AT&T: A Cautionary Tale For Big Tech

Three American technology titans are locked in a race to become the nation's most valuable firm.  Apple, Microsoft and Amazon are jockeying for the No. 1 spot.  Apple and Amazon have reached $1 trillion in market capitalization before backpedalling as the overall stock market stumbled.

The trio are seemingly bulletproof, outperforming their peers by wide margins and posting eyeopening earnings that are the envy of corporate America.  Financial analysts are betting Apple, Microsoft and Amazon are on a trajectory that will propel the firms into the value stratosphere.

Market cap is one measure of a listed company's size and value.  The number is derived by multiplying the total outstanding shares of a firm by the current market price of a single share.  The result is the market capitalization expressed in dollars. 

Observing the three Goliath's reminds me of AT&T.  At one time, American Telephone and Telegraph was the biggest corporation on planet Earth.  The telecommunications giant ruled over an empire that spanned the globe.  Its corporate brand was the best known in America.

AT&T stock has existed in one form or another for more than 130 years. The first shares were issued in 1877 to seven original owners.  For decades AT&T was a market bellwether, it's performance watched closely as a proxy of the country's economic health.

From the 1920's through the 1950's, AT&T or General Motors swapped places regularly as the No. 1 or No. 2 most valuable company.  In 1932, AT&T represented 13 percent of the total value of the stock market.  By 1983, it was earning more than $15 million every day or $11,000 per minute.

In 1983, the communications powerhouse's assets of $150 billion exceeded those of GM, Ford, GE, IBM, Xerox and Coca-Cola combined.  It had 182 million telephone customers and a wired network of more than one billion miles.  It was the nation's largest employer with 1,009,000 workers.

One man birthed the telephony revolution.  In 1876 Alexander Graham Bell was granted Patent No. 174,465 for his invention, the telephone.  For many years, it was considered the most valuable patent ever issued.  With two financial backers, Bell started the company that would become AT&T.

Over the decades, AT&T churned our inventions such as the transistor, fiber optics and cellular telephony. Its scientists earned seven Nobel Prizes.  It demonstrated the first television service, opened the first radio station and inaugurated transpacific telephone service across the Pacific Ocean.

It was a technological juggernaut that spread its telecommunications tentacles from coast to coast and throughout the world.  Its staggering size and market dominance dwarfed its competitors in the communications industry.  Eventually that proved to be its undoing. 

The Department of Justice filed an anti-trust suit in 1974 against AT&T.  A settlement was eventually reached and in 1984 the Bell System was given a corporate burial.  In its place, Ma Bell became a long distance company and released its seven children: the operating telephone companies.

One of those offspring, Southwestern Bell Telephone, soon began a string of mergers with other Bell siblings.  With the added financial muscle, the firm--then known as SBC--purchased its former parent AT&T in 2005 for $16 billion, completing one of the strangest corporate family episodes. 

The "new" AT&T was no longer one of the country's biggest firms.  In its place, new technologies and e-commerce spawned corporate colossus, such as Apple, Microsoft, Amazon, Facebook and Google (Alphabet).  They would be well advised to learn from AT&T.

The first lesson is that size matters to trustbusters. Each tech firm has near monopolistic share of its market.  Amazon controls 43 percent of all online sales, soaring from 25 percent in 2012.  Goggle has a domineering presence online with a 78.8 percent share of all search traffic.

Microsoft rules the desktop personal computer space.  The firm's signature product Windows is the operating system of choice on 82 percent of desktop PC's.  The next closest competitor is Apple's MAC OSX operating system with just a 12.9 percent share.

The Department of Justice has already shown interest in the hiring, anti-competitive and privacy policies of these high-tech companies, especially Facebook.  How long will it be before the government lawyers begin sticking their noses into the firms' virtual market monopolies?

The leaders of high tech companies should study how a dominant position in a market can evaporate overnight with a single anti-trust suit lodged by the DOJ.  What are the firms' plans if they are forced to shed assets or open up large swaths of their businesses to more competition?  A plan B is a must.

Antitrust is not the only threat to tech Titans.  The tempo of innovation in Silicon Valley, Austin and other technology hotspots can disrupt an entire industry.  Look how Uber and Lyft have upended the taxi business.  Change is occurring at the speed of light and those who resist lose. 

Just as an AT&T innovative device the telephone propelled the company's early growth, Apple has owned the smart phone market since the introduction of its iPhone 12 years ago.  But the market for the once-revolutionary device is saturated and sales are beginning to falter for the first time.

Although the iPhone outsells 96 percent of the companies on the Fortune 500, its market share has slipped to 15.6 percent of all smart phones purchased worldwide.  Industry analysts are beginning to fret that Apple cannot depend on its iPhones to drive its long term growth.

It is eerily similar to AT&T's dilemma.  The telephone was an AT&T invention that spawned an industry, just as the iPhone built robust demand for a rich-featured wireless device that connected seamlessly to the Internet.  Creating a market does not guarantee it will be yours forever.   

AT&T has withstood antitrust suits, erosion of market share, disruptive technology and the rise of competitors for 130 years.  Will today's tech Godzilla's--Apple, Amazon, Microsoft, Facebook, and Google--be around for another century?

Given the simmering pace of inventions and technology and the prying eyes of the Department of Justice, it seems like a stretch today.  Survival in today's corporate world requires visionary leadership, nimble competitive response, constant innovation and less government interference.