Why AT&T Isn't a Tech Company
Jan 14th 2013 11:30AM
Updated Jan 14th 2013 12:25PM
On this day in economic and financial history...
The suit that shaped the computer revolution
AT&T is no stranger to antitrust suits. The telecom leader battled the government three times in the 20th century, and each time the result had a lasting impact on the business and technological landscape. The Department of Justice filed a suit on Jan. 14, 1949 that proved unsuccessful in its attempt to break AT&T's telecom monopoly but nevertheless changed both the telecom industry and the infant computer industry.
The suit sought to separate AT&T from Western Electric, a manufacturing subsidiary AT&T had picked up as part of the spoils from its early patent battles with Western Union . Western Electric had grown into a significant part of AT&T's business model, enabling vertical integration from the phones on customers' tables to the wires that carried their signals to the switchboards at AT&T's central offices. AT&T used its dominance of the nation's telephone system to establish a leasing system, under which phone customers had to pay fees one way or the other simply to have a phone -- a relationship more oppressive than that between today's mobile customers and their carriers. Western Electric's research arm was also behind a number of Bell System innovations, including the vacuum tube, the loudspeaker, "talkie" films, and early mobile communications. Western Electric's research success resulted in a number of valuable patents, which the company wielded against its competitors at every opportunity.
It was the vacuum tube that most profoundly influenced the "Final Judgment" in the case, which was delivered in 1956 as a consent decree. The suit had been focused more on AT&T's domination of a vacuum-tube computer industry than on its iron grip on the nation's phone network. The government's attitude softened somewhat between 1949 and 1956, and AT&T was allowed to maintain its regulated telecom service and its Western Electric subsidiary, but it was barred from extending itself into the computer industry or into international markets. AT&T was also forced to be more generous in its patent licensing. This ruling benefited IBM , which was already establishing itself as a leader in the nascent computer industry -- especially considering that AT&T's Bell Labs had invented the transistor two years prior to the government's suit.
Western Electric remained an important development and manufacturing arm for AT&T well past the 1984 Bell System divestiture. The subsidiary was reorganized, together with Bell Labs and American Bell, into AT&T Technologies, and it remained part of AT&T until 1996, when it was spun off as Lucent. A decade later, after persistent financial woes, Lucent became Alcatel-Lucent when it merged with French-based Alcatel.
The consent decree had one other notable impact, according to Ars Technica writer Matthew Lasar. The creation and distribution of Unix might have not occurred without the Department of Justice's demand that AT&T stay out of the computer industry. Thanks to AT&T's openness during Unix's early development, it is today one of the most influential operating systems ever created. Both the Apple OS X and iOS operating systems are Unix-based, and Linux is a Unix derivative that forms the foundation of Google's Android platform.
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The Big Three plus one
The Big Three became the Big Four on Jan. 14, 1954 when two former Dow Jones Industrial Average components merged to become American Motors. Shareholders of Nash-Kelvinator, which had been a Dow component as Nash Motors in the 1920s and '30s, and Hudson Motors, a one-time addition in 1930, approved a merger that day to create the fourth-largest American automaker behind General Motors , Ford , and Chrysler. It was the largest corporate merger in American history up to that point, with the combined entity boasting a valuation of nearly $200 million.
The two companies were among the oldest automakers remaining following a decades-long shakeout spurred by Ford's implementation of the assembly line: Nash had its origins in 1902, and Hudson traced its history to 1909. At this point, only Packard and Studebaker remained among the smaller automakers, and neither lasted much longer. Packard purchased Studebaker later that same year, but the smaller company's financial difficulty led to the company's failure by in the mid-1960s.
Nash chairman and president George W. Mason retained these roles in the combined company, but he would not make it through AMC's first year. Mason died in the fall of 1954, and George Romney, his protege, took over these roles. The Nash and Hudson brands were soon phased out, and AMC began to produce marquees under its own name. Romney successfully fended off a takeover attempt in 1957, and the combination of star power both within and outside the industry and his impeccable stewardship of the company helped the company gain significant market share as it headed into the 1960s. Romney would resign in 1962 to capitalize on his high visibility and positive public image to enter and win the race for governor of Michigan that year.
This was also near the height of AMC's strength. Although Romney had built the company's reputation on efficiency, rather than the rumbling power that typified postwar vehicles, AMC was always at a significant disadvantage in development programs to the Big Three, and it could not adapt as easily due to its smaller size. This left AMC vulnerable to the 1973 oil crisis, which forced the Big Three to pour more resources into efficient vehicles. By the mid-1970s, AMC had resumed its pre-Romney, money-losing ways, despite picking up Jeep and its lucrative government contracts in 1970. By the early 1980s AMC was primarily owned by Renault, but government pressure and poor public relations pushed Renault's executives to sell AMC to Chrysler in 1987, at which point it became Chrysler's Jeep-Eagle division.
Today, AMC is primarily responsible for three things: the continuing popularity of the Jeep brand, a management mindset that has caused as many problems as it has solved for American automakers, and the political rise of Mitt Romney.
Mining for long-term wealth
On Jan. 14, 1946, the industrial concern known as Minnesota Mining and Manufacturing graduated from over-the-counter trading and began life as a member of the New York Stock Exchange . That company officially adopted its longtime nickname when it changed its name to 3M in 2002.
By the time of its debut, 3M was already a well-established manufacturer of diverse products, including high-quality sandpapers, Scotch tape, and other useful things for industrious types. Within two years, 3M was generating $100 million in sales, which would be nearly a billion dollars when adjusted for inflation. The Dow, recognizing 3M's consistent growth and its usefulness as a representative of the American economy, made the company one of its 30 components three decades after its debut on the NYSE. In the six decades that have followed its debut, 3M's sales have grown at an annualized rate of 9.7% -- or 5.6% if beginning with the inflation-adjusted figure.
The article Why AT&T Isn't a Tech Company originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool recommends 3M Company, Apple, Ford, General Motors Company, Google, NYSE Euronext, and Western Union. The Motley Fool owns shares of Apple, Ford, Google, and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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