AT&T was one of the most powerful and long-lived monopolies in U.S. history. Tim Wu has documented in The Master Switch how AT&T suppressed innovations, big and small, even some that were generated within AT&T’s own Bell Labs. The advocates of AT&T were articulate and well-connected politically. AT&T was a paradigm case of the seeming invulnerability of crony capitalism. How entrepreneurial capitalism eventually, and partially, won against crony capitalism is of interest, not just for historical reasons, but more importantly because similar battles still need to be fought. As we have learned from Leighton and López’s Madmen, Intellectuals, and Academic Scribblers, the key agents in these battles, are the political entrepreneurs.
The first major startup to successfully compete against AT&T was MCI. The story was usefully told in 1986 by Larry Kahaner in his On the Line: The Men of MCI Who Took On AT&T, Risked Everything and Won! MCI was founded by Jack Goeken, who arguably was more inventor/engineer, than he was entrepreneur. Beyond the very earliest days, the dominant agent in the growth of MCI was Bill McGowan, some of whose successes show him to have been an able political entrepreneur.
Goeken had founded MCI using microwave relays to send voice messages between Chicago and St. Louis. Rather than simply grow the MCI that Goeken had founded, which would have made sense in terms of economies of scale, McGowan set up several separate little local MCIs, each financed by local investors (Kahaner 1986, p. 58). The FCC was committed to localism in awarding radio and TV licenses, and McGowan, as political entrepreneur, saw this decentralized structure as a way to win approval from the FCC.
When McGowan eventually sought to extend MCI’s service to Europe, he faced the formidable Conference of European Postal and Telecommunications Administrations (CEPT) whose 34 nations had jointly agreed that none of them would strike a deal with independent voice carriers (Kahaner 1986, pp. 218-219). McGowan’s most effective point man in the effort was Seth Blumenfeld, who realized that the nations of CEPT did not trust each other, and who sought the weakest link that might be convinced to ignore the CEPT agreement. He eventually focused on Belgium, one of the smaller nations in CEPT, that had less in common with the other nations, and that had a reputation for decisions based on good economics, rather than bad crony relationships. MCI offered Belgium modest payments per minute for communications routed to Europe through Belgium. Belgium agreed.