Impact of AT&T, IBM decisions
Assistant Attorney General William Baxter ''has certainly thrust himself into history,'' in the words of one lawyer, by ending antitrust litigation as significant as any since Standard Oil was split up in 1911.
The finales of the Justice Deparment's mammoth suits against American Telephone & Telegraph Company and International Business Machines were dissimilar: ''Ma Bell'' lost two-thirds of its assets, while IBM walked off without even getting dust on its lapels.
But both sudden results hinged on the flat-out speed with which electronic equipment is changing. AT&T, an economic behemoth desperate to chase the glittering promise of telecommunications, was willing to jettison 22 local operating companies for the chance to start running. IBM, after numerous favorable decisions in private antitrust cases, found itself freed partly because the computer industry is greatly changed since 1969, when the Justice Department filed its suit.
The final result may be ironic: With the line between telecommunication and data processing growing finer by the day, it is likely ''these two companies will turn out to be one another's most intense competitors,'' said Mr. Baxter at the end of a tumultuous Friday afternoon.
Baxter, a former Stanford law professor, is an exponent of the ''Chicago school'' of economic thought. As applied to antitrust, this view holds that sheer size does not automatically equate with damaging political and economic power.
''I have no preference about large size vs. small size,'' said Baxter while announcing the IBM decision. ''The competitive market produces the right size.''
This line of thinking, while contrary to much traditional political theory about antitrust, has been quietly gaining credence in the courts, say experts.
''Baxter obviously has different views than some other people would have,'' says Donald F. Turner, who worked on the beginnings of the IBM case as assistant attorney general for antitrust from 1965-68. ''I'd say his rhetoric may be a little more conservative - but the law may have been drifting that way anyway.''
The dismissal of the case against IBM - pending for 13 years at a cost of between $1 million and $2 million a year - showed Baxter's beliefs clearly. Though some on the Justice Department's career trial staff wanted the case continued, Baxter argued that, under Section 2 of the Sherman Antitrust Act, IBM could not be sued simply because it held a monopoly. It must have obtained that monopoly illegally to have broken the antitrust law, he said. Baxter said the government probably would lose the case, and that continuing it would be a waste of time and money.
''In some ways, the ultimate horror'' would be for the case to stretch on for another 20 years, he said.
In addition, the market IBM was accused of monopolizing has since declined in importance. Small companies, offering small and specialized computing systems, have become a major force in the industry.
''Simply because you have a large market share, you do not exercise market dominance,'' says a Washington antitrust lawyer. ''In computers, the basic market has changed from where IBM was strong - mainframes.''
Baxter's much-discussed ''bigness isn't badness'' approach to antitrust doesn't mean it's now open season for monopolies. As Donald Turner points out, AT&T received more than a slap on the wrist.
''Mr. Baxter got what the government wanted. It looks to me like a very good settlement.''
In return for the right to enter any unregulated business it might choose, AT&T has promised to divest itself of the 22 Bell operating systems that provide local phone service. The system retains its profitable long-distance lines and Western Electric equipment manufacturing division, as well as Bell Laboratories.
''It's a brilliant decision (on AT&T's part), but I'm amazed,'' says a Washington lawyer who worked on the Bell case in its early stages. ''That was the issue they (AT&T officials) fought hardest against in private meetings.''
Along with the Department of Defense (''DOD's been in the infighting with long knives,'' says a congressional source,'') AT&T had argued that an integrated phone network was essential to national defense.
AT&T may have decided it risked being shorn of even more in federal court, by the Federal Communications Commission, or by pending congressional efforts to restructure the communications industry.
Senate bill S 898, passed last year, would have allowed AT&T to enter unregulated areas by setting up a separate subsidiary. But the House was considering much tougher measures.
''My commitment to the passage of telecommunications legislation in this Congress has not changed,'' said Rep. Timothy E. Wirth (D) Colorado, chairman of the subcommittee on telecommunications, in a prepared statement announcing hearings on the settlement to begin Feb. 2.
''And to think we started out this morning saying 'there's nothing for us to do this session,' '' said a congressional aide after the AT&T decision was announced.
Among other elements of the decision, Congress will consider whether the settlement will boost local telephone rates excessively, especially those for rural phone users.
In the end, suggest many observers, it wasn't fear but ambition that led AT&T to the bargaining table. Ma Bell just couldn't wait any longer before steering itself after the rich promise of telecommunications, data processing, cable TV, and other unregulated areas.
''The regulatory agencies, the legislature, and the courts have been struggling to set proper ground rules. We want certainty,'' says James Olson, vice-chairman of the board of AT&T. ''I'm excited about the freedom. There's room for a lot of players. It's going to be fiercely competitive.''
Mr. Olson indicated one promising field AT&T may soon enter is digitalized data transmission, allowing computers to talk to each other much as human voices do now.
But the heart of AT&T's business is the manufacture of electronic switches - the fundamental components in computers.
''They have never quite said what they want to do,'' says Stuart Crump, former editor of Telephone News. ''But it's general knowledge they want to get into computers. That's where the action is.''
This, of course, would evoke Baxter's ultimate irony: AT&T going head to head with IBM.
But, with less fanfare, IBM has already edged into AT&T's business. IBM has marketed a PBX - private branch exchange phone switching system - in Europe since 1979. The computer giant also owns one-third of Satellite Business Systems (SBS), in partnership with COMSAT and Aetna Insurance. Through SBS, IBM is entering the field of satellite transmitted long-distance telecommunications