Remarks of Bruce Owen

Remarks of Bruce M. Owen on the occasion of the accession of the
Papers of Clay T. Whitehead by the Manuscript Division of the Library of Congress
Washington DC, January 11, 2013


Thank you. It is a great pleasure to be back in Washington this evening and to see so many old friends here to celebrate Tom Whitehead’s many ideas and accomplishments. I will focus on just one of those accomplishments—the beginning of the end of the old Bell Telephone System.

But first, I cannot help recalling that I came to Washington in the summer of 1970 as a Brookings Economic Policy Fellow, still damp behind the ears as a licensed economist. The Brookings folks gave me a choice between interning at the General Services Administration or with Clay T. Whitehead. Tough choice.

I met with Tom, who was still at that time grandly installed in the Old Executive Office Building. Tom turned out to be a most impressive fellow, in part because of his air of detached inscrutability.

So I gave up my GSA dream job and became the last new employee of the old Office of Telecommunications Management and a few weeks later one of the first employees of the new Office of Telecommunications Policy. That one-word change in Executive Order 11556—from Management to Policy—foretold the great upheaval of the telecommunications world that Tom Whitehead was about to instigate.

At first, I shared a vast office in the 17th and G Street suite that OTP shared with the Secret Service, and to which Tom Whitehead was subsequently – exiled (as he may have seen it). My desk came equipped with a Bell System lobbyist named Marvin Holtam. Marvin’s job apparently was to take me to lunch once or twice a week, and to provide homey telephone-related anecdotes and folklore. I was not singled out for this honor—Marvin simply came with the desk. Everyone at OTM seemed to have an assigned Bell lobbyist.

I did not find Marvin to be an ideal fit. He had no interest in economics, and he tended to gape in dismay as I extolled the virtues of competitive enterprise or shared my daydreams of spectrum markets. He never quite got comfortable with my paying for my own lunch. Marvin was a telephone engineer by training. He had come up through the ranks at Southern Bell. He was devoted especially to romantic lore of electro-mechanical telephone switches. He quietly confided that his favorite switch was the new “Number Five Crossbar.”

I often wondered how Marvin went about crafting reports of our lunch conversations. All I gained from the lunches was weight. After a while, I stopped accepting the invitations. I never lost the weight.

Tom Whitehead, of course, had no difficulty with the idea that more competition and less regulation might benefit telephone customers; more policy, less management. This was bedrock Republican doctrine, with considerable academic support.

By 1970 Tom had already embraced competitive entry in the domestic communication satellite market. As director of OTP he used the bully pulpit of his office to promote market solutions and deregulation in other telecommunications and video markets. Neither the established industry nor the Federal Communications Commission reacted warmly to these ideas. Nevertheless, most of Tom’s proposals were implemented during subsequent administrations of both parties.

The breakup of the old Bell System was one of OTP’s ideas. This was undertaken in order to better align the incentives of the local Bell operating companies with emerging competition in long distance service and equipment manufacturing. The Bell operating companies of course had no economic reason of their own to oppose long distance or equipment competition. Such competition would benefit the local companies by increasing the demand for local services. Nevertheless, the operating companies did oppose and even obstructed competition for the simple reason that they were owned by a company, AT&T, that also owned the long distance and equipment monopolies. The policy solution to this structural problem seemed clear.

I wrote one of my numerous naïve and intemperate policy memos—Nino Scalia actually labeled them “inflammatory,” but I think I have seen a few more inflammatory dissents in the years since. My memo suggested that OTP send a letter to the Antitrust Division urging revival of the old 1956 AT&T monopolization case. Tom wisely suggested that I simply go over to DOJ for a chat with his friend Don Baker, then a deputy assistant attorney general.

Don and his colleagues told me that the Antitrust Division already was pondering a revival of the 1956 case, but had not considered also attacking the long distance monopoly. From that point forward OTP supported the DOJ investigation behind the scenes, and DOJ, with entirely notional “White House” backing, filed its famous case in 1974 over the signature of General Saxbe. It took a decade and several major miracles for the case to conclude successfully.

The AT&T settlement tracked the government’s prayer for relief exactly, separating ownership of the local service companies from the equipment and long distance monopolies. Today the telephone equipment market is highly competitive, long distance voice prices are close to zero, and even the local companies face competition.

One of Tom Whitehead’s most important insights was to emphasize the benefits of competitive markets not merely in terms of lower prices and more diverse service quality, but for their effects on technological innovation. For example, Tom foresaw the importance of a competitive domestic satellite industry for innovation in the video market. His “open skies” policy produced an explosion of cable network program supply. This supply shift did far more than the resentments of Richard Nixon or even OTP’s structural disintegration schemes to undermine the oligopolistic hegemony of the three broadcast networks.

The breakup of the old Bell System produced a similar effect on innovation in telecommunications. But for the dis-integration of the Bell System monopolies, I believe it doubtful that the enormous social and economic benefits associated with digital technology applied to telecommunications would have occurred so swiftly. Though not fully apparent at the time, the Bell System, in partnership with its regulators, and notwithstanding the bevy of Nobel prize winners at Bell Labs, had systematically retarded rather than promoted the adoption of new communication technologies.

In successfully promoting a new communication freedom, the freedom to innovate, Tom Whitehead made an enormous contribution to social well-being on a global scale.