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Company Perspectives:
Driven by our belief in the power of networks, the value of customer connections, and the magic of a unified brand, Verizon is becoming one of the world's leading communications companies. With our unparalleled national scale in landline and wireless networks and a significant global presence, Verizon delivers the benefits of communications—voice, high-speed data, Internet access, and wireless—to millions of customers every day.
Verizon Communications was formed in June 2000 with the merger of Bell Atlantic and GTE. Verizon Wireless evolved from the merger of Vodafone Airtouch, Bell Atlantic, and GTE. The company operates in four basic business segments: Domestic Telecom, which consists of their 16 telephone operating subsidiaries and include Internet access; Domestic Wireless; International, including wireless; and Information Services, which provides online and print directories and content.
A Brief History of Bell Atlantic
In January 1982, the U.S. Department of Justice ended a 13-year antitrust suit against the world's largest corporation, the American Telephone and Telegraph Company (AT&T). Pursuant to a consent decree, AT&T maintained its manufacturing and research facilities, as well as its long-distance operations. On January 1, 1984, AT&T divested itself of 22 local operating companies, which were divided among seven regional holding companies (RHCs).
Thus Bell Atlantic was formed from AT&T. The new company served the northern Atlantic states and oversaw seven telephone subsidiaries. AT&T as a competitor proved an immediate and ever-present challenge for Bell Atlantic. In February 1984 the company announced the formation of Bell Atlanticom Systems, a systems and equipment subsidiary to market traditional, cordless, and decorator telephones; wiring components; and home security and healthcare systems. Bell Atlantic Mobile Systems took off early from the starting gate: in March 1984 the company introduced Alex, a cellular telephone service to commence a month later in the Washington, D.C., and Baltimore, Maryland, markets. Bell Atlantic Mobile Systems invested $15.1 million in the fledgling cellular service.
In April 1984 Bell Atlantic went to court over the Federal Communications Commission's (FCC) delay in charging tariffs for customers accessing the local network. Delaying implementation of the access fee not only violated the consent decree, Bell Atlantic charged, but it also caused Bell Atlantic and its sibling RHCs to cover some of AT&T's service costs in the interim. To make matters worse, because Bell Atlantic was the lowest-cost provider of all the RHCs, it was losing the most money. (The FCC system was one of allocation, with access-fee funds collected first, then distributed to RHCs based on the company's cost.) Bell Atlantic planned to succeed in spite of the access fee tangle and subsequently allotted more than half of its construction budget for improvement of the network. Bell Atlantic became the first RHC to employ the use of digital termination systems, a microwave technology for local electronic message distribution. The company experimented with a local area data transport system, and planned to install 50,000 miles of optical fiber within a year.
Carving a Niche: Late 1984
Bell Atlantic made several major acquisitions in its first year of operation, including Telecommunications Specialists, Inc. (TSI), a Houston-based interconnect firm; New Jersey's Tri-Continental Leasing Corporation (Tri-Con), a computer and telecommunications equipment provider; and MAI's Sorbus Inc. division, the second-largest U.S. computer service firm.
With the most aggressive diversification of all the RHCs, Bell Atlantic planned to be a full-service company in the increasingly related merging telecommunications and computer sectors. As a struggle for large customers was inevitable, and because the larger customers could potentially set up their own information systems, the company decided to target medium-sized customers. Bell Atlantic offered this customer base everything from information services equipment and data processing to computer maintenance.
Baby Bell Legal Skirmishes in 1985
Of all the unregulated businesses Bell Atlantic was just entering, competition threatened to be even stiffer in the private branch exchange (PBX) market. By early 1985 IBM and Digital Equipment were offering maintenance for their mainframe users, a large portion of Bell Atlantic's recently acquired Sorbus customer base. One yearandahalf after divestiture, Bell Atlantic, along with its sibling RHCs and other companies, realized that convergence of telephone hardware and computer data processing was a huge business. Over the next several years the RHCs repeatedly petitioned the Department of Justice for business waivers to become more competitive in not only the national but international telecommunications market.
By the end of 1985 Bell Atlantic earnings were $1.1 billion on revenues of $9.1 billion. Rated against its competitors, Bell Atlantic was the only RHC close to turning a profit on its unregulated businesses, worth $600 million in revenues. While profits remained strong in Bell Atlantic's local phone service, its Yellow Pages directory publishing division, due to a disagreement, began to compete with Reuben H. Donnelly Corporation, its previous publisher.
In the meantime, the long-distance market moved uncomfortably close to the RHC's local turf. AT&T and other carriers began competing to carry toll calls in local areas. While this would seem to benefit the residential consumer, it did not; outside competitors cutting into RHC profits merely threatened the very profit margin that helped subsidize the cost of local service. Ending its second year in operation, Bell Atlantic's chairman and CEO, Thomas Bolger, described the restrictions on RHCs as "the most significant problem in the telecommunications industry" in Telephone Engineer & Management's mid-December 1985 issue and he requested the Justice Department come to a decision before the scheduled January 1, 1987 date. If the purpose of the breakup was to promote maximum competition in the industry, the RHCs reasoned that they, the most likely competitors of industry leaders AT&T and IBM, should not be prohibited from fully competing.
Diversification and More Legal Battles: 1986–88
In July 1987 Bell Atlantic announced a restructuring plan, combining operations of basic telephone service and unregulated businesses. The plan also called for all staff of separate Bell Atlantic telephone companies to report to their respective presidents.
The tables turned rather quickly for Bell Atlantic. In January 1988 the company found itself, along with BellSouth, accused of misconduct in bidding attempts to win government contracts. Senator John Glenn of Ohio led the accusations that the two RHCs had been given confidential price information by a General Services Administration chief. Bell Atlantic disputed the charges entirely, claiming that the senator's report was inaccurate.
A New Era in the Late 1980s
Bell Atlantic implemented another reorganization in 1989 by trimming its management staff less 1,700 employees through voluntary retirement and other incentive plans. During this time, Bell Atlantic invested $2.3 billion in network services to upgrade telephone facilities.
To compete in mobile communications, the company marketed an extremely lightweight cellular telephone; at the same time, Bell Atlantic Paging's customer base grew, with a 16 percent increase. In partnership with GTE, Bell Atlantic Yellow Pages increased its customer base through a new subsidiary, the Chesapeake Directory Sales Company. Bell Atlantic Systems Integration was formed in 1989 to research and explore marketing capabilities in voice and data communications, as well as in artificial intelligence.
Perhaps the biggest opportunity for Bell Atlantic came at year-end 1989, when it stepped up activity in the international arena. Economic changes in the Soviet Union and Eastern Europe opened up entirely new possibilities in global telecommunications. Slowly exploring opportunities abroad since divestiture, Bell Atlantic was, by 1989, assisting in the installation of telephone software systems for the Dutch national telephone company, PTT Telecom, B.V., as well as for the national telephone company in Spain. A Bell Atlantic German subsidiary was awarded a contract to install microcomputers and related equipment at U.S. Army locations in Germany, Belgium, and the United Kingdom. With consultants located in Austria, France, Italy, and Switzerland, Bell Atlantic planned a European headquarters, Bell Atlantic Europe, S.A., to be located in Brussels, Belgium.
In the United States, however, Bell Atlantic kept running into challenges. In April 1990, the company's Chesapeake and Potomac Telephone Company was charged with fraud and barred from seeking federal contracts. Bell Atlantic fought back, citing a double standard in that the U.S. Department of Treasury allowed AT&T to win contracts without necessarily having all the required equipment immediately available, while it had barred the Chesapeake and Potomac Telephone Company from doing so. Undaunted by its squabbles with the government, Bell Atlantic had created the world's largest independent computer maintenance organization by 1990, able to service some 500 brands of computers. With the January 1990 purchase of Control Data Corporation's third-party maintenance business, Bell Atlantic sealed its position as the leader in maintenance of both IBM and Digital Equipment Corporation systems.
In the early and mid-1990s Bell Atlantic's international division thrived. In 1990 alone the corporation made several significant ventures, which included teaming up with the Korean Telecommunications Authority in a variety of research, marketing, and information exchanges; joining U.S. West to modernize Czechoslovak telecommunications; and partnering with Ameritech and two New Zealand companies to acquire the Telecom Corporation of New Zealand.
Distinguishing Itself: 1991–96
In 1992 Bell Atlantic acquired Metro Mobile, the second-largest independent cellular radio telecommunications provider in the United States. This particular transaction gave Bell Atlantic the most extensive cellular phone coverage on the East Coast, while a joint venture with NYNEX and GTE to combine their respective cellular networks into one huge national service made news from coast to coast.
The year of 1995 proved pivotal for Bell Atlantic's future. A long-awaited ruling in the federal courts gave the company a sweet victory; a federal judge finally ruled in favor of the Baby Bells to offer long-distance services. Bell Atlantic wasted little time, becoming the first Baby Bell to jump into the long-distance market by recruiting customers in Florida, Illinois, North and South Carolina, and Texas in early 1996.
Another major development in 1996 was the announcement that Bell Atlantic and NYNEX would merge and become the nation's second-largest telephone company. Though the official announcement came as a surprise to few (rumors had been swirling for months), the deal was at once controversial and ironic—once-struggling Baby Bells were beginning to rival their old parent company. Soon after news of the merger was made public, a new operating unit called Bell Atlantic Internet Solutions debuted, giving customers in Washington, D.C., Philadelphia, and New Jersey a wide range of both business and residential Internet-based products and services.
The New Bell Atlantic: 1997–2000
Bell Atlantic's merger with NYNEX was completed in early 1997. The new company's assets serviced 25 percent of the overall U.S. market in 13 states and accounted for about 140 billion minutes of long-distance traffic; the region not only held one-third of the Fortune 500's headquarters, but the U.S. government's nerve center as well. South of the border, Bell Atlantic continued its varied international coups, this time investing another $50 million in its Mexican venture to gain controlling interest in Grupo Iusacell, of which it had previously owned 42 percent.
By early 1998 the new Bell Atlantic had 39.7 million domestic access lines, 5.4 million domestic wireless customers, 6.3 million global wireless customers, and services in 21 countries worldwide. The company was also the world's largest publisher of both print and electronic directories, with over 80 million distributed annually. After a rocky road as Bell Atlantic's local markets were forced open to competitors, the company was taking advantage of new opportunities in the $20 billion long-distance market and the $8 billion video market, and was continuing to expand globally.
A Brief History of GTE
In March 1990, the largest merger in the history of the telecommunications industry united two former U.S. competitors, GTE Corporation and Contel Corporation, under the GTE name. With a market value of $28 billion, the merged company became a telecommunications powerhouse. Designed to take advantage of the two companies' complementary businesses, the merger strengthened GTE's assets in two of its three major areas of operations: telephone service and telecommunications products.
GTE Beginnings
GTE's heritage can be traced to 1918, when three Wisconsin public utility accountants pooled $33,500 to purchase the Richland Center Telephone Company, serving 1,466 telephones in the dairy belt of southern Wisconsin. From the outset, John F. O'Connell, Sigurd L. Odegard, and John A. Pratt worked under the guiding principle that better telephone service could be rendered to small communities if a number of exchanges were operated under one managing body.
The first two decades of operation involved numerous acquisitions and growth. By 1935 the company resurfaced as General Telephone Corporation, operating 12 newly consolidated companies. John Winn, a 26-year veteran of the Bell System, was named president. In 1936 General Telephone created a new subsidiary, General Telephone Directory Company, to publish directories for the parent's entire service area.
In 1940 LaCroix was elected General Telephone's first chairman, and Harold Bozell, a former banker for Associated Telephone Utilities, was named president. Like other businesses, the telephone industry was under government restrictions during World War II, and General Telephone was called upon to increase services at military bases and war-production factories.
Following the war, General Telephone reactivated an acquisitions program that had been dormant for more than a decade and purchased 118,000 telephone lines between 1946 and 1950. In 1950 General Telephone purchased its first telephone equipment manufacturing subsidiary, Leich Electric Company, along with the related Leich Sales Corporation.
In 1959 General Telephone and Sylvania Electric Products merged, and the parent's name was changed to General Telephone & Electronics Corporation (GT&E). The merger gave Sylvania; a leader in such industries as lighting, television and radio, and chemistry and metallurgy; the needed capital to expand. For General Telephone, the merger meant the added benefit of Sylvania's extensive research and development capabilities in the field of electronics. Other acquisitions in the late 1950s included Peninsular Telephone Company in Florida, with 300,000 lines, and Lenkurt Electric Company, Inc., a leading producer of microwave and data transmissions system.
The middle of the century saw more deals and acquisitions for GT&E, as well as some dangerous controversy. In March 1970 GT&E's New York City headquarters was bombed by a radical antiwar group in protest of the company's participation in defense work. In December of that year the GT&E board agreed to move the company's headquarters to Stamford, Connecticut.
After initially proposing to build separate satellite systems, GT&E and its telecommunications rival, American Telephone and Telegraph Company, announced in 1974 joint venture plans for the construction and operation of seven earth-based stations interconnected by two satellites. That same year Sylvania acquired name and distribution rights for Philco television and stereo products. GT&E International expanded its activities during the same period, acquiring television manufacturers in Canada and Israel and a telephone manufacturer in Germany.
In 1976, the company reorganized along five global product lines: communications, lighting, consumer electronics, precision materials, and electrical equipment. GT&E International was phased out during the reorganization, and GTE Products Corporation was formed to encompass both domestic and foreign manufacturing and marketing operations. At the same time, GTE Communications Products was formed to oversee operations of Automatic Electric, Lenkurt, Sylvania, and GTE Information Systems.
Another reorganization followed in 1979. GT&E Products Group was eliminated as an organizational unit and GTE Electrical Products, consisting of lighting, precision materials, and electrical equipment was formed. Vanderslice also revitalized the GT&E Telephone Operating Group in order to develop competitive strategies for anticipated regulatory changes in the telecommunications industry.
GT&E sold its consumer electronics businesses, including the accompanying brand names of Philco and Sylvania in 1980, after watching revenues from television and radio operations decrease precipitously with the success of foreign manufacturers. Following AT&T's 1982 announcement that it would divest 22 telephone operating companies, GT&E made a number of organizational and consolidation moves.
In 1982 the company adopted the name GTE Corporation and formed GTE Mobilnet Incorporated, to handle the company's entrance into the new cellular telephone business. In 1983 GTE sold its electrical equipment, brokerage information services, and cable television equipment businesses.
GTE became the third-largest long-distance telephone company in 1983 through the acquisition of Southern Pacific Communications Company. At the same time, Southern Pacific Satellite Company was acquired, and the two firms were renamed GTE Sprint Communications Corporation and GTE Spacenet Corporation, respectively. Through an agreement with the Department of Justice, GTE conceded to keep Sprint Communications separate from its other telephone companies and limit other GTE telephone subsidiaries in certain markets.
In 1984 GTE formalized its decision to concentrate on three core businesses: telecommunications, lighting, and precision metals. That same year, the company's first satellite was launched, and GTE's cellular telephone service went into operation, and GTE's earnings exceeded $1 billion for the first time.
Beginning in 1986 GTE spun off several operations to form joint ventures. In 1986 GTE Sprint and United Telecommunication's long-distance subsidiary, U.S. Telecom, agreed to merge and form US Sprint Communications Company, with each parent retaining a 50 percent interest in the new firm. That same year, GTE transferred its international transmission, overseas central office switching, and business systems operations to a joint venture with Siemens AG of Germany, which took 80 percent ownership of the new firm. The following year, GTE transferred its business systems operations in the United States to a new joint venture, Fujitsu GTE Business Systems, Inc., formed with Fujitsu Limited, which retained 80 percent ownership. In 1987, the company organized its telephone companies around a single national organization headquartered in the Dallas, Texas area.
In 1988, GTE divested its consumer communications products unit as part of a telecommunications strategy to place increasing emphasis on the services sector. The following year GTE sold the majority of its interest in US Sprint to United Telecommunications and its interest in Fujitsu GTE Business Systems to Fujitsu.
In 1989 GTE and AT&T formed the joint venture company AG Communication Systems Corporation, designed to bring advanced digital technology to GTE's switching systems. GTE retained 51 percent control over the joint venture, with AT&T pledging to take complete control of the new firm in 15 years.
With an increasing emphasis on telecommunications, in 1989 GTE launched a program to become the first cellular provider offering nationwide service, and introduced the nation's first rural service area providing cellular service on the Hawaiian island of Kauai. The following year GTE acquired the Providence Journal Company's cellular properties in five southern states for $710 million and became the second-largest cellular-service provider in the United States.
In 1990 GTE reorganized its activities around three business groups: telecommunications products and services, telephone operations, and electrical products. That same year, GTE and Contel Corporation announced merger plans that would strengthen GTE's telecommunications and telephone sectors. Following action or review by more than 20 governmental bodies, in March 1991 the merger of GTE and Contel was approved.
Contel Corporation
GTE Corporation ranked as the world's third-largest publicly owned telecommunications company in 1996. With over 20 million telephone access lines in 40 states, the communications conglomerate was America's leading provider of local telephone services. The $6.6 billion acquisition of Contel Corporation in 1990 nearly doubled GTE's Mobilnet cellular operations, making it the second-largest provider of cellular telephone services in the United States, with over two million customers. GTE's strategy for the mid- to late-1990s focused on technological enhancement of wireline and wireless systems, expansion of data services, global expansion, and diversification into video services.
In 1990 Contel completed the biggest acquisition in its history, a $1.3 billion purchase of McCaw Cellular Communications, Inc.'s controlling interests in 13 cellular markets, added more than six million potential customers and doubled Contel's cellular potential population market (known in the industry as POPs). While important, that move was eclipsed by the merger with GTE announced later that same year. Through that transition, the two former competitors were expected to integrate telephone and mobile-cellular operations and capitalize on business unit similarities in the field of satellitecommunications as well as in communications systems and services targeting government entities.
Over half of Contel's $6.6 billion purchase price, $3.9 billion, was assumed debt. In 1992, in order to reduce that obligation, the company sold its North American Lighting business to a Siemens affiliate for over $1 billion, shaved off local exchange properties in Idaho, Tennessee, Utah, and West Virginia to generate another $1 billion, divested its interest in Sprint in 1992, and sold its GTE Spacenet satellite operations to General Electric in 1994.
The long-heralded telecommunications bill, expected to go into effect in 1996, promised to encourage competition among local phone providers, long-distance services, and cable television companies. Many leading telecoms prepared for the new competitive realities by aligning themselves with entertainment and information providers. GTE, on the other hand, continued to focus on its core operations, seeking to make them as efficient as possible. In 1992 a sweeping reorganization effort was launched that was characterized by Telephony magazine as "easily one of the nation's largest re-engineering processes."
Among other goals, GTE planned to double revenues and slash costs by $1 billion per year by focusing on five key areas of operation: technological enhancement of wireline and wireless systems, expansion of data services, global expansion, and diversification into video services. GTE hoped to cross-sell its large base of wireline customers on wireless, data and video services by launching Tele-Go, a user-friendly service that combined cordless and cellular phone features. The company bought broadband spectrum cellular licenses in Atlanta, Seattle, Cincinnati and Denver, and formed a joint venture with SBC Communications to enhance its cellular capabilities in Texas. In 1995 the company undertook a 15-state test of videoconferencing services, as well as a video dialtone (VDT) experiment that proposed to offer cable television programming to 900,000 homes by 1997. GTE also formed a video programming and interservices joint venture with Ameritech Corporation, BellSouth Corporation, SBC Communications, and The Walt Disney Company in the fall of 1995. Foreign efforts included affiliations with phone companies in Argentina, Mexico, Germany, Japan, Canada, the Dominican Republic, Venezuela, and China. The early 1990s reorganization included a 37.5 percent workforce reduction, from 177,500 in 1991 to 111,000 by 1994. The fivefold strategy had begun to bear fruit by the mid-1990s. While the communication conglomerate's sales remained rather flat, at about $19.8 billion, from 1992 through 1994, its net income increased by 43.7 percent, from $1.74 billion to a record $2.5 billion during the same period.
By 1996 GTE Corporation ranked as the world's third-largest publicly owned telecommunications company. With over 20 million telephone access lines in 40 states, the communications conglomerate was America's leading provider of local telephone services. The $6.6 billion acquisition of Contel Corporation in 1990 nearly doubled GTE's Mobilnet cellular operations, making it the second-largest provider of cellular telephone services in the United States, with over two million customers.
The Telecommunications Act of 1996
The year 1996 would be as pivotal as 1984 in the telecommunications industry. The Telecommunications Act was designed to meet the needs of communications for the new century. By this time communications had invaded all aspects of life: wireless, television, computer, the Internet, commerce, education, and research. Until then the communications industry had consisted of telephone service. Broadcast, electricity, and computing had their own industries.
The new law eradicated these boundaries. The Telecommunications Act allowed for any company to compete in any industry. Electric companies could provide Internet access if they wanted. Cable bills could be consolidated with phone bills. The heart of the Telecommunications Act was to allow more competition among communications providers. This also meant that different companies could offer different parts of a phone service, and consumers could choose which company they wanted to pay for each part (for "local" versus "long" distance).
The concept was not new; what was new was the advent of advanced equipment and technology that allowed such industries to meld. The Telecommunications Act not only allowed for companies to interconnect—it required it.
Because of the available technology and the freedom to offer more services, phone companies began massive restructuring and acquisitions. Four of seven Regional Bell operating companies disappeared shortly after the Telecommunications Act was passed; in addition to these, Bell Atlantic joined the buying frenzy by purchasing NYNEX, Vodafone AirTouch, and GTE. This new conglomerate formed Verizon Communications and Verizon Wireless in April 2000.
Verizon Communications Forms
Verizon, whose name is a combination of the Latin word veritas and the word "horizon," combined consumer and business services into one massive $58 billion deal. The wireless division got underway first; the Verizon moniker and logos appeared soon after. The re-branding and melding of the two companies was a formidable task; when the merger was first announced in July 1998 Bell Atlantic operated in 13 Mid-Atlantic states and encompassed local telephone service, video, Internet, and wireless divisions. GTE had wireless, Internet, video, local telephone, and long-distance service in 28 (mostly western) states.
By July 2000, the merger had been approved by the FCC and Verizon was on its way to establishing a complete communications business. However, the company faced several problems from the start: an 18-day strike left the company with 280,000 repair requests to handle; plans to sell DSL Internet connection services were delayed; the company was not allowed to offer long distance in 12 of 13 of its home states; and an initial public offering of Verizon Wireless was postponed several times due to lack of investor interest. In addition, profits for the year fell below expectations, and the initial forecast for 2001 was reduced a third.
More trouble came for Verizon at the end of the year when it pulled out of a merger with NorthPoint, a DSL business. The $800 million deal was to commence at the start of 2001 but Verizon discontinued it at the last minute, citing NorthPoint's weakening financial position. Verizon had hoped to expand its out-of-region service and compete with cable companies for Internet service. In December NorthPoint sued Verizon for $1 billion in damages. At the time of this writing the case was scheduled to proceed in a San Francisco court.
Despite these obstacles, the company remained optimistic. The company was especially proud of its 28 million customers, 63 million phone lines, and coverage in 67 of the country's biggest cities. With telecom service regulations lifted, Verizon set out to offer complete packages of services. The wireless side of the company was optimistic as well; Verizon Wireless planned to spend more than $3 billion to upgrade its network. They also struck a deal with Nortel Networks to supply equipment over a two-year period.
Looking Ahead
Verizon's visions for 2001 focused on international expansion. While they already had some links to Toronto, Hong Kong, and Tokyo, the company wanted to expand into major cities in Europe, Asia, and Latin America. They would also offer their Internet services (under the Genuity brand name). New York would be the connecting state while the company waited for approval to add other regions. The company planned a 5-year, $1 billion expansion.
In March 2001, Verizon Wireless joined forces with Lucent Technologies in a $5 billion deal to offer the next generation of high-speed Internet services and wireless technology. With Sprint on their heels, the two companies planned to work on advancements in high-speed mobile Internet services. Verizon Wireless had 27.5 million voice and data customers. The deal would double Verizon's existing voice capacity.
After a little more than a year, Verizon was operating in 40 different countries, had 27.5 million customers, and $65 billion in annual revenue. Further expansion, advanced Internet technologies, and broader service was on the agenda for the immediate future.
Principal Operating Units:Verizon Wireless; Verizon Avenue; Verizon Directories.
Principal Competitors:AT&T; Sprint FON; WorldCom.