At&t - Reorganization for Performance

AT&T:        Reorganization for Performance

For 100 years AT&T believed that bigger was always better. It spent decades buying up local phone companies to create the Bell System and then fought off the government’s effort to break up the monopoly it had created. Finally, in 1984, the divestiture order was finally realized, and AT&T spun off seven regional Bell operating companies known as the Baby Bells. However, 11 years after the divestiture ended its monopoly, the firm had still not found its role in the fiercely competitive telecommunications environment. In an effort to adjust, AT&T is restructuring itself to meet the new challenges.

Ma Bell to AT&T

“Mr. Watson. Come here. I want you” remains one of the historic moments in American invention. After he uttered these words, Alexander Graham Bell perfected his telephone, originally meant to aid the deaf, in 1876. By 1877, Bell’s backers founded Bell Telephone, followed by New England Telephone in 1878. These two operating units were consolidated in 1879 into National Bell Telephone.

From the start, Bell made every attempt to protect its franchise. After much litigation, National Bell barred rival Western Union from entering the telephone business in 1879. In 1882, the Bell company gained control of Western Electric, the United States’s number one electrical equipment manufacturer, once again from Western Union.

As Bell’s patents expired in the 1890s, many independent localized phone companies raced into the market. Concentrating on evoking long distance, Bell changed its name to American Telephone and Telegraph and moved its headquarters to New York in 1899. In 1913, in reaction to the Kinsbury Commitment, AT&T agreed to buy no more independent phone companies and to grant independents access to its networks.

Although it long enjoyed monopoly status, competition has been slowly encroaching on AT&T’s environment. FCC regulations stripped AT&T of its telephone equipment monopoly in 1968 and allowed specialized carriers such as MCI to hook their microwave-based systems into phone networks, injecting competition into the long-distance market.

In 1984, succumbing to a government lawsuit, the firm spun off its seven regional Bell companies. AT&T was allowed to keep long-distance service and Western Electric. In reaction to new firms entering its long-distance market (Sprint, Alltel), AT&T has attempted to diversify itself through some high-profile purchases.

In 1991, for example, AT&T completed a hostile takeover of National Cash Register (NCR) for $7.5 billion. The $110 per share price for a hobbled computer maker has turned out to be an expensive blunder by the firm. NCR has run up billions in losses and untold billions in opportunity cost. Salomon’s Jack Grubman suggests that “AT&T has blown at least $11 billion on NCR.” He goes on to emphasize “the opportunity they blew to extend their core business” by investing that $7 billion of equity in infrastructure, such as local fiber-optic networks in the United States and Europe.