Bernie Ebbers Dies. For the Last 50 Years, Much of the Telecom Industry Also Died

Bernie Ebbers, WorldCom founder, has died. In some ways, WorldCom was emblematic of a frenzy of super-heated growth efforts in many parts of the telecom business around the turn of the century. 

The year 2000 also was notable as it represented the absolute peak of the traditional voice business in the U.S. market. After 2000, every part of the U.S. voice business began a long, steady revenue and subscriber decline. 

Though the company was marred by a major accounting scandal that sent him to prison,  Ebbers began building WorldCom by selling long distance voice services in 1983. Through a string of acquisitions, WorldCom even purchased the former MCI in 1998. In 2000 Worldcom tried to buy Sprint as well, though that deal was scuttled by regulators.

For some of us, the $35 billion acquisition of MCI was a landmark, as MCI is the firm that first brought competition to the U.S. communications services market, challenging then-monopolist AT&T with a private line running between St. Louis and Chicago in 1969. 

Think about it: until 1972, AT&T did not even have a marketing department. What would have been the point for a monopoly communications supplier whose profits were a guaranteed rate of return on its investments? 

Until 1968 AT&T was the sole supplier of U.S. telephones, transmission cables, switches, software and services for most of the United States. No other firms were allowed to attach devices to the AT&T network until after 1968. 

But the 1969 Carterphone Carterphone decision allowed use of third-party acoustic modems on the AT&T network. 

MCI also launched legal efforts that most would agree lead to the 1982 Modified Final Judgment that ended the AT&T monopoly, and the 1984 birth of legally separate Bell Operating Companies and AT&T, launching the era of competitive telecommunications in the United States and elsewhere. 

As with the later Telecommunications Act of 1996, is the first major overhaul of telecommunications law in almost 62 years, competition was the key objection. But something funny happened. Everyone thought the point was introducing competition into the voice business. 

By about 2000, the whole voice business began declining, with the internet emerging as the key feature of the next era of telecommunications and applications. Since 1968, the whole presumed point of competition was lower prices for long distance calling, local telephone service and third party supply of phones. 

In his 1986 book The Deal of the Century, author Steve Coll predicted that “AT&T will find itself along in the basic long distance market by the end of the century.” 

In truth, none of the former giants of the long distance business survived. 

By 2005, AT&T had been acquired by SBC Corp., one of the former Baby Bells. MCI was acquired in 1998. And Sprint, whose long distance business became a revenue footnote, was acquired by Softbank in 2012, primarily for its mobile business. 

The big takeaway from decades of telecom deregulation is simply to note that nearly every major telecommunications regulatory effort since 1968 (about fifty years) aimed in some way to introduce more competition into the voice business. 

Along the way, the business itself shattered. There is at present almost no upside to further efforts to “deregulate voice,” which has ceased to drive industry revenue or consumer demand. Voice is an essential function, but not the key revenue driver. 

Equally crucially, the universal use of internet protocol means we have formally divorced application ownership from network ownership. All telecom networks now are essentially “open.” Any lawful app provider is free to use the networks. 

So while innovation is virtually limitless, network access profitability now is a new issue. Telecom operators used to develop, own and profit from every app on the network. These days, connectivity suppliers profit only from a few owned apps, and they are never the sole suppliers. 

It is not clear what the next 50 years will bring. But the general movement has been towards products, services, revenues and profits shifting to third party users of connectivity networks. 

Along the way, some connectivity providers also have shifted their own revenues in that direction. Over time, it is possible that much of the “connectivity function” is subsumed into “functions that support our business model,” which might be advertising, e-commerce, marketing or some other activity. 

So advertising-driven Google operates its own data centers, subsea networks, fiber to home networks, Wi-Fi networks and mobile networks, and builds its own computing, mobility and content acquisition devices. 

Google develops or experiments with novel internet access platforms using balloons, satellites or unmanned aerial vehicles and creates its own content services. 

Amazon’s e-commerce model requires it to operate its own data centers, subsea networks, a private content delivery network, video and audio services, devices and apps. 

Facebook runs its own data centers, subsea networks and satellite networks to support its advertising business. 

It is hard to see those trends abating. Nor does it seem unreasonable to expect continued pressure on the connectivity provider business model, as revenue growth is slowed by competition and customer saturation. 

Worldcom and MCI were part of a huge change in the telecom business few expected. Functions might remain, but huge entities might continue to find themselves challenged to survive in the old ways.