Book review time! Some lessons learned from reading the End of the Line: The Rise and Fall of AT&T by Leslie Cauley . How I got to this book is an interesting story in itself. I’m a huge Twitter consumer (I read a lot, but barely tweet) and Post_M is one of my favorite accounts on Twitter. She tweeted a video of a talk with Liberty Media’s CEO John Malone, which I watched and started going through the rabbit hole of more John Malone talks on Youtube and one of the videos recommended this book. The cable industry was never on my list of things that cared about, but thanks to Twitter and Youtube and a book recommendation – I learned a lot! The internet is truly a wonderful place.
The book is a fascinating look into the history of AT&T. At its core AT&T was a voice communications company. It made the entirety of its revenue as the monopoly provider of the telephone in the US. It’s the original bundle :). In 1984 the US government cracked down on monopolies and AT&T was forced to unbundle into parts. The breakup created an entity that served the long-distance market (At&T) and seven entities (baby bells) that served the local market. The baby bells controlled the last mile and AT&T controlled the backhaul. AT&T discovered pretty quickly that long-distance profits were falling rapidly due to competition and needed access to new revenue. As part of the anti-trust settlement AT&T had ceded local access to the baby bells – they were shut out of the existing last-mile distribution. The baby bells controlled the relationship with the end customer – and they wanted that pie to themselves. Enter Cable TV. Cable TV had made huge inroads into America and offered an alternative distribution point to the end consumer. There were only two wires going to each home, the cable company and the phone company. ATT’s strategy was to start rolling up these cable companies. Starting 1999 AT&T bought TCI and then MediaOne at outrageous premiums. The acquisition strategy did not work and then external events took over. The stock market bubble burst in 2001. AT&T was saddled with too much debt and just could not make the acquisitions work. Eventually, ATT was bought by one of the baby bells (South Western Bell) in 2005. The Baby Bells won the battle in the end. The current version of what we call ATT is SBC choosing to keep the AT&T brand. The root cause for the downfall of ATT were the usual things that bring down companies, too much debt, dysfunctional and bureaucratic management, and technological disruption (the internet in this case)
Two key learnings for me were –
How the wrong strategic abstraction can kill you
Throughout its life, ATT always thought of itself as a landline phone company, a voice company. Voice was the abstraction that they chose – We are a landline voice communication company. This abstraction caused them to miss a lot of opportunities. As part of the anti-trust settlement with the US govt, they gave away the rights to wireless spectrum to the baby bells. In their minds, the wireless spectrum was next to useless and they believed that wireless phones will not take off. It was all about landlines and they missed the wireless boat.
Sticking to the same abstraction caused them to do the disastrous cable acquisition deals. They wanted access to the last mile to compete with local phone service. The strategy was to acquire the last mile and run, you guessed it, voice, over those cables. The open internet was not a part of their strategy. They massively overpaid for the cable acquisitions.
The right strategic abstraction was that they are a communication infrastructure company and at its core a data-network-provider company. Moving data from point X to Y is the right abstraction rather than moving voice from X to Y. Voice is an application of data! ATT had a ton of free cash flow coming in from the long-distance business. It could have sidestepped the entire cable acquisition strategy and just spent the cash on direct Capex to build its own last-mile data infrastructure. In the long run, owning the data infrastructure to the home would have given them a near-monopoly on pretty much everything as they would have controlled the access to the internet to the end consumer!
It is very hard to see the future
This book came out in 2005 which wasn’t that long ago! As I put myself in the shoes of 2005 era Rohit, would I have done anything differently? Cable as a growth business was conventional wisdom at that time, penetration was exploding and the broadband internet was still in its relative infancy. In 2020, with the benefit of hindsight – the cable strategy was completely wrong and it killed the company. But in 2005, would/could AT&T do anything differently? It is extremely hard to see the future! We take it as given in 2020 that the internet will take over everything – it’s almost dogma at this point.
Are we making the same mistake again?