham Bell granted a telephone patent

1877 Bell Telephone Company formed

1879 Bell sues WU, WU gives up telephone interests

1885 AT&T created as Bell System's long distance "toll" carrier

1895 Marconi invents the radio (or wireless telegraph)

1906 Reginald Fessenden superimposes voice on radio wave

turn of the century, TheodoreVail, first CEO of AT&T, sees telephone as natural monopoly

1913 Kingsbury Commitment limits Bell acquisition of independents

1921 Willis-Graham Act exempts telephony from Sherman Antitrust Act (virtually reverses Kingsbury Commitment)

1926 AT&T gets out of broadcasting business

1934 Communications Act placed AT&T under FCC

1940s Rural Electrification Act ----> universal telephone service

1920s-40s military applications developed

1949 DOJ suit against AT&T to separate Western Electric

Charge:

lack of viable competition (BOCs should buy equipment from competitors)

DOJ wanted divestiture of WE

need fair use of patents

1956 DOJ case settled

WE agreed to produce phone equip. only

WE left attached to AT&T

AT&T only in common carrier activities

Many changes take place in the telephone environment 1940's-1990's

technological (computers, satellites, coaxial cable and optical fiber, microchips, PCs, wireless telephony, Internet)

companies (globalization, reliance on data, need for clear lines, need for cheaper and more communication)

government (U.S. needs larger communication companies to compete globally)

FCC cannot cope with regulatory needs of "telematics"

Changes cause a demand for changes in the telephone structure

PRE-DIVESTITURE AT&T VERTICALLY INTEGRATED STRUCTURE*

American Telephone and Telegraph Company General Departments

Bell Operating Companies (local telephone service) Western Electric (manufacturing) Bell Labs (research and development) Long Lines Division (long distance service)

*AT&T was structured as depicted above until the 1982 Modified Final Judgment (MFJ) which was implemented in 1984. The MFJ is also referred to as the AT&T divestiture.

THE VERTICAL STRUCTURE THUS GOES LIKE THIS:

BASIC RESEARCH (AT&T does the basic research, acquires the patents)
DEVELOPMENT (AT&T develops usable applications and stores unused patents without sharing technology)
MANUFACTURING (AT&T buys all its equipment from its own manufacturer)
SERVICE PROVISION (AT&T provides both long distance and local services)
Customers (almost all of whom get served by Ma Bell)

1974 DOJ brought a suit against AT&T charging anti-competitive practices, asked that

WE be separated from AT&T,

AT&T be split into two or more parts (sell long lines division or some of its 23 domestic companies)

1979 AT&T

annual revenue $45.4 billion

assets $112 billion

operating costs $30.2 billion

138.2 million telephones in Bell system

more than one million employees

1979 change in AT&T leadership--Charles Brown, new CEO, believed AT&T should

be permitted to enter high tech businesses like computers,

give up on trying to keep out competition,

accept that basic telephone business has become competitive

1980-81 AT&T

yearly profit of $6.4 billion,

made $11,000 every minute, $16 million each day,

$150 billion assets (more than GM+Ford+Chrysler+IBM together),

assets exceeded GNP (gross national product) of all but some 20 countries,

only major non-governmental phone co. in the world

THE CONSENT DECREE

(MODIFIED FINAL JUDGEMENT)

1982 Consent decree between DOJ and AT&T (settled out of court), later modified by Judge Harold Greene (US District Ct. in Wash. D.C.), divestiture plan filed to separate AT&T long lines from local Bell operating companies (BOCs).
1984 Divestiture takes place:
- BOCS (Bell Operating Companies=local telephone companies) spun-off into 7 Regional Holding Companies (RHCs)
- RHCs get Yellow Pages (confined to local exchange, AT&T forbidden from originating electronic info.)
- AT&T retains WE (renamed AT&T Technologies)
- AT&T retains Bell Labs (but lab changes from pure research to applied)
- AT&T retains Long-lines Division
- AT&T permitted to enter new fields like computer
- AT&T permitted to compete internationally
- AT&T gives $100 billion to RHCs
- AT&T gives 60-70% of AT&T employees to RHCs
- AT&T gives 2.7% of stockholders to each RHC

POST-DIVESTITURE STRUCTURE OF AT&T*

American Telephone and Telegraph Company ----------------- Staff

At&T Communications (long distance service) still dominant long distance carrier AT&T Information Systems (telephones, PBXs, computers) now an independent company AT&T Technologies (network systems, components) now a separate company called Lucent AT&T Bell Labs (now does practical product development)

THE COMPANIES IN THE RIGHT COLUMN BELOW WERE SEPARATED FROM AT&T AND GROUPED INTO THE HOLDING COMPANIES IN THE LEFT COLUMN BY THE MFJ

NEW REGIONAL HOLDING COMPANY INCORPORATED THESE LOCAL BELL OPERATING COMPANIES

NYNEX (merging with Bell Atlantic) New York Telephone
New England Telephone

Bell Atlantic (merging with NYNEX) New Jersey Bell
Bell of Pennsylvania

C&P Companies

Ameritech (being bought by SBC? Acquiring GTE?) Ohio Bell
Michigan Bell

Indiana Bell

Wisconsin Telephone

Illinois Bell

Southwestern Bell (now SBC) Southwestern Bell

Pacific Telesis (now owned by SBC) Pacific Telephone
Nevada Bell

US West Northwest Bell
Mountain Bell

Pacific Northwest Bell

This structure applies to AT&T and the separated local telephone companies after the 1982 MFJ (effective 1984).

COMPETITIVE	PUBLIC INTEREST
Free enterprise philosophy.	Public service philosophy.
Technology.	Policy making body.
Market structure.	Policy.
Infrastructure and services.	Market structure.
Policy making body.	Infrastructure and services.
Policy.	Technology.

American Telephone and Telegraph Company General Departments
Bell Operating Companies (local telephone service)	Western Electric (manufacturing)	Bell Labs (research and development)	Long Lines Division (long distance service)

American Telephone and Telegraph Company		-----------------	Staff
At&T Communications (long distance service) still dominant long distance carrier	AT&T Information Systems (telephones, PBXs, computers) now an independent company	AT&T Technologies (network systems, components) now a separate company called Lucent	AT&T Bell Labs (now does practical product development)

NEW REGIONAL HOLDING COMPANY	INCORPORATED THESE LOCAL BELL OPERATING COMPANIES
NYNEX (merging with Bell Atlantic)	New York Telephone New England Telephone
Bell Atlantic (merging with NYNEX)	New Jersey Bell Bell of Pennsylvania C&P Companies
Ameritech (being bought by SBC? Acquiring GTE?)	Ohio Bell Michigan Bell Indiana Bell Wisconsin Telephone Illinois Bell
Southwestern Bell (now SBC)	Southwestern Bell
Pacific Telesis (now owned by SBC)	Pacific Telephone Nevada Bell
US West	Northwest Bell Mountain Bell Pacific Northwest Bell