- The Washington Times - Saturday, August 20, 2005

END OF THE LINE: THE RISE AND FALL OF AT&T;

By Leslie Cauley

FreePress, $26, 320 pages, illus.

REVIEWED BY MARK A. KELLNER

Once the issue of a Supreme Court nominee is out of the way, the U. S. Senate may well stir itself, along with the House, to consider a rewrite of the nation’s telecom regulations. Again, since the last time this happened was 1996. While many believe a bill sponsored by Sen. John Ensign (R-Nev.) will open things up to let anyone provide voice, video and Internet service to your door, there’s another lesson that the Congress — and consumers — need to learn, and that is how hubris can work its way into the most stable and storied of technology firms, such as American Telephone & Telegraph. A recent book by USA Today telecom reporter Leslie Cauley, who once covered the subject for The Washington Times, is a deeply cautionary tale that should be must reading on Capitol Hill.

From humble beginnings 130 years ago, AT&T;’s first 110 years were marked by phenomenal growth, rock-solid profits and, mostly, total dominance of the American communications market. For decades, you could get a phone in any color you wanted — as long as that color was black. Hook up a mainframe computer to a phone line? Not without lots of red tape and a platoon of folks from the telephone company to tighten every screw. Lilly Tomlin’s “Laugh-In” satire of a tyrannical Bell operator resonated because AT&T; ruled the Dodge City of dial tones.

In “End of the Line,” Ms. Cauley, a 20-year veteran of business reporting whom I first met when we each reported on telecom issues at the FCC and in Congress, traces the rise and fall of a true American icon. AT&T; triumphed in its early days largely because Western Union, whose telegraph dominated late 19th-century commerce, didn’t recognize the advantage of voice calls: They could have bought Alexander Graham Bell’s patents for $100,000, a princely sum then but also a pittance compared with potential profits. Today, Western Union exists chiefly to wire money places; telegrams and even the telex are long-dimmed echoes in an e-mail era.

Similarly, AT&T; saw, and botched, the two biggest changes to hit communications: wireless calling and the Internet. When AT&T;’s monopoly ended in 1984 with an antitrust settlement that included the spin-off of regional phone companies into so-called Baby Bells, the firm gave away its cellular phone licenses to those offspring. A cell phone in 1983 was huge, costly and rudimentary in function. Today’s cell phones are shirt-pocket sized — even disposable — and take pictures, videos, as well as surf the Internet. Those licenses, once thought

disposable by AT&T; legal advisor John Zeglis, were worth billions of dollars. Can you hear me now? (To his credit, Mr. Zeglis eventually a top AT&T; exec, took over AT&T; Wireless and fought for its independence. The firm was absorbed this year by Cingular, a joint venture of two Baby Bells.)

That Internet, by the way, provided other missed cues for AT&T;: With smart deal-making, it could have gained a firm toehold in millions of American homes, via enhanced cable-TV lines delivering broadband data and telephone service. Instead, AT&T;’s late 1990s executives, who had limited cable and telephone experience, just wanted to “get in” in the worst possible way, and did just that: They made acquisitions that busted the firm’s cash reserves and credit lines, set goals that not even a Superman chugging Red Bull energy drinks could reach, and had no strategy to deal with quick changes in both technology and the stock market.

AT&T;’s predicaments were also the result of a decades-old bureaucracy that blithely ignored efforts to modernize procedures, disastrous management picks (one CEO-apparent was booted after nine harrowing months), and the pyrrhic juggernaut known as WorldCom. Even though the Ebbers Empire turned out to be a multi-billion-dollar loser whose founder is now headed for decades in prison, its high flying facade put huge pressure on AT&T; when the telecom titan least needed external hassles.

Ms. Cauley’s tight, yet earthy, prose demonstrates an intimate knowledge of the industry and familiarity with its key players. She is unsparing in her assessments of AT&T; luminaries such as Robert E. Allen, the affable-yet-aloof chairman and CEO whose succession picks laid the groundwork for a debacle; C. Michael Armstrong, the Hughes Satellite CEO who eventually followed Allen and blasted AT&T; out of its unique orbit; and Leo Hindery, with whom Ms. Cauley once wrote a book, but whose blustering management of cable interests added more grief to AT&T;’s life.

AT&T; insiders such as Frank Nacchio, who once starred in gritty commercials pushing the firm’s long distance service, and Dan Somers, a CFO who fancied himself a great dealmaker, are not spared a critical verdict. John Malone, grand old man of the cable TV industry and AT&T; board member, emerges as both savvy — had his advice been followed, much grief might have been avoided — and steely: When frozen out of talks that led to the final, fire sale price disposal of AT&T;’s cable TV operations to Comcast, Mr. Malone quit the board early, taking his intellectual capital with him.

Missing here is a detailed look at the congressional and regulatory machinations that tangled AT&T; far more than its competitors; another book will have to tell that story. Purists will recoil at a lack of footnotes, meaning that Ms. Cauley’s fly-on-the-wall descriptions of some scenes will have to be taken on faith. However, knowing both the company involved and the author’s previous reporting, I believe such faith is well-placed.

Nothing lasts forever, we are told, and certainly huge dollops of hubris don’t help assure survival. As the Congress mulls what to do about how Americans get their phone, video and Internet service, “End of the Line” is a memorable saga that’s also a great read.

Mark A. Kellner has written the weekly “On Computers” column for The Washington Times since 1991 and was formerly editor of “Report on AT&T;,” an independent industry newsletter. He lives in Rockville, Md.

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