Biggest Target

The Department of Justice last week fired its antitrust guns at the biggest target of all. In a federal district court in Newark, N.J., it charged American Telephone & Telegraph Co., biggest U.S. industrial corporation (gauged by its $5 billion in assets) and its manufacturing subsidiary, Western Electric Co., Inc., with "conspiracy to monopolize" the U.S. telephone business. The Government's attack, in preparation for more than a year, was no surprise. But not even A.T. & T. expected such a blanket barrage.

The Government's 73-page complaint charged that A.T. & T. had eliminated competition by patent restrictions, purchase of competing companies, etc., and had set up Western Electric as the exclusive manufacturer and dealer for "substantially all" U.S. telephone equipment. "The absence of effective competition," said the complaint, "has tended to defeat effective public regulation of [telephone] rates . . . since the higher the prices charged by Western for telephone apparatus and equipment, the higher the plant investment on which [A.T. & T.'s] operating companies are entitled to earn a reasonable return . . ."

The complaint charged other monopolistic practices: refusal by A.T. & T. to let outside manufacturers use alternative patents which Western Electric was not using; suppression of cheaper improvements that might cut A.T. & T.'s rate bases. Example: the hand telephone, developed in 1907, was not introduced as standard equipment until 1927.

As a corrective, the Justice Department demanded that Western Electric be: 1) divorced from A.T. & T. and split into three independent companies; and 2) required to license its patents to all applicants. There was no demand that A.T. & T. change its operating network.

Within two hours after the suit was filed, A.T. & T. stock, long regarded as the Gibraltar of the securities world, dropped 1 1/2 points on the New York Stock Exchange to 147 3/4, a new low for 1948-49, fell still lower next day to the lowest point in five years. A.T. & T.'s President Leroy A. Wilson seemed less shaken. Said he: "Western Electric has been a part of the Bell System for over 65 years ... I am sure that when all the facts are known, the existing arrangement will be found to be in the public interest."

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