Ameritech Corporation - Company Profile, Information, Business Description, History, Background Information on Ameritech Corporation

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History of Ameritech Corporation

Ameritech Corporation is one of the largest telecommunications companies in the United States. Ameritech's Bell Group, which provides exchange telecommunications and local and long-distance exchange access service for business and residential customers in the Midwest, is made up of Illinois Bell, Indiana Bell, Michigan Bell, Ohio Bell, and Wisconsin Bell; Ameritech Services and Ameritech Information Systems comprise the remaining operational sectors. As a whole, the corporation is structured into separate business units, which include consumer phone services, long-distance phone services, small-business services, advertising, and cellular services. Ameritech subsidiaries, offering communications-related products and services throughout the world, include Ameritech Mobile Communications, Inc., Ameritech Publishing Inc., Ameritech Development, and Ameritech International.

1982 Breakup of Ma Bell Creates Baby Bells

In 1982 the U.S. Department of Justice (DOJ) ended a 13-year antitrust suit against the world's largest corporation, American Telephone and Telegraph Company (AT&T). AT&T was required, under the landmark court-ordered consent decree, to divest itself of 22 local telephone operating companies. The key issue of the divestiture was to demonopolize the telecommunications industry and ensure equal access to the local exchange facilities by all long-distance carriers.

AT&T retained its Western Electric Manufacturing subsidiary, Bell Laboratories research facilities, as well as its long-distance operations, while the 22 local companies were divided into seven regional holding companies (RHCs). The Midwest regional Bell operating companies (BOCs), including Illinois Bell, Indiana Bell, Michigan Bell, Ohio Bell, and Wisconsin Bell, were assigned to the RHC American Information Technologies Corporation, called Ameritech for short. In 1991 the company formally changed its name to Ameritech.

According to the final judgment, all RHCs were initially limited to providing only basic phone service, which was strictly regulated. Any new telecommunications ventures had to be presented to the Federal Communications Commission (FCC); if approved, these unregulated businesses would be required to be operated through separate subsidiaries.

Ameritech, along with its six sibling RHCs, shared $147 billion in assets. The RHCs were, however, also ordered to share with AT&T any company debt, as well as the costs of antitrust suits initiated prior to January 1, 1984, the official date of divestiture.

William L. Weiss, named president and CEO of Illinois Bell in 1981, anticipated the solo operation of the Midwest RHC and diversified Ameritech operations into unregulated businesses as allowed by the court. In 1983 Ameritech incorporated several subsidiaries, including Ameritech Services, Inc., a support company owned equally by all the Midwest BOCs and designed to provide marketing, technical, and regulatory planning as well as new product development, purchasing, and national management services. The same year brought the formation of the Ameritech Development Corp., designed to target, research, and develop business-growth areas for all of Ameritech's "Baby Bells." Ameritech also moved into publishing telephone directories via Ameritech Publishing, Inc.

In October 1983 Ameritech Mobile Communications, Inc., a provider of wire-free cellular telephones, became the first in North America to offer cellular phone service. Within six months Ameritech's cellular phone test markets were a model for many competitors. Under previous mobile telephone systems, operating areas working from a single antenna could use only 12 channels; busy lines were the norm. In contrast, under Ameritech's cellular system regions were divided into small areas called "cells"; because each cell had its own antenna, Ameritech's Chicago-based system could accommodate up to 50,000 calls per hour. Company researchers forecasted that the total cellular service market could reach $3 billion by 1990, with equipment sales reaching $600 million. It came as no surprise that companies such as Motorola, General Electric, and Panasonic were soon jockeying for the chance to set up cellular systems.

By mid-1984 Ameritech led the RHCs in first-quarter earnings, and by November Barron's listed the corporation as recording the highest return on equity of all the RHCs. Weiss was credited for all the positive numbers; he kept operating expenses low by trimming his work force by 20 percent prior to divestiture. Ameritech concentrated on the telephone business, investing nearly $2 billion in new technology.

Ameritech did, nonetheless, run into some stumbling blocks on the road to independence. Modernization of Centrex, the company's central exchange switching system that linked local and long-distance carriers, was a must. However, deregulation allowed the increasing number of competitive carriers to buy their own switchboards, thereby sidestepping Centrex. In addition, the FCC had ordered Ameritech to charge access fees to users of its Centrex system, adding an additional disincentive to its use by other phone service providers. In response, Weiss launched a program to convert the corporation's central offices to electronic digital switching, which provided better technology and reduced maintenance costs.

Joins Move to Office Automation in Mid-1980s

In the meantime Ameritech's unregulated subsidiaries, less constrained by FCC and state restrictions, surged ahead. Ameritech Mobile expanded its cellular systems, moving into the retail sector. Following a 1985 agreement with Tandy Corporation, Tandy's Radio Shack stores marketed Ameritech cellular phones.

In 1985 Ameritech ventured into office automation systems with Real Com, an IBM Satellite Business Systems subsidiary. With Aetna Telecommunications Laboratories, Ameritech worked on simultaneous transmission of voice, video, and data via fiber-optic cables. In 1985 Ameritech Development purchased a minority interest in Davox Corporation, a producer of integrated voice and data communication systems. Despite growth potential, Weiss did not see Ameritech putting more than one-fifth of its resources into these newer ventures.

Ameritech Publishing, also on the upswing, acquired Cleveland-based Purchasing Directories, Inc., in 1985 and began publishing telephone directories in Ohio, Illinois, Indiana, and Michigan. Ameritech also acted as a consultant to AT&T in its efforts to publish a directory in Thailand.

Barely through the second year of operations, the RHCs were still legally bound to seek permission from the U.S. District Court before starting up businesses, and these new businesses had to fall within FCC decisions dubbed Computer I and II. These restrictions confined RHC operations to two areas: basic, or regulated, services comprised of local telephone hook-up and related maintenance; and enhanced, or non-regulated, services, which included the development and manufacture of telephone equipment.

In August 1985 an Ameritech attorney faced the FCC, asking the board to waive such restrictions. Computer III, announced in January 1986, ruled that RHCs could now provide enhanced communications and computer-generated data and storage through existing corporations. Accountability requirements included such safeguards as comparably efficient interconnection, open network architecture, and stringent cost-accounting methods, thereby assuring competing telecommunications companies fair access to local exchange facilities currently controlled by the RHCs. The equal access was necessary for non-Bell companies to offer comprehensive information packages.

Ameritech, following competitor Bell Atlantic's lead, began diversifying to the extent it was able. In January 1986 the corporation bought Applied Data Research Inc., a database management software producer for IBM mainframe computers. The corporation also purchased Speech Plus, Inc., a developer of speech-synthesis technology.

Ameritech Publishing extended its holdings with the May 1986 acquisition of Old Heritage Advertising & Publishing. Within two years the subsidiary expanded its coverage to 90 telephone directories in 15 states.

In 1986 the FCC loosened its reins still further, authorizing Ameritech to enter international telecommunications as well as foreign manufacturing and nontelecommunications businesses. Ameritech's movement was limited, however. It was required to establish a subsidiary to manufacture telecommunications products, provided that the subsidiary had no financial interest in the U.S. telecommunications industry, and such products could not be sold in the United States, Canada, or the U.S. Virgin Islands. In addition, Ameritech could not buy, sell, or patent technology manufactured by, or enter joint research projects with its foreign subsidiary, and it had to make available any software or technology from its foreign manufacturer to any U.S. companies that requested such information.

Satisfied with the ruling, Ameritech moved ahead in joint ventures with foreign concerns; through Applied Data Research Ameritech reached 40 nations. And in August 1986 Ameritech Publishing bought a portion of AT&T's international telephone directory businesses. Ameritech Development, always investigating opportunities, began consulting in Japan on several projects.

On the home front the company gradually expanded as well, with Ameritech Development joining David Systems of California in ongoing research and development into local network setups. Ameritech Mobile commissioned Motorola to develop a multi-feature cellular telephone, and by late 1986 was providing cellular service in Chicago-area commuter trains.

In September 1986 Ameritech Services and Siemens Communications Systems, Inc. sealed a three-year contract, the first of its kind to be made with other than the RHCs' usual suppliers. Under the agreement, Siemens agreed to supply to all Ameritech Baby Bells a mobile switching unit featuring business applications of the integrated services digital network (ISDN) for Ameritech's central offices.

Ameritech ended its third year as a strong competitor in the telecommunications industry. Conditions supporting the company's position varied. A new price flexibility because of state deregulation allowed Illinois Bell to project service fees based on cost without consulting regulator approval, thus speeding up local service. Ameritech's moderate moves into publishing and foreign manufacturing ventures kept the company on solid financial footing. CEO Weiss also decided to buy back some of Ameritech's stock, a wise decision according to industry analysts.

By 1987 Ameritech was putting its energies into fiber-optic and digital technologies, spending nearly 10 percent more than it had the previous year. The corporation planned to have nearly 150,000 miles of fiber-optic cable installed by year-end 1987, to serve one-fourth of its customers on digital switching lines. Through its newly established Ameritech Business Network, the company stepped up marketing of digital products designed to provide integrated information systems.

In August 1987, anticipating another change in regulatory status, Ameritech paid $5 million for the option to gain a 15 percent equity in a Canadian-based electronic messaging company. The purchase was Ameritech's effort to enter information database markets. Long-distance carrier MCI opposed the venture, charging that it violated the MFJ. Successfully securing DOJ approval, however, Ameritech, together with Bell Canada Enterprises and Telenet Communications, announced iNet, the first computer-based information management service to be offered in the United States. The service was available through data terminals, personal computers, and word processors equipped with a telephone line and modem.

In September 1987 Ameritech's Wisconsin Bell proposed two experimental ventures into pay-per-view cable television with Warner Cable Communications of Milwaukee. Using existing networks, Wisconsin Bell also planned to monitor gas, electric, and water meters in homes and offices. By October Ameritech Publishing was producing telephone directories in both western Pennsylvania and New York state. In December 1987 the corporation set up a Midwestern regional committee to review the company's regulated and unregulated subsidiaries and focus its changing areas of involvement.

Deregulation Sparks Corporate Restructuring

On the corporate level, Ameritech also initiated large-scale reorganization. In March 1988 the fully owned subsidiary Ameritech Applied Technologies, Inc. was formed with the goal of integrating and updating RHC computers to one standardized system. Despite its continued diversification, the corporation streamlined operations into ventures closely connected, both geographically and technologically, to its bread-and-butter business, the Bell telephone systems. While this restructuring was a reaction to the gradual loosening of government-enforced regulations, it was also a response to the fact that Ameritech lost more of its 1987 revenue to bypass technology than any other RHC. With the iNet system as a base, the company began modernizing all its exchange networks, developing electronic digital switching and fiber-optic transmission systems. Over 300,000 miles of fiber-optic cable were planned for use in serving customer lines and speeding up long-distance carriers' local access capabilities. Through its FiberHub system, for example, Ameritech routed long-distance calls from AT&T, Sprint, or MCI to their respective customer destinations via an electronic expressway interchange.

In step with these changes, Ameritech unloaded its 17 percent interest in the Canadian cellular service Cantel for $85 million, due to its distance from the company's Midwestern base. Ameritech Mobile, on the upswing, increased cellular service by 68 percent and covered 17 percent more territory. In September 1988 Ameritech Mobile Communications acquired the paging assets of both Multicom, Inc. and A Beeper Company, from sibling Bells. Through these acquisitions, Ameritech strengthened its Midwestern holdings.

Ameritech Development kept pace, buying the Midwest operations of Telephone Announcement Systems, Inc. in September 1988. Through the purchase the company also acquired Telephone Announcement's audiotex network, a voice-response system that gives information to callers via touch-tone telephones. Ameritech planned to extend the service throughout its operating area. With the October acquisition of Tigon Corporation, a Dallas voice-mail company, the company gained 200 corporate clients, a two-year jump on voice messaging technology, and a leadership position in the message servicing industry, which it planned to extend to its Midwest customers.

In the largest single transaction of 1988, Ameritech sold its software subsidiary, Applied Data Research, for $170 million, incurring an after-tax loss of $8.1 million. Two other major changes by year end included the formation of Ameritech Enterprise Holdings, a holding company for both Ameritech Audiotex Services, Inc. and Tigon Corporation. By this time Tigon had reached Japan and the United Kingdom with its voice-mail services. In January 1989 Ameritech Information Systems was formed to install business systems as well as to provide marketing and product and technical design support to large business customers in the Ameritech region.

Now facing its sixth year, Ameritech continued asking the FCC to remove all restrictions on information services. The previous year's gain had been the lift on information transmission--yet Ameritech, bound to transmit information generated by another company, was still unable to transmit its own information. Regardless of the 1987 pay-per-view cable trial in Wisconsin, the linkage of cable to existing networks was still forbidden. In a minor concession Ameritech was granted a waiver allowing the company to offer directory-assisted customer-name-and-address (CNA) service, provided that CNA revenues subsidized local telephone rates. However, as reported in the October 1989 issue of Communications News, Ameritech vice-chairman Ormand Wade said the court-imposed limitations not only inhibited competition, they weakened U.S. potential in the international telecommunications market.

Meanwhile, Ameritech continued research and development in information transmission, testing an electronic digital-loop carrier system designed to allow transmission of large amounts of data. Fiber-optic rings linked customer locations to central offices or long-distance carriers. Ameritech targeted a long-term investment of more than $200 million into Signaling System 7 (SS7), a database intended to support a new software-based intelligence system. In early 1990, with manufacturer Northern Telecom, Ameritech Information Systems worked directly with end users to test telephone audio deficiencies. Their tests resulted in new design standards to improve the transmission quality of telephones. Advancing in fiber optics, Ameritech also initiated the nation's first passive optic network.

One of the biggest breakthroughs in consumer-oriented technology was the introduction of Caller ID. First offered in Illinois in early 1992, the service enabled consumers to identify the caller prior to answering their telephone.

Pursues New Retail Markets in the 1990s

Heading into the 1990s Ameritech continued to aggressively pursue retail markets, an area that analysts expect to maintain steady growth through the year 2000. Ameritech Mobile offered cellular service through appliance centers and retail locations in Chicago, Detroit, Milwaukee, Columbus, and Cincinnati. The subsidiary also increased its Michigan-area paging operations, acquiring T-Com Inc. from Rochester Telephone Company. In February 1989 Ameritech's Tigon subsidiary negotiated a multimillion-dollar deal to supply Texas Instruments with voice-mail capability reaching 140 national and international locations. And in 1991 Ameritech acquired CyberTel, a St. Louis-based provider of paging and cellular services that would extend its range outside of the five-state Ameritech home area.

Ameritech also increased marketing in several new areas. With Sprint and Telesphere, Ameritech's audiotex services agreed to process "900" calls; with Teleline of Los Angeles, it entered negotiations to resell the VoiceQuest system. Ameritech Publishing announced a talking telephone directories service in the Midwest Bell regions, to be accessed through a number listed in Ameritech Pages Plus directories. By 1989 Ameritech was publishing directories in 30 states as well as English-language directories in Japan. The 1995 purchase of National Guardian Corp. (renamed SecurityLink) provided Ameritech entry into the $16 billion U.S. market for security monitoring services. The same year the company also joined forces with several entertainment providers to launch Americast, a cable television venture that offered residents in 33 states an alternative to standard cable fare, augmented with such two-way services as home shopping, banking, travel planning services, and electronic games.

In addition, the corporation continued bidding with other RHCs in an effort to gain new national and international business. In December 1989 Illinois Bell took part in the first installation of ISDN service, linking the Andersen Consulting offices of Chicago and Tokyo. The following year, with Bell Atlantic and two New Zealand companies, it bought Telecom New Zealand from that country's government with the intent to offer a portion of their shares to the public. Another 1990 purchase was Wer Leifert Was? (Who Supplies What?), a publisher of industrial directories in Germany and Austria. Two years later Ameritech formed a partnership with France Télécom and Telekomunikacja S.A. of Poland to operate Centertel, a Polish-based cellular phone system.

As the U.S. entered a period of recession in the early 1990s, it became increasingly evident that costs of providing service would need to be cut in order to remain competitive. A five-year data center consolidation was proposed to reduce costs resulting from duplication of work; its intent was to install company-wide information systems, trimming the number of working data centers from 21 to 4. Meanwhile, as cutbacks occurred, Ameritech faced labor disputes. In August 1989 Ameritech union workers walked out, displeased with current wage-increase structures and health benefits. After several weeks Ameritech and the union reached agreements on the issues. Still working to strengthen its financial position, the corporation eliminated its subsidiary boards in November 1989. Going into the 1990s, Ameritech's greatest challenge remained centralizing its operations. As Ameritech Applied Technologies CEO Glen Arnold stated in Computerworld: "We've got to do for Ameritech what Ameritech can do for other customers."

The year 1993 would prove pivotal for Ameritech as it confronted the task of centralization head on by restructuring around eleven customer-centered business units rather than by state. A new corporate logo was unveiled at that year's shareholder meeting as a symbol of the corporation's transformation from a technology-driven organization to one committed to satisfying the needs of its growing customer base. In March of that year, it filed its "Customers First" plan with the FCC. In it, Ameritech offered to open its five Great Lakes-area Baby Bell networks to competition in exchange for the freedom to compete in the long-distance market. After a three-year wait, President Bill Clinton would authorize such action by signing the Telecommunications Act of 1996. The Act allowed not only local and long-distance service, but also cable television markets open to full competition between rival carriers.

1996 and the Addition of Long-Distance Service

Ameritech was quick to capitalize on the 1996 Act, signing a five-year contract with WorldCom Inc., the fourth largest long-distance carrier in the United States, to provide them with long-distance capacity. By February it had begun offering long-distance service to its 1.9 million cellular subscribers. Meanwhile, regional long-distance supplier MFS Communications Co. was accepted by Ameritech as a competitor in the company's home region, satisfying a necessary condition that local competition be present before the company could expand its consumer offerings to include long-distance services. MFS expected to be equipped to begin local phone service by early 1997. Telecommunications giants AT&T and MCI expressed dissatisfaction with their own stalled approval as competitors for local telephone service, a result of Ameritech's efforts to develop recognition in the long-distance market before other carriers gained momentum in the local sphere. As Illinois Commerce Commission chairman Dan Miller declared in Business Week, "Something like 90 percent of people still think AT&T is their local phone company. That's why this issue of timing is so important." By May AT&T was able to signal a nationwide price war when it announced its September entry into the lucrative local phone service market in Ameritech's five-state area, focusing its strategy on key service areas like Chicago and offering aggressive pricing strategies that included three months of unlimited local-toll calling.

Meanwhile, 1994 saw the retirement of Weiss and the appointment of Richard Notebaert as chief executive officer of the corporation. In addition to Ameritech's entry into domestic long-distance service, Notebaert would plot a course that led the company increasingly towards international telecommunications. The previous year had heralded a partnership that resulted in NetCom GSM and cellular service in Norway; by December of that year Ameritech also gained a stake in Hungary's state-run Matav, the first privatized telephone company to be organized within a former communist bloc country. Notebaert continued this trend: negotiations with China Communications System Company, Inc. (Chinacom) yielded a 1995 agreement to construct both fiber-optic and cellular telephone networks throughout mainland China, and the following year saw a partnership between Ameritech and Belgacom that marked Ameritech's accomplishment of extending its customer base to every continent. By 1994, matching this extensive customer base with improvements in technology, Ameritech's U.S. cellular customers were able to use their cellular phones both domestically and within Europe.

Recognizing the crucial role that communications was expected to play in the coming century, Ameritech re-envisioned its role: from a provider of local wired telephone service throughout the five-state Great Lakes region of the Midwest, it accepted the breakup of a lucrative monopoly in exchange for the chance to flex its technological and corporate muscle by both expanding into global markets and broadening its local services. From wired phones, cellular phones and pagers, security systems, and intercorporate communications networks to more recent ventures into the $26 million cable television market, Ameritech continued to maintain an expanding role in the ever-enlarging communications market, fueled by a vision of the future that resulted in continued financial success.

Principal Subsidiaries: Ameritech Bell Group; Ameritech Services, Inc.; Ameritech Information Systems, Inc.; Illinois Bell; Indiana Bell; Michigan Bell; Ohio Bell; Wisconsin Bell; Ameritech Mobile Communications, Inc.; Ameritech Publishing Inc.; Ameritech Credit Corp.; Tigon Corporation; Ameritech Audiotex Services, Inc.; Ameritech Development Corp.; Ameritech International; SecurityLink; Ameritech New Media, Inc.

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Further Reference

Kuttner, Bob, "Ma Bell's Broken Home," The New Republic, March 17, 1982.Leopold, George, "Will the FCC Free 'The Bell Operating Company Seven?,"' Electronics, January 20, 1986.Mikolas, Mark, "Still Yearning to Be Free at Divestiture + 3 1/2," Telephone Engineer and Management, September 15, 1987.Militzer, Kenneth, and Martin Wolf, "Deregulation in Telecommunications," Business Economics, July 1985.Pauly, David, et. al., "Ma Bell's Big Breakup," Newsweek, January 18, 1982.Therrien, Lois, "Ameritech's Audacious Gamble," Business Week, November 1, 1993.Samuels, Gary, "Timing Is All," Forbes, November 6, 1995.

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