The Economy |
long, twisted path for AT&T
You've dialed more than a few wrong numbers in
your day, my friend, if you can remember Lily Tomlin as Ernestine the
telephone operator, sitting by her switchboard chortling as she cut
distressed callers off in midsentence.
"Of course we don't care,"
she would nasally declare. "We don't have to. We're the phone
Call me nuts, but I thought I heard ol' Ernestine's voice
this week as AT&T announced plans for yet another major breakup ("One
ringy-dingy . . . two ringy-dingies . . .").
Of course, this ain't
the Ma Bell of old. Today's AT&T is a shadow of its former self -
though still big enough to make number eight on the last Fortune 500 list.
But to appreciate how far things have come, you have to recall when
"babies" such as Verizon and Lucent Technologies were still tugging at Ma
The old AT&T epitomized a lot of what was wrong
with mid-20th-century corporate America. An old-fashioned, vertically
integrated, regulated utility, its culture wasn't far removed from that of
state-owned telephone companies in Europe and elsewhere.
choices for consumers
AT&T manufactured, installed and owned
the telephones in most American homes, along with the switches and wires
that connected them. It had almost no competition and offered few choices.
As with Henry Ford's early Model T's, you could have any color phone you
wanted, as long as it was black. Service was stable, innovation was
tightly managed, and profits were guaranteed, as were the shareholders'
It couldn't last forever, and it didn't. Thanks to
technology and the antitrust laws, AT&T was forced in 1982 to choose
between its long-distance franchise, which was being opened to
competition, and its local-service monopolies. The company spun off seven
regional "Baby Bells," but that wasn't the end of the story. The offspring
grew, mated, and eventually turned hostile, blocking Ma's attempts to
compete on their turf.
Technology, meanwhile, rendered most of the
old definitions of telecommunications obsolete. "Telephone" service can
now include everything from movies piped on demand over a wire to
electronic mail sent through the air to a handheld computer. Trying to
maintain its market dominance while keeping up with all of this has led
AT&T down a long and twisted path.
To enter the
computer-hardware field, the company bought NCR in 1991, only to sell it
at a huge loss in 1996. It also spun off its manufacturing arm, now
Lucent, while making major wireless and cable-TV
Revising its strategies
Eighteen months ago,
still determined to crack the regional phone monopolies held by Verizon
and its other progeny, AT&T revised its strategy: It would offer
comprehensive telephone and Internet service to consumers through both
cable and wireless channels. Wall Street endorsed the plan but grew
impatient with the slow pace of growth. AT&T stock has recently seen
nearly a decade's worth of gains erased.
So now the company
intends to break off more pieces of itself, setting up its wireless,
broadband-cable, consumer long-distance, and business services as separate
entities. Some will evolve into independent companies, with their own
stock. Others may be sold to competitors.
Whether the plan will
benefit AT&T stockholders is still unclear. Consumers, however, will
probably come out losers, according to economist Nicholas Economides of
New York University. When AT&T was pushing aggressively to offer
telephone and Internet service via cable, Economides said, the local phone
companies had a reason to improve their services, while keeping prices
AT&T's retreat eases the competitive pressure on
local phone companies such as Verizon, allowing them to behave like
Ernestine at her most infuriating.