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- [00:00]
Lindsey Graham
Want to get more from business movers? Subscribe to Wondery for early access to new episodes, ad free listening and exclusive content you can't find anywhere else. Join Wondery in the Wondery app or on Apple Podcasts. It's November 20, 1974, at the headquarters of AT&T in New York City. John Debutts, the chairman of AT&T, barges into his corner office in a rage. The 59 year old leader of America's largest telecommunications company has just learned some disturbing news and he wants to get to the bottom of it. So he picks up the phone and calls one of the most powerful men in the country, Secretary of the Treasury William Simon. After a brief hold, he's put through. William Simon. Hey, William, it's John Debut. Hey, John, good to hear from you. How are we doing on the campaign? John isn't just the chairman of AT&T. He's also the current chairman of the United States Savings Bond Campaign. And for the last year, John has worked with the federal government to oversee the sale of savings bonds to help generate government funds. Well, Bill, I'm happy to report that we've reached our goal. You're kidding me. Two months ahead of schedule. John, that's wonderful. President Ford's gonna be thrilled. Oh, will he? Absolutely. What a tremendous contribution you've made to your country. Well, if that's the case, you've got a hell of a way of showing your appreciation. I'm sorry, John. What do you mean? Don't play dumb with me. That's the last thing I need right now. John, seriously, I have no clue what you're talking about. I'm talking about the lawsuit. What lawsuit? The one that the Department of Justice just filed against AT&T. Look, look, look, I. I am in the dark here. You're gonna have to explain what you're talking about. I've just heard that the DOJ has filed an antitrust lawsuit against AT&T. They want to break us apart. They've even suspended our listing on the stock exchange. Oh, John, look, you need to listen to me. I had no idea this was happening. I don't think anyone in the Cabinet had any idea. And that includes the President. He's in Japan. Sightseeing. Well, then what happened? It's gotta be the Attorney General. He must have gone rogue. William, I've done a lot for this country and for this administration. I don't like being stabbed in the back like this. Well, I understand. And don't worry, John. I'll get to the bottom of this. I promise you. Better because the worst possible outcome for America is the breakup of AT&T. As soon as the Secretary of the Treasury, William Simon hung up the phone, he tried to make good on his promise and find out why the Department of Justice had suddenly targeted one of America's biggest companies. But Simon was unable to get word to President Gerald Ford in J. Nor did he get an answer from Attorney General William Saxby. It soon became clear that there was no help on the way from Washington. AT&T was on its own, and it would be up to John Debuts to prevent the breakup of the century old Bell System. Business Movers is sponsored by upwork. Here is a true story. A few years ago I needed to scale up my podcast production business. We were getting busy and I needed to find a sharp, reliable audio editor. So I went to upwork and quickly found a freelancer who not only good, but above and beyond good. You'll hear their name in the credits of this episode, even because their work deserves to be called out. So I know with upwork you can find specialized freelancers in marketing, development, design, podcast editing. Who knows? Experts who are ready to help you take your business to the next level. And posting my job on Upwork was easy with no cost. Just register, then browse freelancer profiles, get help drafting a job post, maybe even book a consultation. From there, find, Connect and hire freelancers to get you Upwork makes the entire process easier, simpler and more affordable with industry low fees. So post a job today and hire tomorrow. With Upwork, visit Upwork.com right now and post your job for free. That's Upwork.com to post your job for free and connect with top talent ready to help your business grow up. W o r k.com Upwork.com when you're.
- [04:13]
John Debutts
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- [04:31]
Lindsey Graham
Can I get you a refill?
- [04:32]
John Debutts
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- [04:48]
Lindsey Graham
From WonderRap I'm Lindsey Graham and this is Business Movers. Today, the American Telephone and Telegraph Company, better known as AT&T, is one of the largest telecommunication and wireless carrier companies in the world. It offers a variety of services including Internet, television and Mobile Wireless. Nearly 250 million Americans use cell phones on the AT&T wireless network, making them the third largest mobile provider in the country. And at the end of 2024, AT&T as a whole recorded revenues of over $120 billion. But it was once even bigger. For 100 years, AT&T dominated the United States telecommunications industry. After it was founded in 1877 by the inventor of the telephone, Alexander Graham Bell, ATT quickly seized control of the embryonic telecommunications industry. In its first few decades, AT&T bought out competitors, seized control of manufacturing firms, and established an elaborate network of local operating systems and long distance services. This complex web became known as the Bell system, although Americans colloquially refer to it as Ma Bell. Every person with a telephone in their home or office used equipment and services that were connected to AT&T. But after World War II, cracks in the Bell system began to form. Throughout the 1950s and early 1960s, AT&T faced major problems. The quality of service began to decline, the cost of maintaining their gigantic network took a toll, and growth slowed as the home telephone market reached a saturation point. But one other issue posed the greatest threat to AT&T's dominant market position competition. Though AT&T was comfortable with a near monopoly, it did face new rivals as the American government slowly but surely allowed independent companies to enter the telecommunication industry. Facing these challenges was the chairman of AT&T, John DeButts. Prior to becoming chairman in 1972, John had spent over three decades with the company. He climbed the ladder working in 22 different positions. So if anyone knew the ins and outs of AT&T, it was John DeButts. But even though AT&T was the largest company in the world by revenue, the barbarians were banging on the gate. And one competitor in particular was hell bent on cracking open the Bell system in order to see themselves succeed. Initially, John Debutts underestimated this crisis. But once the danger dawned on him, he would do everything in his power to make sure that the monopoly he controlled stayed together. Because if he didn't, he'd be responsible for one of the biggest breakups in U.S. history. This is the first episode in our four part series on the breakup of AT&T. The decision to decide. It's May 8, 1972, at the Ocean Reef Club in Key Largo, Florida. Two and a half years before the Department of Justice files a sweeping antitrust lawsuit against AT&T. In a conference room, several dozen men in shirts and slacks chat amongst themselves at the front of the room. 57 year old John Debutts checks his notes at a dais. John's here to address the leaders of AT&T's local operators at the company's biannual presidents conference. In years past, this meeting was an opportunity for the AT&T chairman to play a few rounds of golf with happy executives who were raking in huge profits. But this year John sensed that the mood isn't as jovial as usual. And that's got him worried. John taps on the microphone to get the attention of the executives in the large conference room. Hello. Yeah, let's get started, shall we? The chattering dies down as the executives turn to look to the front of the room. John decides to start things off with an icebreaker. Now I can see a few red faces out there. Look like some of you need to apply a little more sunblock on the VAC 9. This joke doesn't raise a single smile from the stony face executives. John carries on though. Well, friends, I'm pleased to say that we are here again to celebrate our successes. As you can see from the agenda we set out earlier, I don't see anything on it about mci. John looks up from his notes and spots the heckler. It's Charlie Brown, the president of Illinois Bell, one of AT&T's local operating companies based out of Chicago. Charlie is worried about mci, a new entrant to the telecommunications industry that's also planning to operate out of Chicago. I'm sorry, Charlie, what you say? What are you going to do about mci? Don't worry, we'll get to them. Well, forgive my bluntness, but those parasites are moving in on my territory. We can't afford to ignore them. We are not ignoring them, Charlie, I assure you. Well, it sure feels like you are. I think we need to lower our rates. Go toe to toe with them on price. Yeah, that's certainly an option to discuss. Discuss? We've been asking for lower prices for the last three years, but you guys at the head office just ignore us just like you're ignoring MCI now. Charlie, three years ago none of us expected MCI to still be around by now. But I admit things have changed. And we need to change too. I mean, take into account the competition. We can preserve revenue if we choke off MCI now. You need to hit the nail on the head. Well, I understand your frustration, Charlie, I really do. I understand all your frustrations. But we need to gather the facts first and then figure out a strategy. Ah, so you don't even have a strategy yet. Is that what I'm hearing? Charlie throws his hands in the air in frustration as the other executives groan. John realizes he's losing his audience and needs to pull them back. Well, Charlie and all of the rest of you, let me make you a pledge. By the end of the year, I will have a plan in place to deal with with mci. Sounds like you're kicking the can down the road again, but okay. This strategy of yours, I'll believe it when I see it. John Debutts left Key Largo a few days later after feeling dejected. While he knew that competition posed a threat to AT&T's dominant position, he didn't quite realize how spooked the local operating companies were by the new entrant, mci. These local executives derided John's vague pledge to deal with a newcomer as his decision to decide. But unless John made up his mind soon, it might be too late to stop MCI from taking a chunk out of AT&T's business. In 1972, John DeButts had inherited one of the most unique organizations in American history. AT&T was the largest company in the world by revenue, thanks to a near monopoly of the telecommunications industry. It manufactured products, it controlled the services need to use those products, and it controlled subsidiaries or through which customers accessed those services. This intricate, confusing and highly complex corporate entity wasn't made overnight, though it evolved over decades. When AT&T was originally founded in 1877 as the Bell Telephone Company, the first bosses had to create a telecommunications network from scratch. They laid an infrastructure of copper wires across the continent. They built a network of exchanges in which operators manually connected telephone lines across the switchboards. They acquired Western Electric from telegraph giant Western Union, giving them the capability to manufacture equipment. And thanks to such aggressive growth, by the turn of the 20th century, AT&T was by far the biggest name in telecommunications in America. But it wasn't the only one. Throughout the early 1900s, other telecommunications companies sprung up, each vying for a slice of the increasingly lucrative market. But unfortunately for the newcomers, AT&T was just too big to go up against, especially with politicians in Washington, D.C. in AT&T's back pocket. In 1921, Congress passed the Willis Graham act, declaring that AT&T was a natural monopoly that could offer lower prices if it didn't have to worry about competition. And by the terms of the Willis Graham Act, ATT was authorized to acquire as many of its independent, independent competitors as it wished. And AT&T bosses took full advantage. Within four years, AT&T bought up more than 200 of America's 234 telecommunications companies. And to avoid antitrust lawsuits, AT&T allowed the leftovers to tap into their systems for a fee. So by the end of the 1930s, AT&T had grown into a corporate giant with several divisions. AT&T Longlines was the part of the company responsible for connecting c cities across America. It was how people in Los Angeles could make phone calls to New York. Shorter distance calls were the responsibility of the local operating companies, a collection of subsidiaries that provided telephone services within their designated cities or regions. Western Electric manufactured telecommunications equipment from switchboards to telephones. And Bell Laboratories was a research and development branch responsible for new developments and technological refinements. Together, this whole Bell system was controlled by executives at AT&T's head office in New York City. But after World War II, a new generation of political leaders came to power that were influenced by the Cold War. Their distrust of communism meant that they were suspicious of state backed monopolies like AT&T. And in 1969, this new blood in Washington got its chance to open up the telecommunications industry to outsiders. Tech startup Microwave Communications Incorporated, or mci, was one of the first to seek permission to enter the phone market. After considering MCI's proposal, the federal Communications Commission announced its decision and it rocked the industry. MCI was granted the rights to sell private long distance lines to businesses between two fixed locations, Chicago and St. Louis. Unlike the web, like AT&T system of copper wires, MCI's private lines would use microwave beams to broadcast its service. And instead of charging fluctuating prices based on location, like AT&T did, MCI would charge customers a cheaper, flat monthly fee. But MCI didn't plan on owning or building the kind of infrastructure that AT&T used. It would have no operating exchanges, no switchboards and no telephones. When someone made a call from St. Louis to Chicago, it would be an AT&T local operator in St. Louis who would first have to connect them to an MCI long distance channel to beam the call. Once it got to Chicago, the operator there would reconnect to AT&T's local system. In other words, MCI's business concept relied on the Bell system at each end for local services. And when the time came, MCI knew it would have to negotiate a rental fee with AT and t. But in 1969, that decision was still a long way off. MCI had built no transmission towers and it would be several years before it was ready to begin operations. So when AT and T executives Learned of the FCC's decision, they played for time in AT&T's eyes. MCI was a flash in the pan company that would never be able to compete. So rather than fight MCI, AT&T bosses just chose to ignore it. But when John Debutts became chairman of AT&T in 1972, MCI still hadn't flamed out. Instead, it was thriving. In the three years since the Federal Communications Commission had approved MCI's business plan, MCI had expanded its proposal to include long distance lines between several other major cities including New York and Washington DC. It also opened up pre sales. And even though it had not built a single transmission tower, MCI's promises of lower prices and better service were hard to resist. A flood of AT and T customers pledged to switch their business to MCI when it was ready to begin operations. But MCI was fundamentally a long distance telecommunications company. Its lines didn't directly impact local operating companies. But if AT and T began to lose revenue from its long distance services to mci, then the company's local services might need to raise prices in order to offset the losses. This worried presidents of AT&T's local operating companies, and they confronted John Debutts at their semiannual conference in May of 1972. They demanded that John change his laissez faire stance to MCI and put a plan together in order to compete. John promised that he'd take the local operating company's fears seriously, and he pledged to return to New York and decide what to do about mci. But he gave no indication of what his eventual solution might be. And his procrastinating decision to decide exasperated those who were already fed up with his inaction. But as promised, at the end of 1972, John did settle on a course of action. And just like the local operating companies had begged him to do more than six months earlier, John decided that he would lower AT&T's prices. In February 1973, John announced a new pricing model for AT&T's long distance service. He called the system High Low and it divided AT&T's long distance services into three categories based on location, high density, low density and short haul. Under this new plan, fees were lowered in high density areas where most customers were active. And these new rates were lower than the monthly flat fee offered by mci, eliminating their competitive advantage instantly. After the new pricing announcement, John was confident that his High low strategy would crush mci. In his mind, John had taken his time to surmise the threat from the competition and devise a thoughtful solution. But there was a flaw in his plan. John presumed that his rival would do as he did and approach the problem in a similar way. But he would soon find out that MCI was run in a different manner, and its brash chairman wasn't afraid to disregard business as usual.
- [18:55]
John Debutts
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- [19:24]
Lindsey Graham
On account of how nice, soft and fluffy they are. But did you know there's a credit card called CareCredit and it's like a dog in every single way? Okay, it's nothing like a dog, but you can use it to pay for things like vet care for your dog or dental and vision care for yourself. At over 270,000 locations nationwide, CareCredit offers flexible financing for health and wellness for pets and people, which actually makes it better than a dog, because dogs don't even have flexible financing. Take that dog. Visit carecredit.com to apply and find a location near you, subject to credit approval. It's March 2, 1973, at AT&T headquarters headquarters in New York City. One month after the company announced a new pricing strategy for long distance calls. John Debutts takes a coffee jug from a percolator and pours two cups. One is for himself and the other is for a visitor to the company, Bill McGowan, chairman of the telecommunications startup MCI. Although he's a competitor, Bill has asked to meet with John today and says he has some things he needs to discuss. John hands one of the coffees to Bill. Thanks, John. Well, no problem, Bill. But to what do I owe the pleasure of your company today? I mean, it can't be the coffee. It's not that good. Well, it kind of is the coffee. You see, I like to do things in person. Lunch, meetings, business dinners. Even stale corporate coffee will do. So long as we can talk over our problems face to face. So there's a problem between us. Two problems, actually. Number one, your new pricing model. You're putting the squeeze on us. Well, I don't see how that's my problem. You came at AT&T with your flat rate, and we responded. I thought you liked competition, Bill. Yeah, but it's premature. We've only just begun building towers. That hasn't stopped you from poaching our customers with your pre sales. We needed to raise capital. We'll do that by finding more investors. Look, you can't say you support competition when it suits you and complain about it when it doesn't. It is what it is. But you said you had two problems. What's a second? Your local operators, they're not letting us connect to the system. I believe the terms are still being negotiated. No, no, no. There are no terms to negotiate. Local operators have to treat MCI exactly as they do at&t. All right, well, so there are your two problems. Our new rates and connecting to our systems. Yes, and as two men discussing things over coffee, I'd like to know what you're going to do about them. Well, I'm not inclined to do much of anything. Frankly. You need to do more than that. Look, John, I have plenty of money to spend on litigation, but I'd rather spend it on construction. John puts down his coffee. Bill, you're by no means the first person to threaten AT&T with lawsuits. I think this meeting is over. Bill puts his own coffee down, stands and straightens his jacket. Okay, John, but. But just to be clear, I'm not threatening you with a lawsuit, all right? I'm making a promise. After meeting with Bill McGowan, John DeButts did not change his attitude to competition. He still didn't view MCI as a threat, regarding it more as a parasite. One that needed careful and precise treatment to destroy. In John's mind, it wasn't a question if MCI would fall, but when. But John had underestimated Bill McGowan's determination to succeed. 46 year old Bill McGowan was used to taking on powerful opponents. He'd been raised by a labor organizer father who instilled in his son the belief that greedy corporations took advantage of their power. But he'd forged a career in business by rescuing companies that were on the brink of bankruptcy. And then in 1968, MCI recruited Bill. Thanks to his expertise in raising capital, he quickly set about transforming the tech startup into a business with viable a plan and the backing of the Federal Communications Commission. But Bill knew for MCI to succeed, it would still need to take some market share from AT&T. So while John Debutts and the rest of the AT&T board waited for the high, low pricing system to kill off MCI's challenge, Bill began a counteroffensive. In order to ensure MCI's survival. Bill needed to completely upend the telecommunications industry and break AT&T's monopoly. To do that, he needed to win over Washington D.C. congress, the federal Communications Commission and the courts. Congress could help him transform the industry through legislation. The FCC would regulate the new system and the courts could act as muscle to enforce it. The way Bill saw it, if all three were united and supported his cause, he could end AT&T's dominance and provide a space for MCI. So over the next few months, Bill recruited an army of lawyers. Some headed to Capitol Hill to lobby congressmen. Some went to the FCC to cozy up to regulators. And the others made contact with prosecutors who specialized in antitrust laws. They all whispered in their targets ears that AT&T's control of telecommunications was bad for America. But Bill did not have his lawyers do all the work for him. He wanted to make sure that he delivered his message personally. And lucky for him, Senator Philip Hart had had just introduced a sweeping antitrust bill that aimed to reshape many American industries. And Bill used the subsequent congressional hearings to put forward his case that AT&T needed to be cut down to size. At the end of July 1973, Bill appeared before the Senate subcommittee on Antitrust and Monopoly. During his testimony, Bill painted a picture of how dominant AT&T had become and how it misused its power. Power. He complained that AT&T was ignoring federal directives by blocking MCI from accessing its local exchanges. He claimed that AT&T was stalling for time in the hope that MCI ran out of capital. And Bill stated, as far as he was concerned, the only way that AT&T would play fair was if Congress, the FCC and the courts compelled them to. Judging by the expressions on the senators of the subcommittee, they agreed with every word that Bill was saying. At AT&T headquarters in New York City, John debutts watched Bill McGowan's testimony with growing concern. John had hoped that the high, low pricing model would be enough to scare MCI and its investors away. But Bill's lobbying campaign made it clear that MCI wasn't going to back down. John needed to respond. On September 20, 1973, he did. John attended the annual convention of the national association of Regulatory Utility Commissioners. The delegates were a mix of regulators, utility executives and industry reporters. It was the perfect stage to respond to MCI's lobbying campaign and win support for AT&T. In his keynote speech, John declared that AT&T's monopolistic domination of American telecommunications was in the public interest. He reiterated that the Bell System had been built to serve the people, and he claimed that customers would suffer if newcomers, customers like mci, were able to pick and choose which parts of the market they served. According to John, competition would drive up prices while lowering service quality in the less profitable parts of the market. Quoting a former AT and T chairman, John proclaimed that AT and T had an unusual obligation to see to it that the services shall at all times be adequate, dependable and satisfactory. And according to John, the only way AT and T could live up to its unusual obligation was if it was allowed to run its services unencumbered. There were plenty of executives from AT&T's local operating companies in the room, and John's speech was exactly what they wanted to hear. Many state regulators were also pleased with John's line of attack. But not everyone in the convention hall liked what they heard. Among the delegates, there was Bernie Strasberg, an influential figure in the Federal Communications Commission Commission, and he had been the driving force behind the decision that first allowed MCI to sell long distance private lines. So as Bernie listened to John's speech, he realized that John was trying to overturn the FCC judgment by running MCI out of town. So when Bernie returned to Washington, he resolved to insert himself in the simmering war between AT and T&MCI. He got his first chance to act a few weeks later. Although MCI's initial, initial public offering had raised $100 million, three quarters of a billion today, it had hemorrhaged money constructing the towers that broadcast microwave signals from Chicago to St. Louis. And even though MCI was now operating and its first customers were able to make calls between these two cities, it was deep in the red. In an attempt to shore up MCI's finances, chairman Bill McGowan wanted to add another service to its offering. Foreign exchange lines or FX lines. Unlike the long distance private lines that MCI had originally been authorized to carry, an FX line allowed more phones to connect to it at once. It would enable MCI to increase its capacity, which would in turn increase revenues and profits. With the ability to carry these FX lines, Bill reasoned that MCI would be more attractive to investors. But like everything else, FX lines would require mci, MCI to tap into AT and T's infrastructure. And Bill wasn't sure if he was allowed to. When the FCC had originally granted MCI's license, the commissioners had released a lengthy document that defined what MCI was and wasn't allowed to do. But nowhere in that document was any ruling on foreign exchange lines. So at the beginning of October 1973, only one month after John Debut's combative speech, Bill McGowan wrote to the FCC asking for clarification on whether MCI could offer FX lines. Bernie Strasberg convinced the other commissioners to approve Bill's request. Back at AT and T headquarters, John was stunned by this decision, and he immediately asked the FCC to review it. But the FCC's decision on FX lines wasn't the only government action that perturbed AT and T. Around the same time in Philadelphia, MCI took AT and T to court. They wanted a judge to compel AT and T to grant MCI access to AT and T local exchanges, and the judge sided with NCI again. John appealed the verdict, but in the meantime he had no choice but to allow MCI access to AT and T systems. At the start of 1973, John DeButts had been confident that his new pricing strategy would soon kill off MCI. Twelve months later, at the start of 1974, MCI was stronger than ever and it had landed some heavy blows on its opponent. So after underestimating MCI for so long, John knew he now needed a knockout punch. But unfortunately for AT and T, John's ham fisted response would end up doing more harm than good. Here's a tip for growing your business get the VentureX business card from Capital One and start earning unlimited double miles on every purchase. That's right, with unlimited double miles, the more your business spends, the more miles you earn. Plus, the VentureX business card has no preset spending limit, so your purchasing power can adapt to meet your business needs. The VentureX business card also includes access to over a thousand airport lounges. Just imagine where the VentureX business card from Capital One can take your business. Capital One what's in your wallet? Terms and conditions apply. Find out more@capitalone.com venturexbusiness.
- [30:43]
John Debutts
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- [31:39]
Lindsey Graham
It's early April 1974 at AT&T headquarters in New York City. Five months after an FCC ruling gave MCI Permission to sell FX lines, AT&T CEO John debuts, taps his pencil on a pad as he stares out the window at the skyscrapers of New York's financial district. John is so wrapped up in his thoughts that he doesn't hear AT&T General Counsel Mark Garlinghouse enter the room. John jumps in his seat and drops his pencil. Oh, geez. Mark, you. I didn't hear you come in. A little distracted. What's on your mind? Just looking over the city. So many offices, so many phones, and every single one of them is hooked up to AT&T. But I've begun to wonder for how much longer? Well, maybe a little longer. I just got word from the judge in the Philadelphia case. Yep. And the court of appeals overturned the district court's ruling. Really? We don't have to let MCI use our exchanges? That's great, but there was a caveat. The judge says he was only ruling this way because the FCC was still reviewing its verdict. It's looking like if the FCC sticks with its original decision, the courts will too. And we will ultimately have to let MCI onto our network. John leans back in his chair, his mind racing. Well, do we have any idea when the FCC might make its decision? Not a clue. But for now, MCI can't add any more connections. John stands and heads to a large window overlooking the financial district, considering what to do next. Well, we need to get ahead of the game. It's high time we stop reacting to what MCI is doing. Let's lead the conversation for a change. Well, I don't disagree. What are you proposing? Let's disconnect them. Let's take MCI out of the systems. Let's send a signal that we expect the FCC and the courts to rule in our favor. I don't think we can do that. Can't or won't? Well, the judge has said that we don't have to let MCI add any more lines, but he didn't say anything about the pre existing ones. We're on kind of shaky ground. If we remove them. Nope. Do it anyways. Tell our engineers to start dismantling MCI's equipment from our exchanges. How many are they using right now? 10 to 15. All right. Give MCI a day's notice. That's enough time for them to make alternative arrangements. I'm not sure about that. Seems like we'd be leaving them high and dry. Well, I don't care. I'm fed up with MCI. Bill McGowan's like a child clawing for attention, and he'll keep on doing so unless we do something drastic. So pull the plug. John Debuts knew full well what he was doing when he ordered AT and T engineers to disconnect MCI's equipment from AT&T's exchanges. The move was a gamble. He was preempting the forthcoming FCC rule. But his move could also be perceived as pressuring the commissioners. Even so, John went ahead with his plan despite the risk. He believed that AT and T would win with the FCC and the courts. But he soon realized that he had drastically overplayed his hand. A week after John DeButts had MCI's equipment disconnected, the FCC review concluded. But rather than overturn the verdict, as John predicted, it did the opposite. It backed up the original ruling. MCI was allowed to sell FX lines, and in turn, AT and T had to allow MCI to tap into its exchanges. So just seven days after AT&T engineers had disconnected MCI, they had to hook them back up. But unfortunately for John, disconnecting MCI lines didn't just increase the workload for AT and T engineers. It also caught the attention of the Department. Department of Justice. Among the lawyers who'd listened to MCI's lobbyists over the past year was Paul Revere, a prosecutor in the antitrust division of the Department of Justice. Paul began investigating AT and T for misusing its market dominance. And John Debut's decision to preemptively disconnect MCI lines only added to his case. To Paul, disconnecting a competitor's lines was clear evidence that AT and T was acting beyond its legal powers. And there was only one way to stop the company. AT and T was so big that a financial sanction would have no effect. So instead, the Bell system had to be broken up to end AT&T's monopoly. Paul presented a prosecution plan to his superiors. He intended to take AT and T to court and seek a judgment that would dismantle them. He'd separate local operating companies from AT and T control and then force AT and T to divest Western Electric, the firm's manufacturing division. But Paul's antitrust case soon hit an obstacle. The head of the Department of Justice, newly appointed Attorney General William Saxby, seemed utterly uninterested. William Saxby had been appointed as America's chief law enforcement officer in January 1974. At the time, President Richard Nixon was in trouble. The three most senior figures in the Department of Justice had resigned over Nixon's handling of the water scandal. And this exodus at the top of the department became known as the Saturday Night Massacre. Saxby was soon given the top job and the President ordered him to ruffle no feathers. So there was no investigation into the Watergate scandal. Nor was there much motivation for the DoJ to launch a controversial antitrust case against one of America's biggest companies. But Saxby's attitude changed in the fall of 1974 after Richard Nixon resigned the president presidency. Saxby remained Attorney General under new President Gerald Ford. But Saxby's Department of Justice had been embroiled in the Watergate cover up. And that left a stain on its reputation. The public's faith in the department was low and morale among staff was even lower. Saxby needed to prove that the DOJ wasn't just a tool of the President. He needed to prosecute a major case that would take on the establishment, make a big splash in the paper and restore the public's faith in American justice. He found the case he needed in the antitrust lawsuit against AT&T. The news broke that the Department of Justice was beginning proceedings against AT&T. On November 20, 1974. The securities and Exchange Commission immediately suspended the trading of AT&T shares. John Debutts got on the phone with Treasury Secretary William Simon and read him the riot act for bringing the suit against AT&T. But with President Ford out of the country and Attorney General Saxby refusing to answer the phone, there was nothing Simon could do. John was on his own. Two days later, John held a press conference. He claimed that the DOJ case made no sense because the Bell system had served America well for the last century. But deep down, John knew why the government would want to break up AT and T. Because it suited their own political interests. For decades, AT&T had successfully fought off outside competition by claiming that rival firms would have a detrimental impact on customers and prices. But the times had changed and AT&T's response to Bill McGowan and MCI had shifted the debate. John Debutts had intended to use AT&T's power to kill off MCI. But now it was AT&T that we plunged into a fight for survival. From Wondery. This is episode one of Breaking Bell for business movers. On the next episode, the fight for the future of America's telephone system turns increasingly fractious. Deals to secure the future of AT&T fall apart. And John Debuts faces the most difficult decision of his career. If you like business movers, you can unlock exclusive episodes found nowhere else on Wondery and access new episodes early and ad free. Join Wondery in the Wondery app or on Apple Podcasts. Prime members can listen ad free on Amazon Music and Before you go, tell us about yourself by filling out a survey@wondery.com survey if you'd like to learn more about the breakup of AT and T, we recommend the Deal of the the Breakup of AT and T by Stephen Kahl the Fall of the Bell System by Peter Temmin with Louis Colombos and End of the Line, the Rock Rise and Fall of AT and T by Leslie Cawley. A quick note about our dramatizations in most cases we can't know everything that happened, but all our reenactments are based on historical research. Business Movers is hosted, edited and executive produced by me, Lindsey Graham for Airship. Audio editing by Mohamed Shazi sound design by Molly Bach. Our supervising sound designer is Matthew Filler. Music by Thrum. This episode is written and researched by Joe Guerra, senior producer Scott Reed. Executive producers are William Simpson for Airship and Aaron o' Flaherty, Jenny Lauer Beckman and Marshall Louie for Wondery. If you're looking for new ways to.
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John Debutts
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Lindsey Graham
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John Debutts
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