25 th  Anniversary of the AT&T Breakup Eli M. Noam Professor of Finance and Economics Columbia University Graduate School ...
<ul><li>Greetings. Thanks. Godspeed to CTIC. </li></ul><ul><li>ATT divestiture,and what we can learn from it. </li></ul><u...
1. Take an Industry with Problems www.corbis.com
2. Apply Analysis based on General Principles
3. Change the thinking of Policy Makers
4. Innovation and Efficiency are the Result
<ul><li>And so, academic economists and lawyers 25 ys ago cheered on with admiration as a stanford law professor, and his ...
<ul><li>And so, we can discuss a policy of structural separation, such as in this session, with a good dose of economics, ...
<ul><li>As a result I’ve have concluded that  in Europe, on this subject, it’s like the saying that each generation believ...
Europe’s Functional Separation <ul><li>Segments incumbent into wholesale infrastructure provider, and retail service provi...
Separations policies have of course been tried in a variety of ways in America:  <ul><li>Structural separation– the ATT di...
<ul><li>The US has tried all approaches . Arguably, none of them has worked very well. </li></ul><ul><li>So now Europeans,...
Europe’s Functional Separation <ul><li>But the fact is that FS  does not prevent price or quality discrimination by N/W pr...
<ul><li>But FS  does not prevent, by itself, price or quality discrimination by network provider among unrelated services....
<ul><li>Some of these problesm might be addressed by a full structural  separation, not just a functional separation. </li...
Why separations not pursued anymore actively? <ul><li>Numerous problems </li></ul><ul><li>It’s Static  </li></ul><ul><li>I...
<ul><li>But the fact is,  good analysts will also easily reach the opposite conclusions, and so I’m much more inclined to ...
<ul><li>Let’s start reminding ourselves how huge and dominant ATT was on that day in 1982 when it consented to being broke...
TOP 25 Companies of the US Information Sector 1983 Company US Domestic Revenues 1 AT&T 118,118 2 IBM 25,882 3 GTE 7,000 4 ...
<ul><li>Plus, this giant operated essentially without competition, in an essential service. </li></ul><ul><li>There has ne...
TOP 25 Companies of the US Information Sector, 1984   Company Rev 1 AT&T 60,318 2 IBM 25,882 3 NYNEX 9,573 4 BellSouth 9,5...
TOP 25 Companies of the US Information Sector   1983 1984 2006 Company Rev Company Rev Company Rev 1 AT&T 118,118 AT&T 60,...
TOP 25 Companies of the US Information Sector   15 DEC 2,032 Sprint 2,856 Qwest 11,541 16 Time 1,962 CBS 2,715 General Ele...
 
Pooled Telecom Services Concentration
<ul><li>So in The US, after a long period of enormous and expensive struggle and battle, is back to an HHI of 2,900. </li>...
Long Distance Telecom Service Concentration
<ul><li>So an oligopoly resulted, at best.  And the reason is not gullible regulators and legislators, </li></ul><ul><li>B...
Mobile Service Concentration
<ul><li>So here we had a brand-new industry, which was not considered at all in the divestiture discussion. In fact, even ...
Local Services Concentration (national)
xxxxxxxxxxxxxxxxxx
<ul><li>Let’s look now at the combined market shares of the ATT successor firms </li></ul>
“ AT&T” Telecom Services Market Share
<ul><li>These figures are higher than they are for Bell Canada </li></ul>
<ul><li>For the 3 classic telecom services, “ATT” share used to be around 85%.  </li></ul><ul><li>About 25 years later, th...
<ul><li>So what about local competition? That’s one thing which the divestiture ddidnt really consider. It separated the l...
4 Telecom Infrastructures in the woods: AT&T mobile, Verizon landline, Comcast VoIP, Sprint
Local Telecom Services Concentration
<ul><li>But it’s important to understand that for this, no divestiture was necessary! </li></ul><ul><li>In many other coun...
<ul><li>In Canada, there are 2.4 mil residential VOIP subscribers </li></ul><ul><li>That’s pretty exactly 50% higher penet...
Broadband Concentration
http://actlocallysf.org/blog/talkingpoints/wpcontent/uploads/Image/Free-WiFi.gif
<ul><li>So you can see from the orange line at the top that local BB is highly concentrated, a duopoly. Or maybe a 2.5 sys...
 
Growth
1983 Revenues of AT&T for Telecom Equipment & Services <ul><li>$89 billion ($85.3b from Services, $3.8b from Equipment) </...
2007 Revenues for AT&T’s successors <ul><li>at&t:    $ 119 billion (64% of 1983 AT&T) </li></ul><ul><li>Verizon: $93  (50%...
<ul><li>This is not a major growth rate,  31% in 25  years </li></ul><ul><li>Even in an environment with dropping prices <...
Growth for Bell Canada <ul><li>1983: C$4.65 B </li></ul><ul><ul><li>In 2007 dollars, C$10.9 B </li></ul></ul><ul><li>In 20...
 
Market Capitalization
Market Capitalization <ul><ul><li>Market cap for  GTE  on 12/31/81=$53b </li></ul></ul><ul><ul><ul><li>--Or $110b in 2008 ...
at&t mar <ul><li>2007market cap value of $164.86. </li></ul>http://en.wikipedia.org/wiki/Verizon_Communications#cite_note-6
AT&T Market Capitalization <ul><li>April 17, 2008, the market capitalization of at&t is $225B. </li></ul>http://finance.ya...
Verizon Market Capitalization <ul><li>Verizon market capitalization is $103B. </li></ul>http://finance.yahoo.com/q?s=VZ
Qwest Market Capitalization <ul><li>Qwest market capitalization is $8B. </li></ul>http://finance.yahoo.com/q?s=Q
Lucent Market Capitalization <ul><li>market capitalization of Alcatel Lucent is $13.69B.  </li></ul><ul><li>Lucent part of...
Agere Market Capitalization <ul><li>Agere market capitalization $4B. </li></ul>http://seekingalpha.com/symbol/agr
Avaya Market Capitalization <ul><li>acquired in 2007 for $8.2 B. </li></ul>
Total “AT&T” Capitalization <ul><li>2008: $353 B </li></ul><ul><li>1982, in 2008 dollars: $111 B </li></ul><ul><li>Increas...
Bell Canada Market Cap <ul><ul><li>12/31/81=$2.9 B </li></ul></ul><ul><ul><ul><li>--or $6.8 B in 2008 $CA </li></ul></ul><...
Risk
Shift from Small Investor Stock <ul><li>I havent had the time to look for the betas. But here is anoither way of loooking ...
Noam, Eli.  Media Concentration in America . Oxford: Oxford University Press. 2008.  INSIDER OWNERSHIP IN MAJOR MEDIA AND ...
Institutional Ownership -- IT/Telecom Noam, Eli.  Media Concentration in America . Oxford: Oxford University Press. 2008. ...
OWNERSHIP CONCENTRATION (C5) OF IT/TELECOM COMPANIES  Noam, Eli.  Media Concentration in America . Oxford: Oxford Universi...
OWNERSHIP BY TEN MAJOR INSTITUTIONS (2005) ($ MILLION)   Fidelity Management & Research Mellon Bank Vanguard  Group Capita...
AGGREGATE OWNERSHIP OF MAJOR INFORMATIONAL SECTOR FIRMS BY INSTITUTIONAL INVESTORS LARGEST SHAREHOLDERS IN THE MAJOR MEDIA...
 
Technology Equipment
“ AT&T” Telecom Network Equipment US Market Shares
 
“ AT&T” MIDRANGE/COMPUTERS  (U.S. MARKET SHARES IN % OF UNITS) *AT&T owned NCR from 1991 to 1996
“ AT&T” WORKSTATIONS  (U.S. MARKET SHARES IN % OF UNITS) *AT&T owned NCR from 1991 to 1996 0 0 0 0 0 0 0
“ AT&T” SEMICONDUCTOR  (WORLD MARKET SHARE IN %)
Domestic vs. International Prices for Telecom Switches (1990)   Market Share in Home Market Home Price ($/Line) Intl. Lowe...
 
Impact on R&D
<ul><li>What the structural separation did, also unanticipated, was the total distruction of an research organization spec...
Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,”  Prometheus,  21(2):184-185...
Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.”  Committee on Telecommunications Res...
<ul><li>In Canada, Nortel also suffered in a variety of ways, but its relationship to BC was much more harmonious, and it ...
 
To Conclude <ul><li>25 years after the At&T Divestiture: </li></ul><ul><li>Overall market concentration in telecom is up b...
<ul><li>In comparison to Canada, the US has lower VOIP rates, lower mobile penetration, and lower  broadband peneteration ...
<ul><li>Now none of this should suggest that a divestiture was not justified. </li></ul><ul><li>To me, the main reason is ...
<ul><li>It seems that the equilibrium market structure is 2-3 horizontal companies, doing pretty much everything. </li></u...
<ul><li>In 1983, the US had the world’s best telecom systdem, and was ahead by every measure </li></ul><ul><li>In 2008, it...
<ul><li>So what are the major variables? </li></ul><ul><li>The US had a divestiture, and Canda didn’t. </li></ul><ul><li>I...
The End. Thank you for your attention. [email_address]
 
Source: http://www.mccullagh.org/db9/1ds-8/support-net-neutrality.jpg
Source:  http://www.mccullagh.org/db9/1ds-8/honk-for-internet-freedom.jpg
Source:  http://www.vpirg.org/images/ct-pet2a.JPG
Source:  http://www.aclu-wi.org/images/DSCN2414.JPG
Media Reform Movement
Vonage – VOIP Revenue in 2007 <ul><li>  </li></ul><ul><li>Vonage Holdings Corp. </li></ul><ul><li>  </li></ul><ul><li>828 ...
U.S. VoIP Market Share Source: “U.S. VoIP Market Share.” 16 Aug, 2007. Fiercevoip.com. Last accessed on 15 Apr, 2008 at  h...
VoIP Ranking by Subscriber: Q3 2007 Source:  “ VoIP Ranking by Subscriber: Q3 2007. ”  Last accessed on 17 Apr, 2008 at ht...
TOTAL US CABLE/VOIP CABLE MARKET SHARE 8.55% <ul><li>16.1 million VOIP/CABLE subscribers, divided by 188.1 million total m...
GLOBAL VOIP SUBSCRIBERS At the end of December 2007, US had an estimated 16.1 million subscribers.  http://www.ilocus.com/...
VOIP Market Share by Company ISP  VOIP/CABLE MARKET SHARE (%) TOTAL SUBSCRIBERS (THOUSANDS) Comcast 2.19 3,774 Time Warner...
<ul><li>2008 </li></ul><ul><ul><li>  Clear Channel Communications, Inc., Thomas H. Lee Equity Fund and Bain Capital. </li>...
 
Telecom Services Concentration
Telecom Networking Equipment Concentration
Telecom Customer Equipment Concentration
Telecom Average Sub-Industry Concentration
Equipment, Services and Total Telecom Concentration
Long Distance Private Line Concentration
International Service Concentration
Paging Service Concentration
Market Concentration of All Unregulated Information Sub-Sectors
 
 
Divestiture Pieces – What Are They Worth today?  Total revenues of divestiture pieces: $262.237 billion <ul><li> ●  2007 r...
<ul><li>2007 revenues for Avaya  </li></ul><ul><li>Operating revenue / Turnover - $5.148 billion (2006) </li></ul><ul><li>...
R&D expenditure in the EU, Japan and the US In million constant 1995 PPS Source: Eurostat Gomez-Barroso, Jose Luis. “ AN  ...
R&D expenditure as a percentage of GDP Year 2003 . Source: Eurostat Gomez-Barroso, Jose Luis. “ AN  OVERVIEW  OF  EUROPEAN...
R&D expenditure by institutional sector of performance Year 2002 . Source: Eurostat BES: Business Enterprise Sector GOV: G...
Investment in ICT Research  Year 2002 . Source: European Commission. i2010 Gomez-Barroso, Jose Luis. “ AN  OVERVIEW  OF  E...
Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,”  Prometheus,  21(2):184-185...
Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,”  Prometheus,  21(2):184-185...
Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.”  Committee on Telecommunications Res...
Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.”  Committee on Telecommunications Res...
Broadband Penetration G7 Countries
Future Regulation Model for Broadband?
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  1. 1. 25 th Anniversary of the AT&T Breakup Eli M. Noam Professor of Finance and Economics Columbia University Graduate School of Business, New York, Director Columbia Institute for Tele-Information
  2. 2. <ul><li>Greetings. Thanks. Godspeed to CTIC. </li></ul><ul><li>ATT divestiture,and what we can learn from it. </li></ul><ul><li>And beyond that,what one can learn about the efffectiveness of an analysis in a dynamic environment. </li></ul><ul><li>The basic idea that we academics have in the back of our minds is something like that: </li></ul>
  3. 3. 1. Take an Industry with Problems www.corbis.com
  4. 4. 2. Apply Analysis based on General Principles
  5. 5. 3. Change the thinking of Policy Makers
  6. 6. 4. Innovation and Efficiency are the Result
  7. 7. <ul><li>And so, academic economists and lawyers 25 ys ago cheered on with admiration as a stanford law professor, and his band of economists, took on the world’s largest company, and the pentagon, and even some of their own justice department, plus the states, the unions, the rural folks, and, the consumer organizations, </li></ul><ul><li>And won! Halleluya. </li></ul>
  8. 8. <ul><li>And so, we can discuss a policy of structural separation, such as in this session, with a good dose of economics, and some law and technology, and reach some condlusion. </li></ul><ul><li>And I have done that myslelf, on the issue of functional separation much discussed in europe, in a dozen talks in europe </li></ul>
  9. 9. <ul><li>As a result I’ve have concluded that in Europe, on this subject, it’s like the saying that each generation believes that it has invented sex. </li></ul><ul><li>So europeans now believe that they have found an approach that is new. </li></ul><ul><li>Separation! </li></ul>
  10. 10. Europe’s Functional Separation <ul><li>Segments incumbent into wholesale infrastructure provider, and retail service provider </li></ul>
  11. 11. Separations policies have of course been tried in a variety of ways in America: <ul><li>Structural separation– the ATT divestiture </li></ul><ul><li>Functional separation– Computer 1 and 2 </li></ul><ul><li>Accounting separation– Computer 3 </li></ul><ul><li>Geographical separation--Divestiture </li></ul><ul><li>Unbundling of local loops– 1996 act </li></ul><ul><li>Business line separation– 1956 consent decree </li></ul><ul><li>Plus a long list of other approaches like Open network architecture, xxx, </li></ul>
  12. 12. <ul><li>The US has tried all approaches . Arguably, none of them has worked very well. </li></ul><ul><li>So now Europeans, led by the formidable Madame Reding who has no particular sense of regulatory history or geography beyond europe, are moving into that direction </li></ul>
  13. 13. Europe’s Functional Separation <ul><li>But the fact is that FS does not prevent price or quality discrimination by N/W provider among unrelated applications </li></ul>
  14. 14. <ul><li>But FS does not prevent, by itself, price or quality discrimination by network provider among unrelated services. </li></ul><ul><li>Or, the blocking of unpopular content. </li></ul><ul><li>Or, the blocking of applications that use up a lot of bandwidth capacity. </li></ul><ul><li>Or, the charging of monopolistic prices. </li></ul><ul><li>Or, the charging of ‘squeeze’ prices </li></ul><ul><li>Or, the charging of monopolistic termination prices by service providers for inbound traffic </li></ul>
  15. 15. <ul><li>Some of these problesm might be addressed by a full structural separation, not just a functional separation. </li></ul><ul><li>But that would take much more political courage and leadership. </li></ul><ul><li>So functional seapration is a weak substitute that will incovenience everybody but not really solve anything. </li></ul>
  16. 16. Why separations not pursued anymore actively? <ul><li>Numerous problems </li></ul><ul><li>It’s Static </li></ul><ul><li>Its asymmetric </li></ul><ul><li>It creates line drawing problems </li></ul><ul><li>It reduces internal coordination, without eliminating the likelihood of preferential treatments </li></ul>
  17. 17. <ul><li>But the fact is, good analysts will also easily reach the opposite conclusions, and so I’m much more inclined to add value here not by theory but by empirical data, </li></ul><ul><li>The best service we can do to ourselves, and to others, is to figure out what the outcome of this ATT divestiture was. </li></ul><ul><li>And to do so, I will present some data, </li></ul><ul><li>and compare them to a company and ountry which were similar in 1983, but had no divestiture.- oh canada, and bell canada. </li></ul>
  18. 18. <ul><li>Let’s start reminding ourselves how huge and dominant ATT was on that day in 1982 when it consented to being broken up. </li></ul>
  19. 19. TOP 25 Companies of the US Information Sector 1983 Company US Domestic Revenues 1 AT&T 118,118 2 IBM 25,882 3 GTE 7,000 4 RCA 6,352 5 Motorola 5,040 6 Xerox 3,692 7 ABC 3,291 8 Sprint 2,856 9 CBS 2,715 10 Warner Comm 2,629 11 NCR 2,546 12 Gannett 2,274 13 Burroughs 2,195 14 MCI 2,157
  20. 20. <ul><li>Plus, this giant operated essentially without competition, in an essential service. </li></ul><ul><li>There has never been anything like it, and there never will </li></ul><ul><li>And so it was no wonder that this dominance was challenged. </li></ul><ul><li>And the giant was broken up </li></ul>
  21. 21. TOP 25 Companies of the US Information Sector, 1984 Company Rev 1 AT&T 60,318 2 IBM 25,882 3 NYNEX 9,573 4 BellSouth 9,519 5 Ameritech 8,347 6 Bell Atlantic 8,090 7 Pacific Telesis 7,800 8 USWest 7,280 9 SBC 7,191 10 GTE 7,000 11 RCA 6,352 12 Motorola 5,040 13 Xerox 3,692 14 ABC 3,291
  22. 22. TOP 25 Companies of the US Information Sector 1983 1984 2006 Company Rev Company Rev Company Rev 1 AT&T 118,118 AT&T 60,318 SBC (AT&T) 96,172 2 IBM (US Domestic) 25,882 IBM (US Domestic) 25,882 Verizon 74,764 3 GTE 7,000 NYNEX 9,573 Time Warner 39,269 4 RCA 6,352 BellSouth 9,519 IBM (US Domestic) 35,637 5 Motorola 5,040 Ameritech 8,347 Sprint 31,632 6 Xerox 3,692 8,090 HP 29,362 7 ABC 3,291 Pacific Telesis 7,800 Microsoft 25,340 8 Sprint 2,856 USWest 7,280 Dell 22,386 9 CBS 2,715 SBC 7,191 Comcast 19,190 10 Warner Comm 2,629 GTE 7,000 Sony 18,342 11 NCR 2,546 RCA 6,352 Disney 16,195 12 Gannett 2,274 Motorola 5,040 Motorola 14,722 13 Burroughs 2,195 Xerox 3,692 NewsCorp 13,992 14 MCI 2,157 ABC 3,291 Viacom 11,623
  23. 23. TOP 25 Companies of the US Information Sector 15 DEC 2,032 Sprint 2,856 Qwest 11,541 16 Time 1,962 CBS 2,715 General Electric 9,340 17 HP 1,926 Warner Comm 2,629 CBS 8,905 18 Apple 1,908 NCR 2,546 Intel 8,423 19 Matsushita 1,881 Gannett 2,274 Lucent (Alcatel) 7,954 20 Knight Ridder 1,664 Burroughs 2,195 Xerox 7,838 21 Times-Mirror 1,551 MCI 2,157 Oracle 7,717 22 Viacom 1,470 DEC 2,032 Gannett 7,381 23 Tribune 1,422 Time 1,962 Cox 6,598 24 Sony 1,410 HP 1,926 Toshiba 6,295 25 MCA 1,403 Apple 1,908 Cisco 5,843 Total 205,376 Total 194,575 Total 536,461 Average 8,215 Average 7,783 Average 21,458 Median 2,195 Median 3,692 Median 13,992
  24. 25.
  25. 26. Pooled Telecom Services Concentration
  26. 27. <ul><li>So in The US, after a long period of enormous and expensive struggle and battle, is back to an HHI of 2,900. </li></ul><ul><li>In Canada, without much of this son and lumiere, the HHI is about 2,500 </li></ul><ul><li>In the US, the top dog company Att, has : 42%. </li></ul><ul><li>In Canada, Bell Canada has 42% </li></ul><ul><li>In the US, number two is Verizon, with 28% </li></ul><ul><li>In canda, Telus has 22%. </li></ul>
  27. 28. Long Distance Telecom Service Concentration
  28. 29. <ul><li>So an oligopoly resulted, at best. And the reason is not gullible regulators and legislators, </li></ul><ul><li>But rather, the wonderfully lucrative long distance business turned out to be, as any clearheaded analysis would have shown, into a commodity business, and it=s prices came down down down, great for consumers, but eventually ATT ended up out of money, and World Com ended up in prison, and Sprint is just hanging in there. </li></ul>
  29. 30. Mobile Service Concentration
  30. 31. <ul><li>So here we had a brand-new industry, which was not considered at all in the divestiture discussion. In fact, even att had no idea how valu=able it was, and neither did mckinse consulting. And in this industry, where competitiveness was tried in any possible way by the government, including a period of lotteries. </li></ul><ul><li>And yet you see where things have been going, and are probably going to still futher market concentration, a 2.5 system of oligopoly </li></ul>
  31. 32. Local Services Concentration (national)
  32. 33. xxxxxxxxxxxxxxxxxx
  33. 34. <ul><li>Let’s look now at the combined market shares of the ATT successor firms </li></ul>
  34. 35. “ AT&T” Telecom Services Market Share
  35. 36. <ul><li>These figures are higher than they are for Bell Canada </li></ul>
  36. 37. <ul><li>For the 3 classic telecom services, “ATT” share used to be around 85%. </li></ul><ul><li>About 25 years later, the combined share of the successor companies is around 65% for long distance, private lines, and mobile. </li></ul><ul><li>It’s gone down more than that in some countries that didn’t do a divestiture, such as France, Germany, and Japan. </li></ul><ul><li>And it has not gone down at all on a national level for local service, whereBut not for local service, where it has remained and keeps hovering around 90%. </li></ul>
  37. 38. <ul><li>So what about local competition? That’s one thing which the divestiture ddidnt really consider. It separated the local from the rest, expecting it to be a permanent natural monoply. </li></ul><ul><li>And in a way it was right. Landline service stayed monopolisitc pretty much </li></ul><ul><li>But it did not anticipate the rival platforms </li></ul>
  38. 39. 4 Telecom Infrastructures in the woods: AT&T mobile, Verizon landline, Comcast VoIP, Sprint
  39. 40. Local Telecom Services Concentration
  40. 41. <ul><li>But it’s important to understand that for this, no divestiture was necessary! </li></ul><ul><li>In many other countries, wireless is a vigorous competitior to landlines. And in many other countries, voip is strong. And in many countries which have a cable infrasturcture, including canada, cable based voip is riding strong. </li></ul>
  41. 42. <ul><li>In Canada, there are 2.4 mil residential VOIP subscribers </li></ul><ul><li>That’s pretty exactly 50% higher penetration than in the US. </li></ul>
  42. 43. Broadband Concentration
  43. 44. http://actlocallysf.org/blog/talkingpoints/wpcontent/uploads/Image/Free-WiFi.gif
  44. 45. <ul><li>So you can see from the orange line at the top that local BB is highly concentrated, a duopoly. Or maybe a 2.5 system. </li></ul><ul><li>Better arguably than the 1.5 system based on DSL and incumbent phone company. </li></ul>
  45. 47. Growth
  46. 48. 1983 Revenues of AT&T for Telecom Equipment & Services <ul><li>$89 billion ($85.3b from Services, $3.8b from Equipment) </li></ul><ul><li>● 1983 revenues in 2007 dollars, = $185 billion. </li></ul>(source: MeasuringWorth.com - http:// www.measuringworth.com/uscompare / )
  47. 49. 2007 Revenues for AT&T’s successors <ul><li>at&t:   $ 119 billion (64% of 1983 AT&T) </li></ul><ul><li>Verizon: $93 (50% ) </li></ul><ul><li>Qwest $14 (8% ) </li></ul><ul><li>Lucent $9 (5% ) </li></ul><ul><li>Avaya $5 (3% </li></ul><ul><li>Agere $2 (1% </li></ul><ul><li>Total: $242 (131% of 1983 AT&T) </li></ul>
  48. 50. <ul><li>This is not a major growth rate, 31% in 25 years </li></ul><ul><li>Even in an environment with dropping prices </li></ul>
  49. 51. Growth for Bell Canada <ul><li>1983: C$4.65 B </li></ul><ul><ul><li>In 2007 dollars, C$10.9 B </li></ul></ul><ul><li>In 2007: C$17.9 </li></ul><ul><li>Growth in 25 years: 64% </li></ul><ul><li>Still not great, but it’s twice as high as that of the “ATT” system. </li></ul>
  50. 53. Market Capitalization
  51. 54. Market Capitalization <ul><ul><li>Market cap for GTE on 12/31/81=$53b </li></ul></ul><ul><ul><ul><li>--Or $110b in 2008 $US </li></ul></ul></ul><ul><ul><ul><li>--[minus non-telecom parts]: $12 b </li></ul></ul></ul><ul><li>Market cap for AT&T on 12/31/81=$48b </li></ul><ul><ul><li>--or $99.6b in 2008 $US </li></ul></ul><ul><ul><li>Combined AT&T and GTE market cap: $111 B </li></ul></ul>
  52. 55. at&t mar <ul><li>2007market cap value of $164.86. </li></ul>http://en.wikipedia.org/wiki/Verizon_Communications#cite_note-6
  53. 56. AT&T Market Capitalization <ul><li>April 17, 2008, the market capitalization of at&t is $225B. </li></ul>http://finance.yahoo.com/q?s=T
  54. 57. Verizon Market Capitalization <ul><li>Verizon market capitalization is $103B. </li></ul>http://finance.yahoo.com/q?s=VZ
  55. 58. Qwest Market Capitalization <ul><li>Qwest market capitalization is $8B. </li></ul>http://finance.yahoo.com/q?s=Q
  56. 59. Lucent Market Capitalization <ul><li>market capitalization of Alcatel Lucent is $13.69B. </li></ul><ul><li>Lucent part of merged company 40% </li></ul><ul><li>Lucent part worth app $5.5 B </li></ul>
  57. 60. Agere Market Capitalization <ul><li>Agere market capitalization $4B. </li></ul>http://seekingalpha.com/symbol/agr
  58. 61. Avaya Market Capitalization <ul><li>acquired in 2007 for $8.2 B. </li></ul>
  59. 62. Total “AT&T” Capitalization <ul><li>2008: $353 B </li></ul><ul><li>1982, in 2008 dollars: $111 B </li></ul><ul><li>Increase in value: 210% </li></ul>
  60. 63. Bell Canada Market Cap <ul><ul><li>12/31/81=$2.9 B </li></ul></ul><ul><ul><ul><li>--or $6.8 B in 2008 $CA </li></ul></ul></ul><ul><li>On June 30 , 2007 , BCE accepted a PE bid for a total valuation of $51.7 billion </li></ul><ul><li>Increase in value: 660% </li></ul><ul><li>More than 3 times the increase of “AT&T” plus GTE </li></ul>
  61. 64. Risk
  62. 65. Shift from Small Investor Stock <ul><li>I havent had the time to look for the betas. But here is anoither way of loooking at it. ATT used to be a ‘widows and orphans stock. Not anymore. </li></ul><ul><li>In 1983, AT&T was 0.01% insider owned </li></ul><ul><ul><li>Institutional ownership: 38.6 </li></ul></ul><ul><ul><li>Personal ownership: 41.4 % </li></ul></ul><ul><li>In 2008, insider ownership at&t 0.1% </li></ul><ul><ul><li>Institutional ownership 76.2%, higher than for other large stable technology companies </li></ul></ul><ul><ul><li>Personal ownership 23.7 % </li></ul></ul><ul><ul><li>So personal ownership had dropped to almost half of what it used to be </li></ul></ul><ul><ul><li>In canada, in conrast, Bell Canada seems to be safe enough for the pension fund of the ontario teachers to buy it now in a recent PE trasnaction </li></ul></ul>
  63. 66. Noam, Eli. Media Concentration in America . Oxford: Oxford University Press. 2008. INSIDER OWNERSHIP IN MAJOR MEDIA AND COMMUNICATIONS COMPANIES *** Extrapolated from other years 1988 % 2005 % Sprint 5.0 Avaya 0.7 MCI 2.4 Lucent 0.2 Ameritech 0.1 SBC/AT&T 0.1 SBC 0.1 Sprint 0.1 US West 0.1 Bell South 0.1 AT&T*** 0.0 Bell South 0.0 NYNEX 0.0 Bell Atlantic 0.0 Pacific Telesis 0.0 GTE 0.0
  64. 67. Institutional Ownership -- IT/Telecom Noam, Eli. Media Concentration in America . Oxford: Oxford University Press. 2008. * Estimate ** Most of the company is owned by family- controlled Bertelsmann Foundation *** Extrapolated from other years 1988 2005 Intel 72.2% EDS 92.0% Sprint 70.0 Xerox 86.0 Unisys 69.2 Sprint 83.3 Xerox 66.5 SBC/AT&T 76.2 MCI 64.8 NCR 75.5 Apple 63.0 HP 72.7 Compaq 62.1 Qwest 72.4 Motorola 60.7 Apple 71.8 NCR 60.4 Unisys 71.7 GTE 52.4 Avaya 71.3 DEC* 50.0 Motorola 71.1 Sony*** 47.9 Dell 64.6 IBM 46.7 Bell South 59.8 General Electric 45.4 Cisco 58.7 HP 41.9 Gateway 56.1 Pacific Telesis 41.1 Microsoft 55.9 US West* 40.5 Intel 55.8 SBC 38.7 Verizon 55.4 AT&T*** 38.6 Sun 54.2 Toshiba*** 37.7 Oracle 48.3 Matsushita*** 36.3 Sony* 47.9 NYNEX 32.3 IBM 46.9 Atlantic 31.5 Samsung 40.0 Ameritech 31.3 Toshiba* 37.7 Bell South 24.3 Lucent 36.7 Weighted Average 42.5 Weighted Average 63.2 Average 49.0 Average 61.5 Weighted Average of U.S.-Owned Firms 42.5   Weighted Average of U.S.-Owned Firms 64.8
  65. 68. OWNERSHIP CONCENTRATION (C5) OF IT/TELECOM COMPANIES Noam, Eli. Media Concentration in America . Oxford: Oxford University Press. 2008. * Two shares of stock considered, families combined ** Data from nearest year where otherwise unavailable *** Estimate 1988   2005 Company C5 Company C5 AT&T^ 6.7% Verizon 9.0% Bell South 5.3% SBC/AT&T** 8.0% NYNEX 6.2% Sprint 24.4% Bell Atlantic 6.4% Bell South 29.9% Ameritech** 17.0% Qwest 53.7% SBC 8.1% Pacific Telesis 9.2% US West*** 6.0% GTE 15.0% Sprint** 17.0% MCI 17.4%
  66. 69. OWNERSHIP BY TEN MAJOR INSTITUTIONS (2005) ($ MILLION) Fidelity Management & Research Mellon Bank Vanguard Group Capital Research and Management Wellington Management State Street Global Investors $ $ $ $ $ $ Verizon 4,115 942 1,429 0 685 2,684 AT&T 173 32 134 0 1,796 3,252 Sprint 599 100 332 417 2,933 2,041 Bell South 1,925 1,267 2,516 3,279 338 3,104 Qwest 3,085 888 1,612 3,301 11 614 Lucent 57 0 0 0 0 309 AXA Financial Barclays Northern Trust TIAA/CREF $ $ $ $ Verizon 2,970 3,609 1,092 763 AT&T 8 165 1,149 815 Sprint 234 473 745 947 Bell South 387 5,564 672 490 Qwest 2,372 2,339 93 62 Lucent 1 3 123 94
  67. 70. AGGREGATE OWNERSHIP OF MAJOR INFORMATIONAL SECTOR FIRMS BY INSTITUTIONAL INVESTORS LARGEST SHAREHOLDERS IN THE MAJOR MEDIA AND COMMUNICATIONS COMPANIES Public Stock Owned by 10 Major Institutions (%) Verizon 28.3 AT&T 33.0 Sprint 30.2 Bell South 23.1 Qwest 27.4 Lucent 3.9
  68. 72. Technology Equipment
  69. 73. “ AT&T” Telecom Network Equipment US Market Shares
  70. 75. “ AT&T” MIDRANGE/COMPUTERS (U.S. MARKET SHARES IN % OF UNITS) *AT&T owned NCR from 1991 to 1996
  71. 76. “ AT&T” WORKSTATIONS (U.S. MARKET SHARES IN % OF UNITS) *AT&T owned NCR from 1991 to 1996 0 0 0 0 0 0 0
  72. 77. “ AT&T” SEMICONDUCTOR (WORLD MARKET SHARE IN %)
  73. 78. Domestic vs. International Prices for Telecom Switches (1990) Market Share in Home Market Home Price ($/Line) Intl. Lowest Bid ($/Line) Home Market Premium (%) Alcatel (France) 84 335 110 204 AT&T (U.S.) 42 110 100 10 Ericsson (Sweden) 100 325 130 150 Fujitsu (Japan) 24 290 110 164 NEC (Japan) 25 290 140 107 Nortel (Canada) 80 250 100 150 Siemens (Germany) 83 450 100 350
  74. 80. Impact on R&D
  75. 81. <ul><li>What the structural separation did, also unanticipated, was the total distruction of an research organization specialized on national tlecommunications. </li></ul><ul><li>Bell labs, which used to have about 2,000 actual researhcers, is no more. </li></ul><ul><li>Overall “ATT” researchers rose at first with the new companies, and then dropped like a rock, to close to nothing today. </li></ul>
  76. 82. Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,” Prometheus, 21(2):184-185, June 2003.
  77. 83. Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.” Committee on Telecommunications Research and Development , National Research Council. Washington, D.C.: The National Academies Press. 2006. Last accessed on April 17, 2008, from http:// www.nap.edu/catalog.php?record_id =11711 US Industry US University Non-US University Non-US Industry
  78. 84. <ul><li>In Canada, Nortel also suffered in a variety of ways, but its relationship to BC was much more harmonious, and it has maintianed over a thousand R&D personnel, less than in 1983, but it’s not gone and done with in the way that Lucent has, which is one of the sad stories of american technology businesses. </li></ul>
  79. 86. To Conclude <ul><li>25 years after the At&T Divestiture: </li></ul><ul><li>Overall market concentration in telecom is up by almost 1000 points on the HHI index </li></ul><ul><li>Local local market concentration is down by 20% </li></ul><ul><ul><li>No evidence that divestiture had an effect on local competition </li></ul></ul><ul><li>Market valuation rise of “AT&T” , in comparison to Bell Canada, is only one third. </li></ul><ul><li>Revenue growth of “AT&T, in comparison to Bell Canada, was only half </li></ul><ul><li>Reduction of R&D inside telecom sector: decimated in terms of inhouse research, in comparison to Canada </li></ul>
  80. 87. <ul><li>In comparison to Canada, the US has lower VOIP rates, lower mobile penetration, and lower broadband peneteration </li></ul>
  81. 88. <ul><li>Now none of this should suggest that a divestiture was not justified. </li></ul><ul><li>To me, the main reason is that ATT was simply too dominant and domineering. </li></ul><ul><li>Rememeber the numbers I showed earlier. </li></ul><ul><li>So this would have argued for a simple horizontal size reduction. </li></ul><ul><li>We just ried to make it way too complicated </li></ul>
  82. 89. <ul><li>It seems that the equilibrium market structure is 2-3 horizontal companies, doing pretty much everything. </li></ul><ul><li>That’s how it’s in Japan, in canada, and that’s maybe where things will be moving in Europe </li></ul><ul><li>And there will be some other providers, like cable </li></ul><ul><li>And obviously there will be some market power, and that market power will need to be dealt with in the classic ways of common carriage, of which net neutrality is just a variation </li></ul>
  83. 90. <ul><li>In 1983, the US had the world’s best telecom systdem, and was ahead by every measure </li></ul><ul><li>In 2008, it has a good system, and is one among the world’s top 15 telecom systems. </li></ul>
  84. 91. <ul><li>So what are the major variables? </li></ul><ul><li>The US had a divestiture, and Canda didn’t. </li></ul><ul><li>If you have a better theory, let’s hear it. </li></ul>
  85. 92. The End. Thank you for your attention. [email_address]
  86. 94.
  87. 95. Source: http://www.mccullagh.org/db9/1ds-8/support-net-neutrality.jpg
  88. 96. Source: http://www.mccullagh.org/db9/1ds-8/honk-for-internet-freedom.jpg
  89. 97. Source: http://www.vpirg.org/images/ct-pet2a.JPG
  90. 98. Source: http://www.aclu-wi.org/images/DSCN2414.JPG
  91. 99. Media Reform Movement
  92. 100. Vonage – VOIP Revenue in 2007 <ul><li>  </li></ul><ul><li>Vonage Holdings Corp. </li></ul><ul><li>  </li></ul><ul><li>828 million USD in 2007, up 36 % from 2006. </li></ul><ul><li>  </li></ul><ul><li>“ The top seven consumer VoIP providers in the United States at the end of mid-2007 included the five largest cable operators in the country. </li></ul><ul><li>  </li></ul>Source: TeleGeography”
  93. 101. U.S. VoIP Market Share Source: “U.S. VoIP Market Share.” 16 Aug, 2007. Fiercevoip.com. Last accessed on 15 Apr, 2008 at http://www.fiercevoip.com/story/u-s-voip-market-share/2007-08-16 .
  94. 102. VoIP Ranking by Subscriber: Q3 2007 Source: “ VoIP Ranking by Subscriber: Q3 2007. ” Last accessed on 17 Apr, 2008 at http://www.isp-planet.com/research/rankings/2007/voip_q32007.html.
  95. 103. TOTAL US CABLE/VOIP CABLE MARKET SHARE 8.55% <ul><li>16.1 million VOIP/CABLE subscribers, divided by 188.1 million total main telephone lines in the U.S. </li></ul>Source: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html .
  96. 104. GLOBAL VOIP SUBSCRIBERS At the end of December 2007, US had an estimated 16.1 million subscribers. http://www.ilocus.com/ngnnvn/
  97. 105. VOIP Market Share by Company ISP VOIP/CABLE MARKET SHARE (%) TOTAL SUBSCRIBERS (THOUSANDS) Comcast 2.19 3,774 Time Warner 1.52 2,610 Vonage 1.45 2,500 Cox 1.34 2,300 Skype 1.05 1,800 Cablevision 0.87 1,490 Charter 0.47 802 Insight Communication 0.11 177 Mediacom 0.1 165 CBeyond 0.02 33
  98. 106. <ul><li>2008 </li></ul><ul><ul><li>  Clear Channel Communications, Inc., Thomas H. Lee Equity Fund and Bain Capital. </li></ul></ul><ul><ul><li>T-Mobile and SunCom </li></ul></ul><ul><li>  </li></ul><ul><li>2007 </li></ul><ul><ul><li>  ALLTEL and Atlantis </li></ul></ul><ul><ul><li>AT&T and Dobson Intelsat and Serafina </li></ul></ul><ul><ul><li>Stratos/CIP/Franklin </li></ul></ul><ul><ul><li>Samuel Zell and Tribune Company </li></ul></ul><ul><ul><li>Citadel Broadcasting/Disney (ABC Radio) </li></ul></ul><ul><li>  </li></ul><ul><li>2006 </li></ul><ul><ul><li>  ALLTEL/MidWest Wireless </li></ul></ul><ul><ul><li>Time Warner, Comcast/Adelphia </li></ul></ul><ul><ul><li>Intelsat/PanAmSat </li></ul></ul><ul><li>  </li></ul><ul><li>  </li></ul>Source: Office of General Counsel’s Transaction Team from http://www.fcc.gov/transaction/welcome.html.
  99. 108. Telecom Services Concentration
  100. 109. Telecom Networking Equipment Concentration
  101. 110. Telecom Customer Equipment Concentration
  102. 111. Telecom Average Sub-Industry Concentration
  103. 112. Equipment, Services and Total Telecom Concentration
  104. 113. Long Distance Private Line Concentration
  105. 114. International Service Concentration
  106. 115. Paging Service Concentration
  107. 116. Market Concentration of All Unregulated Information Sub-Sectors
  108. 119. Divestiture Pieces – What Are They Worth today? Total revenues of divestiture pieces: $262.237 billion <ul><li> ● 2007 revenues for Verizon including Verizon wireless </li></ul><ul><li>Operating revenue / Turnover :  $ 93.47 billion (2007) including Verizon wireless. </li></ul><ul><li>Full-year revenues of Verizon wireless were $43.9 billion (2007). * VZ Share </li></ul><ul><li>● 2007 revenues for New AT&T formerly SBC </li></ul><ul><li>Operating revenue / Turnover :  $ 118.928 billion (2007) </li></ul><ul><li>● 2007 revenues for Qwest </li></ul><ul><li>Operating revenue / Turnover :  $ 13.778 billion (2007) </li></ul><ul><li>● 2007 revenues for Lucent </li></ul><ul><li>Operating revenue / Turnover :  $ 8.796 billion (2006) </li></ul><ul><li>Alcatel SA of France purchased Lucent at the end of Dec, 2006. </li></ul>
  109. 120. <ul><li>2007 revenues for Avaya </li></ul><ul><li>Operating revenue / Turnover - $5.148 billion (2006) </li></ul><ul><li>Two private equity firms, TPG Capital and Silver Lake Partners , acquired Avaya on Oct, 2007. </li></ul><ul><li>  </li></ul><ul><li>● 2007 revenues for Agere Systems </li></ul><ul><li>Operating revenue / Turnover - $1.570 billion (2006) </li></ul><ul><li>LSI Corporation purchased Agere on April , 2007 . </li></ul><ul><li>  </li></ul><ul><li>● 2007 revenues for BellSouth </li></ul><ul><li>Operating revenue / Turnover :  $ 20.547 billion (2005) </li></ul><ul><li>AT&T purchased BellSouth at the end of December, 2006. </li></ul>
  110. 121. R&D expenditure in the EU, Japan and the US In million constant 1995 PPS Source: Eurostat Gomez-Barroso, Jose Luis. “ AN OVERVIEW OF EUROPEAN ICT R&D : CHALLENGES AND POLICIES.” Columbia Institute for Tele-Information , The State of American Telecom R&D, New York. November 17, 2006.
  111. 122. R&D expenditure as a percentage of GDP Year 2003 . Source: Eurostat Gomez-Barroso, Jose Luis. “ AN OVERVIEW OF EUROPEAN ICT R&D : CHALLENGES AND POLICIES.” Columbia Institute for Tele-Information , The State of American Telecom R&D, New York. November 17, 2006.
  112. 123. R&D expenditure by institutional sector of performance Year 2002 . Source: Eurostat BES: Business Enterprise Sector GOV: Government Sector HES: Higher Education Sector Gomez-Barroso, Jose Luis. “ AN OVERVIEW OF EUROPEAN ICT R&D : CHALLENGES AND POLICIES.” Columbia Institute for Tele-Information , The State of American Telecom R&D, New York. November 17, 2006.
  113. 124. Investment in ICT Research Year 2002 . Source: European Commission. i2010 Gomez-Barroso, Jose Luis. “ AN OVERVIEW OF EUROPEAN ICT R&D : CHALLENGES AND POLICIES.” Columbia Institute for Tele-Information , The State of American Telecom R&D, New York. November 17, 2006. ICT R&D2 EU15 US Japan Private sector investments 23 bil. Euros 83 bil. Euros 40 bil. Euros Public sector investments 8 bil. Euros 20 bil. Euros 11 bil. Euros Inhabitants 383 mil. 296 mil. 127 mil. Investments/inhabitants 80 Euros 350 Euros 400 Euros ICT R&D as % Total R&D 18% 34% 35%
  114. 125. Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,” Prometheus, 21(2):184-185, June 2003.
  115. 126. Noll, A. Michael. “Telecommunication Basic Research: An Uncertain Future for the Bell Legacy,” Prometheus, 21(2):184-185, June 2003.
  116. 127. Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.” Committee on Telecommunications Research and Development , National Research Council. Washington, D.C.: The National Academies Press. 2006. Last accessed on April 17, 2008, from http:// www.nap.edu/catalog.php?record_id =11711
  117. 128. Lucky, Robert W. and Eisenberg, Jon, Editors. “Renewing Telecommunications Research.” Committee on Telecommunications Research and Development , National Research Council. Washington, D.C.: The National Academies Press. 2006. Last accessed on April 17, 2008, from http:// www.nap.edu/catalog.php?record_id =11711
  118. 129. Broadband Penetration G7 Countries
  119. 130. Future Regulation Model for Broadband?

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