Ma Bell beats MCI (sort of).

Commentary about business and finance.
June 28 2002 4:59 PM

Ma Bell Beats MCI (Sort Of)

As WorldCom tumbles into the abyss, it drags MCI with it. Thus ends the saga of MCI versus Ma Bell, the epic telecommunications rivalry that indirectly created the '90s boom and made a legend out of the late Bill McGowan, the litigious MCI chief who first challenged AT&T's monopoly. AT&T has outlasted its old enemy, a victory that Bellheads will be able to savor for about five minutes.

When McGowan filed his antitrust suit back in 1974, AT&T was simply known as The Phone Company, because in most parts of the country there was only one. Ma Bell had invented the telephone and still owned most of them. Consumer options were few. Then McGowan triumphed, with some help from the Justice Department, and AT&T in 1984 was broken up into a long-distance company (which retained the AT&T name and competed with MCI) and seven regional local-service companies dubbed the Baby Bells.

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The Bells were seen as helpless orphans, waiting to be shoved aside by those nimble entrepreneurs who began founding upstart telecom firms in every hamlet in the land. The energies unleashed by the breakup found expression in such unlikely locales as Hattiesburg, Miss., where Bernie Ebbers, a motel operator, co-founded the long-distance company that eventually grew into WorldCom. The AT&T breakup also laid the groundwork for the Internet, which only multiplied the opportunities for WorldCom. By 1998 it had grown mighty enough to swallow MCI.

That was Ebbers' big mistake, because long-distance was by then a dying business. WorldCom's stock topped out at $64 in 1999, the year before antitrust regulators blocked Ebbers' bid to add Sprint to his empire. The stock has declined ever since. Now it is essentially worthless, and the accounting scandal revealed this week may push WorldCom into Chapter 11 proceedings.

AT&T is still standing, but the real winners are the Baby Bells, which are the most likely buyers if WorldCom's assets—including MCI—end up on the auction block. The Bells have been busy merging with each other, and eventually one of them is expected to acquire AT&T, the former corporate parent. So is the old monopoly reassembling itself? It does seem as though the story now has come full circle, with MCI possibly about to disappear and Baby Bells like Verizon moving aggressively to reclaim the long-distance market they were stripped of back in '84. I offer myself as Exhibit A: Up until a few months ago, I paid separate bills to AT&T for long-distance, MCI for in-state calls, and Verizon for local service. Now I write just one monthly check—to Verizon.

The Bellheads also are trying to get me to switch to their high-speed Internet service. Ah, but Time Warner Cable offers a competing service—and the cable companies are working on ways of offering telephone services, too, which theoretically could put the Bells out of business. Meanwhile, wireless technologies are being developed that might murder both cable and wire. So, in fact, nobody is safe, which is exactly what is supposed to happen in a free market. WorldCom (and MCI) may be on life support, but Ma Bell is stone-cold dead. 

Mark Lewis is an editor at Forbes.com. You can e-mail him at mlewis@forbes.net.

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