10/8/97

CONTACT: Kathleen O'Toole, News Service (650) 725-1939;
e-mail kathleen.otoole@stanford.edu

Ma Bell's labs: Were they really as good as their reputation?

At the top research universities, work experience at Bell Labs on a scientist's or engineer's resume commands respect normally reserved for research positions at their peer academic institutions. With that in mind, perhaps, economist Michael Boskin asked a heretical question recently: Were Bell Labs as good as their reputation?

The answer ­ from a once-proud Bell engineer and executive and from the Stanford economist who plotted Bell's downfall ­ was a qualified no.

"We thought we hit a home run, but we were born on third base," Sam Ginn, a former Bell Labs engineer, told an audience of alumni gathered on Homecoming Weekend at the Center for Economic Policy Research. Ginn is now chairman and CEO of AirTouch Communications, an international wireless telecom company spun off in 1994 from Pacific Telesis, which was spun off, by government force, from AT&T, or "Ma Bell," in 1984.

Certain that they ran the best telephone system in the world and believing that nobody could make phone equipment that worked as well as theirs, Ginn said, Bell scientists and engineers, as well as Bell phone operators and linemen, were shocked that the government would treat them so shabbily.

He predicted that employees of private electric companies soon will face the same type of "cultural confusion" that Ma Bell employees faced in the 1980s. On Jan. 1, California introduces competition into electric power production and delivery.

Today, Ginn said, competition has taught them that many companies can make good phones, that the network didn't automatically degrade when others were allowed to plug in and that new telecommunication products can come at a feverish pace when a bunch of profit-hungry companies are pursuing ideas independently. "Development cycles are much quicker; we pay a lot more attention to cost and global markets," he said. "We are beginning to think out of the box."

When Ginn started work as an engineer at the national telephone monopoly in 1960, the culture was atypical of private industry. "We really did feel we had a social mission beyond an economic mission," he said, as he showed a picture of an old telephone company advertisement ­ a clean-shaven but rugged lineman out repairing a downed line in a blizzard.

AT&T ran one of the two best phone systems in the world, along with its Canadian counterpart, said Roger Noll, the Morris M. Doyle Centennial Professor of Public Policy, who specializes in regulatory policy. That was partly because they were privately owned compared to government-owned systems elsewhere, he said, but Bell Labs also produced good technology, and there were "obvious economies of scope in having a single research lab" for communication system development.

Nevertheless, Noll met weekly in the 1970s with attorneys trying to develop an anti-trust case to break up Ma Bell. "The one issue we could never figure an answer to was the Bell Labs issue. We sort of believed you would have more innovation with a deregulated industry, but we had no basis for proving it."

The system is not as free as Ginn and some others attending the seminar would like, however. Because members of Congress like to give favored constituents subsidies through rate regulation, they complained, the 1996 Telecommunications Act did not get rid of all subsidies. Fixed costs associated with local telephone networks are reflected in interstate rate pricing, so that people in rural suburbs like Woodside, Calif., and states like Montana have the high cost of their local service subsidized by long-distance calls, said Gregory Rosston, a research fellow at the Center for Economic Policy Research and formerly deputy chief economist at the Federal Communications Commission.

Some members of the audience questioned whether decentralized free markets are truly Santa Claus. In Europe today, they noted, a wireless phone can reach anywhere in the world, but in the United States, a cellular phone can't be used in both Los Angeles and Miami. Lacking national technical standards, Ginn said, companies like his were developing handsets with dual operating modes. European countries, he predicted, eventually will find their standards "getting a little long in the tooth."

"It's obviously advantageous to standardize," Noll said. "But the optimal time is after people have experimented."

Boskin, the Tully Friedman Professor of Economics and senior fellow at the Hoover Institution, who was serving as moderator, told the audience that Noll also has dreams of breaking up the National Football League. But, he added with a chuckle, "that's a harder nut to crack."

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By Kathleen O'Toole