AT&T and the government have been ‘friends’ for a really long time
The nation’s largest technology and communications firms have collectively lost billions in sales after documents leaked by Edward Snowden showed that, willingly or under duress, many have been sharing customer information with government spying entities like the National Security Administration.
According to a report this weekend in The New York Times, one firm—AT&T (T)—has been more eager than others to help the U.S. government fight terrorism. The report describes AT&T’s relationship with the NSA as, “unique and especially productive,” showing that the NSA’s partnership with the telecom giant cost the government more than twice as much as the next-largest program and that the company was the first major telecom firm, by more than three months, to begin to “turn over emails and phone calls” after the Bush Administration’s warrantless wiretapping program began in October 2001.
While it is unclear whether the behavior described by the leaked documents is ongoing at the company today, it should come as no surprise that AT&T, compared with other technology and telecommunications firms, was working most closely with the government. The company, which was launched in 1885 by Alexander Graham Bell and protected from competition by the first U.S. patent issued for the telephone, has had a symbiotic relationship with the U.S. government for much of its history. Here’s a look at the major events in the history of AT&T’s collaboration with the federal government:
The Kingsbury Commitment: The American Telephone and Telegraph Company rose to prominence during the waning years of the Gilded Age, as Americans were growing wary of the predatory power of monopoly and as the United States was engaging in a decades-long debate over whether it should follow the example of countries like Great Britain and nationalize private telegraph lines. As the nation’s leading telephone and telegraph company, AT&T was fiercely opposed to such an idea, though it continued to lead the push for consolidation in the industry, reflecting the fact that it was more efficient in the long run for one firm to provide the bulk of telecommunication services.
In 1913, AT&T and the federal government struck an agreement in which the Feds agreed to not break up AT&T, as it had with Standard Oil and American Tobacco, in exchange for a promise on the part of AT&T to not buy rivals with which it was directly competing. The agreement has been roundly criticized as an example of regulatory capture because it ratified AT&T’s strategy of consolidation (the company was still allowed to buy rivals who weren’t direct competitors) and collusion with rivals.
World War I Takeover: The most explicit example of AT&T’s collusion with the U.S. government came in 1918, when the U.S. Government nationalized the telegraph and telephone system under the supervision of the United States Postal Service. The USPS ran AT&T and its competitors with a light touch, allowing executives like CEO Theodore Vail to remain with the company and compensating shareholders handsomely. As Michael Janson and Christopher Yoo write of the government’s stewardship of AT&T assets, “the government effectively guaranteed AT&T’s previous rate of return while assuming all of the risks of operating the system.”
The Postal Service’s stewardship did more to consolidate the telecom industry in one year than AT&T was able to do in five years following the Kingsbury Commitment. As Janson and Yoo point out, the government was keen to make the nation’s telephone and telegraph networks more efficient, which meant reducing redundancies and harmonizing differences between networks. During the short time the government ran AT&T, it approved dozens of consolidations of competing services, and Congress formally exempted telecom companies from antitrust laws in 1921.
World War II: If the government takeover helped AT&T reestablish itself as a monopoly provider of telephone service, it was during World War II that the company repaid the American people for its largesse. According to author Jon Gertner:
By 1940, the research department at Bell Labs stopped doing research as nearly all of the Labs’ work—about 75 percent of it—was redirected towards developing electronic devices for wartime, first to help the Allies in Europe, and soon after to assist the U.S. Army and Navy.
The federal government invested hundreds of millions of dollars in private organizations like AT&T’s research arm, and Bell Labs helped develop tools as wide ranging as “tank radio sets to communications systems for pilots wearing oxygen masks to enciphering machines for scrambling secret messages.”
Bell Labs’ most famous invention during the war years was radar technology, which is often credited with helping the Allies win the war. Research related to radar began at the Naval Research Laboratory in the 1930s, but the Navy soon turned to AT&T scientists to refine the game-changing technology it was to become.
The Cold War: AT&T’s close relationship with the government persisted into the 1950s. According to Gertner’s account, Bell Labs director Mervin Kelly devoted half his work hours to military and government affairs. He describes the post-war AT&T as one of the main pillars of the military-industrial complex. Government contracts were not only a source of revenue for the firm, but “they gave the company strong allies within the government that the company would need as the twentieth century reached its midpoint.” These relationships helped fend off various efforts to check AT&T’s dominance of the telephony industry, like a 1949 antitrust suit brought by the Justice Department and settled in 1956, with the AT&T telephone monopoly still intact.
AT&T was able to retain control over the nation’s telephone system for 30 more years, until advances in long distance communication allowed upstarts like MCI and Sprint to challenge AT&T’s long distance business and the logic of its government-supported monopoly. But the events following the September 11 attacks show that AT&T’s eagerness to collaborate with the U.S. government, the entity most responsible for its glorious heyday, remains very much a part of its DNA.