32 Avenue of the Americas
We aspire to be the most admired and valuable company in the world. Our goal is to enrich our customers' personal lives and to make their businesses more successful by bringing to market exciting and useful communications services, building shareowner value in the process.
The predecessor of AT&T Corporation, the American Telephone and Telegraph Company, was the largest corporation in the world for much of the 20th century. A government-regulated monopoly for most of its existence, it built most of the U.S. telephone system and was the standard of the worldwide telecommunications industry. It was dismembered in 1984 as a consequence of an action by the U.S. Department of Justice (DOJ) and through a consent decree signed that year. Its local operating companies became separate entities, leaving AT&T with the long-distance segment of the business, the only remaining government-regulated aspect of the company. In 1995 it was divided into three more parts, with only the long-distance and other service-oriented businesses left under the name AT&T. Under new CEO C. Michael Armstrong, the reconfigured company began moving toward offering a combination of telephone, television, and Internet services following the acquisitions of major cable providers TCI Communications and MediaOne.
AT&T had its origin in the invention of the telephone in 1876 by Alexander Graham Bell. In 1877 Bell and several financial partners formed the Bell Telephone Company, and in 1878 they formed the New England Telephone Company to license telephone exchanges in New England. The two companies licensed local operating companies in Chicago, New York, and Boston. Over the next year Bell and his backers sold a controlling interest in the companies to a group of Boston financiers.
The companies were soon embroiled in patent disputes with Western Union Telegraph Company, the world's largest telegraph company. During the dispute, the two Bell companies were consolidated into the National Bell Telephone Company, and Theodore J. Vail was named general manager. In November 1879, the patent suit was settled out of court. Western Union left the telephone business and sold its system of 56,000 telephones in 55 cities to Bell. Bell agreed to stay out of the telegraph business, and paid Western Union a 20 percent royalty on telephone equipment leases for the next 17 years. Between 1877 and 1881, Bell licensed numerous local operating companies as a way to promote the telephone without having to raise capital. The companies signed five- to ten-year contracts, under which Bell got $20 per telephone per year and the right to buy the licensee's property when the contract expired.
National became the American Bell Telephone Company in 1880 and obtained more capital at that time. Starting in 1881 Bell urged the locals to make the contracts permanent, rescinding Bell's right to buy the respective properties, but giving Bell variously 30 to 50 percent ownership of the operating companies. The companies could build long-distance lines to connect exchanges in their territories, but they were prohibited from connecting them with those of other operating companies or independent phone companies. Bell thus became a partner in the local telephone business, allowing Bell to influence the locals and conserve capital for long-distance operations. American Bell needed large amounts of equipment, and in 1881 it acquired Western Electric, a major Western Union supplier, to serve as its manufacturer. Bell then consolidated into Western Electric several other manufacturers it had licensed to make telephones.
More long-distance lines were being built as telephone technology improved. In 1884 Bell built an experimental line between Boston and New York. The next year it added a Philadelphia--New York line. To construct, finance, and operate its long-distance system, Bell established the American Telephone and Telegraph Company in 1885 to operate as its long-distance subsidiary. At that time the nascent U.S. telephone system was primarily a series of unconnected local networks. Vail, who was named AT&T president, wanted to get a long-distance network in place before Bell's basic patents expired in 1894. By the time it established AT&T, Bell was in firm control of the telephone business. It regulated the operating companies' long-distance lines and Western Electric, their major supplier. It also had the right to take over their property if they violated their contracts.
In 1888 a huge blizzard in New England knocked most telephones out of service. The company responded by pushing to put more cables underground. Later that year it became clear that a long-distance network would cost more than planned, and AT&T floated $2 million in bonds to raise capital. The company returned to public investors frequently throughout its history to finance its ever-expanding enterprises. For decades AT&T stock was the most widely held in the world. To attract investors so often, AT&T was forced to be efficient, even though it lacked real competition for much of its history.
Technical advances came regularly. The first coin-operated public telephone was installed in 1889. During 1891 two-party and four-party service was introduced, and the first automatic dial system was patented. A New York-Chicago long-distance line opened in 1892, and Boston-Chicago and New York-Cincinnati lines were initiated in 1893.
Bell initially had a monopoly on the telephone because of its patents, but in 1894 its patent expired. Rather than compete by providing better and less expensive service, Bell often took the growing independent phone companies to court, claiming patent infringements. As Western Electric would not sell equipment to the independents, new manufacturers sprung up to accommodate them. The independents were particularly successful in rural areas in the West and Midwest where Bell did not provide service. By 1898 some cities had two unconnected phone systems, one Bell and one independent. This competition forced Bell to expand faster than it otherwise would have. It jumped from 240,000 phones in 1892 to 800,000 in 1899.
The company needed capital to keep up with this expansion, and Massachusetts, where American Bell was based, presented far more regulatory interference than New York, where AT&T was based. As a result, AT&T in 1899 became the parent company of the Bell System until the breakup in 1984. AT&T's capital jumped from $20 million to more than $70 million. By 1900 AT&T was organizing itself into the vertical structure that characterized it for decades thereafter. It had assets of $120 million compared with a total of $55 million for the independents, but its finances were run overly conservatively and its service was reputedly poor.
Meanwhile, the telephone was having a dramatic impact on the United States, where large numbers of people still lived in the relative isolation of farms or small towns. The telephone lessened their isolation, and the response to the new invention was enthusiastic. The number of rural telephones shot from 267,000 in 1902 to 1.4 million in 1907. The telephone was coming to be viewed as indispensable by virtually all businesses and most private homes.
The Early 1900s: Fighting the Independents
Competition from independents continued to mount. Their rates were sometimes half of Bell's, and the United States was in an antimonopoly mood. Many rural communities started their own not-for-profit phone companies that were later sold to independents or Bell. By 1907 the independents operated 51 percent of all phones. AT&T was fighting back, having made the decision to take on the independents when it moved and changed its name. The company's first and most effective move was to slash rates. The arrogance of early company officials was replaced by a desire to please customers. AT&T also bought out independents, set up its own "independents," and used its political and financial clout to strangle competitors. AT&T's greatest advantage was its virtual monopoly of long-distance service--which it refused to let independents use.
The invention of a certain electric device, the loading coil, in 1899 gave long-distance service a push by allowing smaller-diameter wires to be used, which made underground long-distance cables feasible. They were implemented for an underground New York--Philadelphia line in 1906, but long-distance signals remained weak and difficult to hear until the invention of the vacuum-tube repeater in 1912.
Competition had given AT&T a necessary push, forcing it to expand and grow, but it also weakened its finances. Between 1902 and 1906 debt grew from $60 million to $200 million. Through a series of bond purchases starting in 1903, financier J. P. Morgan tried to wrest control of the company from the Boston capitalists, beginning a free-for-all that lasted several years. When the dust cleared in 1907, Morgan and his New York and London backers had won, and they brought back Vail as president. Vail had left in 1887 because of differences with the Bostonians, whose view was focused narrowly on short-term profit. Vail and his backers had a wider vision than the Bostonians, believing they should create a comprehensive, nationwide communications system.
In 1907 AT&T boasted 3.12 million telephones in service, but had a terrible public image, low staff morale, poor service, serious debts, and a bevy of technological problems. Within a decade Vail turned the company around, making it a model of corporate success. He soon sold millions of dollars in bonds by offering them at a discount to shareholders, which reestablished confidence in the company. He also dramatically increased research and development, hiring talented young scientists and laying the foundation for what would, in 1925, become Bell Labs. Vail concentrated the company's visionaries into central management and left day-to-day network decisions to workers more interested in practical questions. For its first two decades AT&T had put profits for its shareholders above service for its customers; Vail was one of the first U.S. business leaders to balance profit with customer satisfaction.
At the same time, Vail was a monopolist, believing competition had no place in the telephone industry. He and Morgan set out to make AT&T the sole supplier of U.S. telecommunications services. In 1910 Vail became president of Western Union after AT&T bought 30 percent of Western's stock. For the first time telegrams could be sent and delivered by phone. Telephone and telegraph lines could back each other up in emergencies. AT&T gobbled up independent phone companies at an ever-increasing rate. When Morgan found an independent in financial trouble, he used his power as a leading banker to squeeze its credit, often forcing it to sell to AT&T. By 1911 AT&T had bought so many small independents that Vail consolidated them into a smaller number of state and regional companies. AT&T's ownership was motivated partly by profit, but also by the desire to ensure good service.
Antimonopoly pressures from consumers and government began to mount on AT&T well before then. A crucial turning point came in 1913, after Morgan's death, when Vail decided to sell Western Union and allow independents access to AT&T's long-distance lines. The move cost $10 million and ended AT&T's dream of a national telecommunications monopoly, but it won AT&T respect and ended growing pressure to dismember it.
Coast to Coast Long Distance Achieved in 1915
By that time AT&T was working on the first coast-to-coast telephone line, using loading coils and repeaters. On January 25, 1915, Alexander Graham Bell, in New York, and former collaborator, Thomas Watson, in San Francisco, engaged in a coast-to-coast repeat of the first-ever telephone conversation 39 years earlier. AT&T was also making important progress in automatic switching systems and sent the first transatlantic radio message in 1915. As the telephone became a matter of national interest, pressure for federal regulation mounted, and Vail welcomed it as long as regulators were independent.
During World War I the AT&T network was used for domestic military communications. AT&T also set up extensive radio and telephone communications lines in France. The war pushed AT&T's resources to the limit, with a $118 million construction budget for 1917. In 1918, a year in which AT&T had ten million phones in service, the U.S. government took over the telephone system. The government set rates and put AT&T under a branch of the post office, although the company continued to be run by its board of directors. One of the government's first decisions was to start a service connection charge. It then raised both local and long distance rates. Lower rates had been touted as a major benefit of public ownership. When the rates went up, support for government ownership collapsed, and in August 1919 the government gave up its control of AT&T. Vail retired in the same year, leaving the presidency to Harry Bates Thayer, and died in 1920.
AT&T grew rapidly as a regulated monopoly during the laissez-faire 1920s. The Graham Act of 1921 exempted telephony from the Sherman Antitrust Act. Of almost 14 million telephones in the United States in 1921, the Bell System controlled 64 percent; and 32 percent, although owned by independents, were plugged into the AT&T network. Commercial radio boomed, and AT&T entered cross-licensing patent agreements with General Electric, Westinghouse, and Radio Corporation of America, with which it was soon embroiled in legal disputes. By the end of 1925, AT&T had a national network of 17 radio stations. AT&T put its first submarine cable into service between Key West, Florida, and Havana, Cuba, in 1921. In 1925 Bell Labs became a separate company, jointly funded by AT&T and Western Electric. The same year, Thayer retired and was succeeded by Walter S. Gifford, who served for the next 23 years. His influence on the U.S. telephone industry was second only to Vail's.
Gifford quickly got AT&T out of radio and other side ventures, although it tried to establish a controlling interest in motion picture sound technology in the late 1920s. He reduced the fee licensees paid from the 4.5 percent of gross revenue established in 1902, to four percent in 1926, and two percent in 1928. AT&T stockholders grew from 250,000 in 1922 to nearly 500,000 in 1929. In 1929 Bell Labs gave the first U.S. demonstration of color television. By 1932 AT&T had the second largest financial interest in the film industry, but sold it in 1936.
The first years of the Great Depression badly hurt AT&T. Many subscribers could no longer afford telephones. AT&T sales for 1929 were $1.05 billion; by 1933 they were $853 million. Western Electric sales in 1929 were $411 million; 1933 sales were $70 million. Western Electric laid off 80 percent of its employees, and AT&T laid off 20 percent.
By 1933 telephone use began growing again, and by 1937 it exceeded pre-Depression levels. During the late 1930s the newly formed Federal Communications Commission (FCC) conducted a long, damaging investigation of AT&T's competitive practices that reopened the battle over AT&T as a monopoly. In 1939 AT&T had assets of $5 billion, by far the largest amount of capital ever controlled by a corporation up to that time. It controlled 83 percent of all U.S. telephones and 98 percent of long-distance wires. Subsidiary Western Electric manufactured 90 percent of all U.S. telephone equipment. The FCC's final report was initially ignored due to the outbreak of World War II but had significant impact later.
Growth During World War II
Telephone use, particularly long distance, grew tremendously during World War II, with 1.4 million new telephones installed in 1941 alone. Western Electric and Bell Labs devoted themselves primarily to military work from 1942 to 1945, filling thousands of government contracts and making technological innovations. The most important work was in radar, the experience that gave AT&T a huge lead when microwave radio relay became the principal means of transmitting long-distance telephone and television signals in the postwar period.
The FCC forced AT&T to lower rates during the war, and its plants and infrastructure were worn out by wartime production. AT&T's business boomed after the war, as population and prosperity increased, and the habit of long-distance telephoning acquired during the war continued. The company installed more than three million telephones in 1946. Benefits of wartime technology were many. Moving vehicles were brought into the telephone system by radio in 1946. Coaxial cable was first used to take television signals over long distances in 1946. Microwave radio began transmitting long-distance calls in 1947. Bell Labs brought out the transistor, a replacement for the vacuum tube and one of the important inventions of the 20th century, in 1948; its inventors won the Nobel Prize in 1956.
The end of the war brought serious labor trouble. AT&T and the National Federation of Telephone Workers faced off over wages, working conditions, and benefits, producing a nationwide strike in 1947. Public opinion went against the strikers, and the eventual compromise favored AT&T.
Gifford retired in 1948 and Leroy A. Wilson became president. His first task was to push a rate increase past government regulators. He got one in 1949 that helped AT&T sell more stock to raise needed capital. As an outgrowth of the 1930s FCC investigation, the U.S. Department of Justice filed suit in 1949, seeking to split Western Electric from AT&T. AT&T succeeded in delaying the case until the Eisenhower administration, which was not as interested in regulation, took power. In the meantime the government talked Western Electric into taking over the management of an advanced weapons research laboratory. It formed Sandia Corp. in 1949 to do so. In the 1950s Western Electric worked on the Nike antiaircraft missiles, making $112.5 million on the venture. Western and Bell Labs worked with others on a huge air-defense radar system. These defense projects gave AT&T a powerful lever against the antitrust suit. In a consent decree in 1956 AT&T agreed to limit its business to providing common-carrier services and to limit Western Electric's to providing equipment for the Bell System, except for government contracts. The antitrust case was settled on this basis.
In 1951 Wilson died and Cleo Craig became president. In the next few years AT&T made it possible to dial directly to other cities without using an operator. This and ensuing developments enabled long-distance charges to be repeatedly reduced. In 1955 AT&T laid the first transatlantic telephone cable, jointly owned with the British Post Office and the Canadian Overseas Telecommunications Corporation. Craig retired in 1956, and Frederick R. Kappel became president.
AT&T was in enviable financial shape by the late 1950s, although some accused it of getting there by overcharging subscribers. The booming U.S. economy led to unprecedented calling volumes--particularly from teenagers, many of whom were getting their own telephones. Telephones moved from shared party lines to private lines, and telephone services like weather and time announcements became widespread, adding further revenue. AT&T split its stock three-for-one in 1959 and two-for-one in 1964. By 1966 AT&T had three million stockholders and nearly one million employees. In 1954 AT&T began offering telephones in colors other than black. In 1961 it developed Centrex, a system in which an office maintained its own automatic switching exchange; in 1963 it offered the first Touch-Tone service; in 1968 it brought out the Trimline phone, with the dial built into the handset. By 1965 the Bell System served 85 percent of all households in the areas in which it operated, compared with 50 percent in 1945, and was providing a vast array of services at a variety of rates.
Expanding into Space: Bellcom and Telstar
AT&T formed Bellcom to supply most of the communications and guidance systems for the U.S. space program from 1958 to 1969. Bell Labs worked intensively on satellite communications, and the first AT&T satellite, Telstar, was launched in 1962. Comsat, a half-public, half-private company handling U.S. satellite communications, was founded in 1962, with AT&T owning 27.5 percent at a cost of $58 million.
AT&T worked on an electronic switching system throughout the 1950s and 1960s. The project was more complicated than expected, and by the time the first electronic equipment was installed in 1965, AT&T had spent about $500 million on the project. The speed and automation that electronic switches gave the phone system, however, made possible the vast increases in traffic volume in the 1970s and 1980s, as the United States moved to an information-based society.
In the 1950s and 1960s other companies began trying to capture specific portions of AT&T's business. The Hush-a-Phone Company marketed a plastic telephone attachment that reduced background noise. Microwave Communications Inc. (MCI) tried to establish private-line service between Chicago and St. Louis. Carter Electronics Corporation marketed a device that connected two-way radios with the telephone system. AT&T responded by forbidding the connection of competitors' equipment to the Bell System. Several FCC investigations followed, with decisions that created competition for terminal equipment and intercity private-line service. AT&T began to face serious competition for the first time in 50 years.
Kappel retired in 1967 and was replaced by H. I. Romnes, a former president of Western Electric. AT&T's earnings were leveling off after tremendous growth in the early 1960s. There also were service problems in 1969 and 1970, with numerous consumer complaints in New York. Similar predicaments followed in Boston, Denver, and Houston. AT&T borrowed money and raised rates to pay for repairs.
More serious problems were beginning for AT&T. In the early 1970s sales by the interconnect industry were growing, and businesses were buying telephone equipment from AT&T competitors. The U.S. Equal Employment Opportunity Commission accused AT&T of discriminating against women and minorities. AT&T, without admitting it had done so, signed consent decrees under which it agreed to increase the hiring, promotion, and salaries of women and minorities.
MCI claimed AT&T was still preventing it from competing and filed an antitrust lawsuit in 1974. The situation became disastrous when the DOJ filed another antitrust suit later in 1974, this time asking for the dismemberment of AT&T. The DOJ charged that AT&T had used its dominant position to suppress competition. The suit dragged on for years.
During the years of the suit, AT&T continued to grow. Both 1980 and 1981 were years of record profits. The $6.9 billion AT&T made in 1981 was the highest profit for any company to that time.
The Breakup of the Bell System
The DOJ suit finally came to trial in 1981. By then AT&T and the government both wanted to settle the case. AT&T longed to get into computers and information services, but was prevented by its 1956 agreement. In 1982 the FCC required AT&T to set up a separate, unregulated subsidiary called American Bell to sell equipment and enhanced services. In January 1982 AT&T and the DOJ jointly announced a deal to break up the Bell System, while freeing the remainder of AT&T to compete in non-long-distance areas such as computers.
Federal Judge Harold Greene gave final approval for the AT&T breakup in August 1983. At that time AT&T was the largest corporation in the world; its $155 billion in assets made it larger than General Motors, Mobil, and Exxon combined. After the breakup, on January 1, 1984, AT&T had $34 billion in assets. Its net income dropped from $7.1 billion to $2.1 billion, and its workforce from 1.09 million to 385,000. Its 22 regional operating companies were split off into seven regional holding companies, and AT&T lost the right to use the Bell name. AT&T stockholders received one share in each of the regional companies for every ten AT&T shares they owned. AT&T also lost the highly profitable Yellow Pages, which went to the regional companies.
The new AT&T consisted of two primary parts: AT&T Communications, the long-distance business, and AT&T Technologies, a group of other businesses that mainly involved the manufacture and sale of telecommunications equipment for consumers and businesses. Western Electric was broken up and folded into AT&T Technologies. Long distance was expected to provide the bulk of short-term revenue for the new AT&T, but the unregulated technologies group, backed by Bell Labs, was expected to quickly blossom. AT&T Technologies initially concentrated on switching and transmissions systems for telephone companies. AT&T was losing ground to competitors in that sector and wanted to fight back. The company also worked on telephone-equipment sales, sold through AT&T phone centers and such retailers as Sears. American Bell changed its name to AT&T Information Systems and began pushing computers. AT&T International quickly signed a deal with the Dutch company N.V. Philips to sell switching equipment throughout the world, setting up AT&T Network Systems International.
To help pay for the breakup, AT&T took a fourth-quarter charge of $5.2 billion in 1984, the largest to that time. AT&T, however, was now free to go into computers, a field it had longed to get into since the 1956 consent decree, and the company began spending hundreds of millions of dollars to develop and market a line of computers. James E. Olson became president of AT&T in 1985, cutting 24,000 jobs from the information division later that year to improve its profits. In 1986 Olson became chairman, and Robert E. Allen became president. Olson concentrated on centralizing management and refocusing company strategy around the idea of managing the flow of information.
The company chose Brussels, Belgium, as the site for its regional headquarters serving Europe, the Middle East, and Africa. It also began joint ventures with companies in Spain, Italy, Ireland, Denmark, South Korea, and Taiwan to get its telecommunications products into foreign markets. Still, foreign revenues accounted for only ten percent of company earnings, compared with 40 percent for many other U.S.-based multinationals. Company earnings declined because of a slumping business equipment market and greater than expected reorganization costs. Earnings also suffered from a drop in rental revenues as more AT&T customers decided to buy their telecommunications equipment outright.
Meanwhile AT&T's computer operations were in trouble. The company had developed a new operating system, Unix, for its computers. Unix had some advantages; but the users of personal computers were not familiar with it, manufacturers of larger computers were committed to their own proprietary systems, and buyers stayed away. AT&T computer operations lost $1.2 billion in 1986 alone. At the end of the year the company restructured its computer operations to concentrate on telecommunications-based computers and computer systems. It custom designed a system for American Express that automatically phoned customers while putting customer information on a terminal screen. At the end of 1986 AT&T cut another 27,400 jobs and took a $3.2 billion charge. Income for the year was only $139 million.
In 1987 the DOJ recommended that the regional operating companies be allowed to compete with AT&T in long distance and telecommunications equipment manufacturing--its two core businesses. The idea was unacceptable to Judge Harold Greene, overseer of the AT&T breakup. Because of fierce competition from MCI and other companies, AT&T retained 76 percent of the long-distance market, down from 91 percent in 1983.
Unix made some gains in 1986 and 1987, and AT&T formed the Archer Group, a consortium of computer makers manufacturing Unix systems. It included Unisys and Sun Microsystems. After nearly $2 billion in losses in computers, the data systems group finally signed a major contract with the U.S Air Force in 1988. The $929 million contract for minicomputers provided only a slim profit margin, but AT&T hoped that the deal would push its computers over the top, make Unix an industry standard, and lead to further government sales. Olson died in 1988, and Allen became chairman.
More Changes in the Late 1980s
MCI and others continued to erode AT&T's share of the $50 billion long-distance market, which stood at 68 percent at the end of 1988. To fight back, AT&T redeployed 2,500 employees to sales positions and aggressively tackled the business communications market. AT&T also took a $6.7 billion charge to modernize its telephone network and cut 16,000 positions. As a result, the company lost $1.7 billion in 1988, its first-ever loss for the year. Some industry analysts, however, felt the company was finally turning around after four years of confusion and drift. It won two major government contracts that year. One, expected to earn AT&T $15 billion by 1989, was to build a new government telephone system. Competitor US Sprint Communications won a $10 billion contract for a second part of the same system. Regulators finally gave AT&T the right to match the low prices of MCI and US Sprint, leading to the end of the long-distance price wars waged since the AT&T breakup. AT&T showed a $2.7 billion profit for 1989, its largest since the breakup.
In mid-1990 AT&T raised its long-distance rates after low second-quarter earnings. It had been hurt by declining long-distance revenue and slow equipment sales. The company, however, soon made several important sales. It received an extension of a $100 million personal computer sale to American Airlines's Sabre Travel Information Network and signed an agreement to upgrade China's international communications system. AT&T made its first entry into Mexico's communications market, winning a $130 million contract from Mexico's national telephone company, Teléfonos de Mexico. It signed a $157 million contract to build an undersea fiber-optic cable between Hawaii and the U.S. mainland, and announced that it planned to build a high-capacity undersea cable between Germany and the United States, with Deutsche Bundespost Telekom. It also won a $600 million contract from GTE Corporation to build cellular network equipment.
Hoping to make money from its financial and information resources, AT&T launched a credit card, Universal Card, in early 1990. By late 1990 it was the eighth leading credit card in the United States, with revenue of $750 million. Wall Street analysts, however, expected the credit card's startup costs to hold back AT&T earnings until at least 1992. Bell Labs announced important breakthroughs in computer technology in 1990, including the world's first computer using light. Products based on the new technologies were years off, but AT&T continued to manufacture computers. AT&T signed an agreement with Japan's Mitsubishi Electric Corporation to share memory-chip technology, and licensed technology from Japan's NEC Corporation to make semiconductors. Late in the year, Philips, under financial pressure, sold back its 15 percent stake in AT&T Network Systems International.
In the early 1990s AT&T's overseas ventures began bearing fruit. About 15 percent of its revenue, more than $5 billion yearly, came from international calling and sales to foreign buyers of equipment and services. In 1991 AT&T made a major acquisition in the computer industry, buying NCR Corporation through an exchange of stock valued at $7.4 million. AT&T officials believed the purchase of NCR, which accounted for about 60 percent of its sales in international markets, would put AT&T on the path to becoming a truly global company and a leader in networked computing. NCR had introduced more new products than any other computer company in the preceding year. NCR officials saw advantages of the merger to be an increased customer base, access to the research and development capabilities of Bell Labs, and the addition of AT&T's technical, marketing, and sales resources.
AT&T's fortunes looked solid following the NCR acquisition. The company's stock price was climbing, and several of its previously sluggish operations posted their best earnings figures in years. One area in which AT&T needed market presence was cellular telephone service, though the company was the largest manufacturer of cell phone system switching devices. In August 1993 the company acquired McCaw Cellular Communications for $12.8 billion in stock. The Kirkland, Washington-based McCaw operated one of the largest cellular systems in the United States, with coverage of a third of the country.
Division into Three Companies
Despite these positive developments, AT&T was still having problems. NCR in particular was not earning its keep and lost $600 million in 1994. AT&T's long-distance service profits were accounting for the bulk of the corporation's income, but competition was growing ever fiercer. On September 20, 1995 the company announced it was splitting up yet again, this time into three separate entities. The largest would be known as AT&T Corporation and consist primarily of the long distance businesses, AT&T Wireless, the Universal Credit Card, and AT&T Labs. The next largest would be Lucent Technologies, which would consist of the company's consumer and business products operations and Bell Labs. The smallest would be NCR Corporation, consisting more or less of what it had been when AT&T purchased it four years earlier. The breakup, the largest corporate restructuring in history, was accomplished by means of a spin-off of stock to AT&T shareholders. Some 40,000 of the company's employees were also expected to lose their jobs.
Other developments at this time included AT&T's first foray into the world of cyberspace, with the introduction of an array of business and home Internet access services. Also, in February 1996, Congress passed a new telecommunications act which ended monopolies for providers of local phone service. AT&T vowed to become a presence in the local service arena again, though this would entail leasing lines from the largely unfriendly Baby Bells.
In the months following the company's restructuring, corporate morale and investor confidence ebbed as AT&T's efforts to fine-tune the reconfiguration proceeded slowly. CEO Bob Allen, nearing his planned retirement date of January 1998, saw his chosen successor rejected by the board in mid-1997. Finally, on November 1, Hughes Electronics CEO C. Michael Armstrong was approved to take over the reins at AT&T, and Allen stepped down.
Armstrong quickly set about cutting fat and implementing new strategies. He sold the company's credit card unit to Citibank for $3.5 billion, and its communications outsourcing business to Cincinnati Bell for $625 million. He purchased Teleport Communications Group, a local exchange business-service carrier in New York and 65 other cities, for $11.3 billion. International efforts, always a weak point with AT&T, were boosted by the formation of a joint venture with British Telecom. Advertising expenses were cut for a second time in two years, and an additional 18,000 layoffs were announced. Armstrong's biggest move during his first year came in the summer, when he cut a deal to purchase cable television giant TCI for $53.5 billion in stock.
In October the company merged its Wireless Services division with Vanguard Cellular Systems, a Northeast U.S.-based cell phone company with 625,000 subscribers. AT&T also started its own "dial-around" service, Lucky Dog. A host of new competitors had emerged who were offering low residential long-distance rates via special 7-digit access numbers. The heavily advertised Lucky Dog was an attempt to tap into this market, and was promoted with no mention of its corporate owner. In December, a deal worth $5 billion was reached to buy IBM's Global Network Internet access business, which was expected to provide a starting point for the joint venture with British Telecom.
Armstrong's first year performance was winning rave reviews, and he continued at full throttle in 1999 with the $60 billion acquisition of a second major cable provider, MediaOne. In a heated battle, AT&T had outbid both Comcast and Microsoft. As a sop to the latter, an agreement was reached to sell the computer giant $5 billion in AT&T stock, and to use Microsoft products in the company's new cable boxes. Deals with Comcast and Time Warner also brought more cable subscribers to the company. Armstrong's vision for AT&T's future was to offer both telephone and Internet services through the newly acquired cable TV networks, taking advantage of the large data-transmission capacity they offered. This would eliminate the slow download speed experienced by Internet users who connected via telephone line and modem. Billions of dollars would have to be invested to retrofit cable systems for interactivity and telephone use for the plan to succeed.
This new direction would take AT&T full circle, back into the direct-wired residential telecommunications business it had consisted of before the 1984 breakup. The company's big gamble would take years to pay off, but many were betting on AT&T to succeed. For the first time since the breakup of the Bell System, AT&T seemed to be coming to grips with both its past and its future, as it began to gird for the challenges of the changing telecommunications market of the 21st century.
Principal Subsidiaries: AT&T Campuswide Access Solutions, Inc.; AT&T Capital Holdings, Inc.; AT&T Communications Americas, Inc.; AT&T Communications of Illinois, Inc.; AT&T Communications of Indiana, Inc.; AT&T Communications of New Jersey, Inc.; AT&T Communications of Ohio, Inc.; AT&T Communications of Pennsylvania, Inc.; AT&T Communications of the Midwest, Inc.; AT&T Communications of the Mountain States, Inc.; AT&T Communications of the South Central States, Inc.; AT&T Communications of the Southern States, Inc.; AT&T Communications of the Southwest, Inc.; AT&T Communications of Virginia, Inc.; AT&T Communications of Washington, D.C., Inc.; AT&T Communications of West Virginia, Inc.; AT&T Communications of Wisconsin, Inc.; AT&T Global Network Services; AT&T Microelectronica de España S.A. (Spain); AT&T Network Systems International B.V. (Netherlands); AT&T of Puerto Rico, Inc.; AT&T of Tampa, Inc.; AT&T of the Virgin Islands, Inc.; AT&T Solutions, Inc.; AT&T Web Site Services; AT&T Wireless Services, Inc.; AT&T WorldNet Service; Actuarial Sciences Associates, Inc.; Alascom, Inc.; Istel Group, Ltd. (U.K.); Liberty Media Group; Liberty Media International; Lucky Dog Phone Co.; Transoceanic Communications, Inc.
Principal Divisions: Consumer Markets Division; Business Services; AT&T Solutions; AT&T Wireless Services; AT&T Local Services Division; Network Services; AT&T Labs.