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30 and Counting: Breakup of AT&T

Posted February 8, 2008 by Brett Avery

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This year marks our 30th year of publication. We’ll celebrate throughout 2006 by spotlighting memorable New Jersey news events of the last three decades. In each issue we’ll feature an episode from that month in the state’s past. We begin with the breakup of Bedminster-based telecom giant AT&T, which followed an announcement by the company in January 8, 1982.

The 30-second brief: The U.S. Department of Justice sues AT&T in November 1974, a few months into the Ford presidency. Its 14-page filing cites the Sherman Antitrust Act in stating that AT&T (Bell System); subsidiary Western Electric, maker of 80 percent of U.S. phone equipment; and unparalleled research group Bell Laboratories conspired to monopolize the telecommunications industry. In an agreement announced January 8, 1982, near the end of President Reagan’s first year in office, the Department of Justice drops its suit; AT&T keeps its long-distance business but divests 22 local operating companies with assets of about $115 billion ($215 billion today). At the start of 1984, the system is broken into seven regional operating companies—Ameritech, Bell Atlantic, Bell South, NYNEX, Pacific Telesis, Southwestern Bell and U.S. West—that will provide more than 80 percent of U.S. phone service.

Employees at settlement: More than 1 million, exceeded only by the federal government

Assets:
$155 billion, exceeding those of Ford, Chrysler, General Electric, General Motors, and IBM combined

Infrastructure:
183 million phones, more than 800 million calls a day, and 827 million miles of copper wire

The ticker:
A day after the announcement, AT&T stock rises 17/8 points to 601/2.

Why AT&T agreed:
“We face the prospect of an even more disastrous divestiture: being gutted by having Western Electric and Bell Labs cut out of the system,” AT&T chairman Charles Brown says in 1983. “We would have lost control of our own technology.”

What happened to Ma Bell?
Under the terms of the settlement, AT&T, known for generations as Ma Bell, is barred from using its ubiquitous blue-and-white logo or the Bell name, except for Bell Labs. These restrictions do not apply to the company’s overseas operations.

Crystal ball quote:
“AT&T, which is now free to enter the computer market in full force, has the size and resources to match IBM.... AT&T will have a desktop business computer ready early [in 1984]. The machine will probably be built around a super chip that has more than 256,000 bytes of random access memory.”—Time, November 21, 1983

Crystal ball’s blind spot:
Apple introduces its first Macintosh computer in 1984. Microsoft puts Windows 3.0 on the market in May 1990.

Rebuilding the mammoth:
In the mid-1990s, AT&T tries to buy its way into becoming an all-in-one communications provider, acquiring NCR, McCaw Cellular, and MediaOne. It then spends a decade spinning off properties—Lucent, NCR, Avaya, AT&T Wireless, AT&T Broadband—including a 1995 move to fracture the remaining corporation into three pieces. It also sells its mammoth Basking Ridge complex to Verizon (formerly Bell Atlantic and NYNEX).

The other D-word:
downsizing.
Post-divestiture, AT&T has about 350,000 employees expecting college-to-retirement employment. In August 1985, AT&T Information Systems eliminates 24,000 workers, mostly support and administrative staff. It’s the first of a seemingly endless string of such moves. Robert Allen, head of Information Systems in 1985, has become AT&T CEO by January 1996, when he announces to the 300,000 remaining employees that another 40,000 will be cut over three years, including 7,000 in New Jersey. That move lands him on the cover of Newsweek beside the headline Corporate Killer.

A competitor’s view:
“AT&T completely flopped in the computer business,” says John Thorne, senior vice president and deputy general counsel for Verizon Communications (the renamed Bell Atlantic), in a March 2004 speech to the Association of the Bar of the City of New York. “Based on revenue, AT&T slid from a 90 percent market share in long distance in 1984 to a 38 percent share in 2001.”

The last hurrah:
SBC (formerly Southwestern Bell) announces in January 2005 that it will buy AT&T for $16 billion in cash and stock. AT&T is down to about 24 million residential customers and 3 million business customers.

Old symbols die hard:
After SBC acquires it in November 2005, AT&T Corp. is rechristened AT&T Inc. and even resurrects AT&T’s old symbol T for trading on the New York Stock Exchange.


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