Before continuing, let me say that up to this point it has been a very straightforward presentation. What follows next is the deciphering of events, decisions and strategies that have led us to where we are today. I will keep the language as simple as possible and the story as concise as I can without losing crucial data.
The Infobahn…Round 1
After the split, the Bells immediately began to go to work on easing the restriction of no profits above 11%. Was 11% too low? Looking at what they earned annually back at that time, you decide:
Ameritech – $8,378,000,000
Bell Atlantic – $8,090,000,000
Bell South – $9,631,000,000
Nynex – $9,573,000,000
Source: RBOC annual reports ’84
Nevertheless, in their mind it was too low.
They then proceeded to “cut a deal” with the states. This deal entailed giving the Bells a profit of 14% instead of 11%, and in return, the Bells would build out the much vaunted “Information Super Highway”. Not to be confused with the Internet, this network consisted of connecting everyone via a fiberoptic network of ISDN lines. (I have no doubt that the first challenge to this report you are reading will occur regarding this information. Although I could clutter this page with the numerous quotes of Senior Bell personnel to substantiate the information, I will instead place this and any future comments inside links that say *further information* . Click on them throughout the report if you would like greater detail.)
After this was arranged, statements delivered and promises made, there was only one problem. The Bells received their 14%. The states never received their networks.
Money to Burn
Earlier I mentioned remembering that the RBOCs had to open their networks in order for long distance providers to compete. Who were these long distance providers competing with? They were setting up to compete with the recently converted long distance carrier, AT+T. Who were the RBOCs competing with? No one. They were given exclusive control of their own territories for local service, and no one offered any alternative at the time.
The RBOCs were intentionally given a monopoly on the local markets to ensure their stability now that they were separated from the mother hen. As was determined later, this was a grave mistake.
First of all, the RBOCs realized that they had no competition and they possessed a product that was in high demand. This guaranteed them a substantial rate of return which meant they had quite a bit of financial power to use. They immediately petitioned for Waivers allowing them into other investment markets: real estate, software, foreign ventures, etc. and those Waivers were granted.
Believing that they could achieve greater profits outside of their field, all of the RBOCs were busy purchasing a number of these other financial instruments. All of them learned a very expensive lesson too, as NYNEX stated:
“An additional pretax charge of approximately $278 million was recorded in 1991 primarily for business restructuring. NYNEX has commenced its plans to exit the real estate development and management business and streamline other operating primarily related to Other Diversified operations.” *further information*
Virtually all of the Bells had sustained punishing losses as a result of investing outside of their specialty.