AT&T, which Bob Zadek notes stands for American Telephone and Telegraph Company, is treated across three episodes of the show as the central American case study in government-sanctioned monopoly and its relationship to innovation. Guests describe the company both as the operator of a legally protected monopoly and as one of the most powerful lobbying forces in Washington, and they use its history to distinguish capitalism from what Bill Frezza calls crony corporatism.
The Bell System monopoly
Frezza, who graduated MIT in 1978 and joined Bell Labs at what he calls the final days of its glory years, describes a research organization that was the one place that could legally do research and develop products in the telecom industry because until 1982 it was illegal to compete with Ma Bell and the Bell System Bill Frezza’s History of Telecom Innovation (and Not) (2015). Bell Labs collected, in his account, pretty much every engineer and scientist interested in communications, including people who went on to develop the laser and the transistor. Frezza states that in the year he joined, the Bell System — which included AT&T Long Lines, the operating companies, Western Electric, which manufactured all the equipment, and Bell Laboratories — had one million employees and was the largest private employer in America. Zadek characterizes the arrangement as one company manufacturing all the phones, designing all the phones, doing all the research, and controlling the entire electronic communication from one human to another in the United States.
Frezza resists the framing that this history demonstrates the evils of business. He argues that people confuse capitalism and crony corporatism, and that the whole history of the Bell System until its deregulation is the most successful crony corporatist history that can be found anywhere. He describes the monopoly as well-run rather than predatory, delivering what was promised, but insists the harm was unseen: what was missed was everything that happened afterward. In 1982, in his account, they fired the starting gun for the digital revolution, an era of completely unrestrained innovation. He adds that when AT&T was allowed to compete it became Lucent, which failed over about twenty years, was bought by the French, became part of Alcatel, and pretty much disappeared under the waves.
Zadek draws a parallel between the Bell System and banking, describing bankers as having made an alliance with government in which they carry out policies and make loans to constituents who do not deserve them in exchange for free money and protection against failure — the same deal, he says, that AT&T made with the government 80 years ago, becoming in many ways an arm of the government carrying out wealth transfers from urban areas to rural areas. Frezza agrees that it is a lesson we never learn, citing Sarbanes-Oxley and Dodd-Frank as legislation claiming to prevent future problems, and noting that since Dodd-Frank there have been maybe three bank charters granted in the entire United States, which he thinks were on Indian reservations. He compares the taxi cartels to the Bell System — regulating rates, controlling entry, taking it out of the hides of consumers to benefit medallion holders — and holds up Uber as a positive model, asking whether there will be an Uber of banking or of healthcare.
The unlocking ban and lobbying power
In the 2014 episode, Derek Khanna describes working in Congress in 2012 for the House Republican Study Committee, a caucus of about 170 conservative, Tea Party type members, and putting out a report on reforming US copyright law that argued copyright is increasingly misused by special interests Derek Khanna - What’s Stifling Innovation? (2014). About a month after that report, he says, the Librarian of Congress decided to ban phone unlocking in the United States, making it in practice a felony punishable by five years in prison for a consumer to unlock their own phone device, because the big phone companies had lobbied the Librarian of Congress. Zadek describes this as a significant item of legislation becoming law by dint of the pen, and as Big Cell using the crassest form of crony capitalism to get protection from consumers changing carriers on phones they own.
Khanna states that there are over 100 wireless carriers in the country and that if the ruling had been allowed to stand it would have decimated the wireless industry, because it is very difficult for a new wireless carrier to compete with AT&T and Verizon and T-Mobile if it cannot have access to the premier phones. He teamed with Sina Khanifar, an entrepreneur out of San Francisco whose company had offered unlocking for consumers and had been shut down, to create a White House petition. Khanna says AT&T and Verizon are each top ten lobbying companies in Washington, D.C., so the campaign was taking on two of the ten biggest lobbying entities there, while on his side no tech company and no phone company lobbied, there was no money and no organization behind the effort, and it was simply people rising up. He recalls telling Congressmen to imagine somebody in their district arrested and sent to jail for five years for using technology available in 196 countries, and arguing that even if no one is arrested under the ban it drives down competition and destroys the resale market — corporate welfare for the big phone companies.
Zadek frames the fight as Big Cell pushing pressure on Congress from the top, with Democrats and Republicans caving, against Derek and approximately 114,000 other people pushing from the bottom up. Khanna reports that he heard over and over from members of Congress and their staff that he would have to be crazy to expect them to take on the big phone companies, and that when he argued this was an opportunity for Republicans to lead on the free market, support from Republicans would eventually come, but later on. He attributes the delay partly to Washington being far behind the times on technology, with a number of Congressmen still not having a Twitter account, creating an information imbalance big companies can take advantage of. After the petition reached 114,000 signatures, he says, the White House called him the day of and told him it would release a statement in the next ten minutes agreeing with the petition and going further; the Federal Communications Commission initiated an investigation and eventually forced the phone companies to allow consumers to unlock, and the Librarian of Congress was forced to issue his own statement. Congressman Jason Chaffetz tweeted him immediately after the President and said he would be introducing legislation.
Antitrust and concentrated power
In the 2020 episode, Ryan Young tells Zadek he would repeal the whole kit and caboodle of antitrust law, because many objections to concentrated power are best dealt with through other means and what people are often upset about is not an issue of competition Why Trustbusting Big Tech is a Bad Idea (2020). Young states that the AT&T monopoly was propped up by the government: for a long time until the late ’60s, if you attached a separate non-AT&T or non-Western Electric-made answering machine to your phone line, AT&T could go after you with lawyers and win. There was no good reason for that, he says; no market monopoly could ever get away with it, and it was only because they had government backing, since markets do not put up with that sort of thing but government can enforce it. He adds that antitrust is usually itself cronyism.
Across episodes
The three episodes treat AT&T consistently rather than developing a position over time: Frezza in 2015 supplies the historical account of the Bell System monopoly and its one million employees, Khanna in 2014 supplies the concrete lobbying and unlocking-ban fight in which AT&T and Verizon are named among Washington’s ten biggest lobbying companies, and Young in 2020 supplies the antitrust argument that the monopoly was propped up by government and that antitrust law is usually cronyism itself. The later treatments do not revise the earlier ones; each guest reaches for AT&T as the standing example of government-backed concentrated power.
What the sources do not cover
The excerpts do not give AT&T’s founding date, the terms or name of the 1982 action that Frezza says fired the starting gun for the digital revolution, or the disposition of the unlocking legislation Chaffetz said he would introduce. They do not state which court or statute governed the breakup of the Bell System, nor the outcome of the FCC investigation Khanna describes beyond the phone companies being forced to allow unlocking. The Frezza excerpts break off mid-sentence at several points, and nothing in the material covers AT&T’s operations after its absorption into Alcatel.