TIME: Almanac 1993/TIME Almanac 1993.iso/time/caps/82/82at_t

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                                                                                January 25, 1982 

BUSINESS

Stalking New Markets: AT&T


A slimmer AT&T will compete fiercely in the world of high
technology


No longer do we perceive that our business will be limited to
telephony or, for that matter, telecommunications. Ours is the
business of information handling, the knowledge business. And
the market that we seek is global.

Such was the corporate philosophy set forth by AT&T in its 1980
annual report to stockholders. Suddenly, a year later, the words
have taken on real meaning--not only for the Bell System's 3
million shareholders but for just about everybody the world over.

Two weeks after the far-reaching agreement that settled the U.S.
Government's seven-year-old antitrust suit against the company.
AT&T officials are still trying to absorb all the implications.
After 48 years as the world's largest corporate monopoly, Ma
Bell faces the prospect of being freed from federal regulation
to compete, like any other company, in whatever businesses it
chooses to enter. The consequences for consumers and businesses
alike are certain to be historic. Says Ralph Acampora, an
investment analyst for the New York City brokerage firm of
Kidder Peabody & Co.:  "It is Gulliver's Travels retold for the
1980s. The Lilliputians, like the Government, controlled a big
giant. But one at a time, the strings began to fall away. Now
we are confronted by this company with tremendous strength and
resources that has been dormant for years and has at last broken
free."

Not since the breakup of John D. Rockefeller's Standard Oil
empire in 1911 has there been a more complex and potentially
revolutionary restructuring of a U.S. corporation. The agreement
opens the way for AT&T to divest itself of the lest profitable
and slowest-growing side of its business, local telephone
service, by spinning off its 22 operating subsidiaries. At the
same time, the company will be permitted to hang on to its very
profitable and rapidly growing long-distance operations, which
in 1980 accounted for more than 50% of AT&T's $51 billion in
revenue. Even more important, the company will be able to keep
its $12 billion-a-year Western Electric Co. manufacturing
subsidiary and its highly prized Bell Laboratories, the world's
largest and most sophisticated industrial research facility.

Though the settlement gave the Justice Department much of what
it had sought in its original antitrust suit, the divestiture
will also be of enormous potential benefit to AT&T. Taken
together, the changes will enable a slimmed-down--and toned-
up--company to plunge headlong into the explosively expanding
new world of computer-based information processing, a post-
industrial business universe that embraces everything from
personal computers to space technology, and all points in
between.

Once having divested itself of the local operating companies,
where most of its investment is concentrated, AT&T will be able
to surge ahead with more and more new products and services
without fear of being stopped by Government regulation. Says
former Federal Communications Commission Chairman Richard Wiley,
who presided over the regulation of AT&T's interstate activities
during the mid-1970s:  "The settlement was a brilliant master
stroke on the company's part. AT&T gave away the future
railroads of the telephone industry, kept the moneymakers that
the firm already had, and won the right to go after everything
else on the high-revenue side."

Yet as consumers, politicians and businessmen paused to take a
good look at the AT&T settlement, they found that they had far
more questions about it than there were answers. Among the
first concerns was that the breakup might unleash an explosion
in telephone costs. In Washington, Colorado Democrat Timothy
Wirth, chairman of the House Subcommittee on Telecommunications,
warned of "sharp increases" in the charges for local telephone
service and promised hearings to assess the full impact of the
settlement. Among those planning to testify before Wirth's
committee are AT&T Chairman Charles L. Brown and Assistant
Attorney General William Baxter, the two men who negotiated the
agreement. The Senate Commerce Committee has also announced
plans to hold hearings that will look into the historic
settlement.

Meanwhile, Federal District Court Judge Harold Greene, who has
presided since 1978 over the Justice Department's suit against
AT&T, became concerned that the deal had been reached without
full consideration of all the issues and implications involved.
To give consumer groups, corporate competitors and others an
opportunity to file their opinions in the matter, he ordered a
60-day delay before making a formal decision on the arrangement.

Though AT&T has six months to draft a specific plan of
divestiture and twelve months more to put it into effect, the
company is so complex and sprawling that the entire process
could easily drag on for years. Scores of million-dollar
questions await answers. Among them are such basic issues as
whether AT&T or the divested local operating companies will
wind up owning the more than 142.5 million telephones that
Americans now lease from the Bell System. Most likely,
ownership of the phones will not be passed on to the local
operating companies. Likewise unresolved is the question of
whether telephone users in the future will continue to get one
monthly bill that itemizes both local and long-distance charges
on a single statement or separate bills for both. One bill is
likely.

The most pressing issue for consumers is the future of phone
rates. The breakup of AT&T into separate corporate entities,
one for local calls and one for long-distance ones, will
effectively undermine AT&T's traditional practice of charging
premium prices for long-distance service in order to hold down
the cost of local calls. This internal subsidy system has
worked remarkably well over the years. Though inflation has
pushed up overall consumer prices in the U.S. by nearly 130%
in the past ten years, the cost of local telephone services
has risen by only 51.7%. In fact, the price of a local call
from a phone booth in many parts of the country is still the
same as it has been for years:  10 cents.

Bell officials last week were trying to ease public concerns
about price hikes. Executives passed out memos urging employees
to tell outsiders that there "is nothing in the consent decree
that changes local rates."  But despite those soothing words,
some telephone charges will be going up. Warns Ulric Weil of
Morgan Stanley & Co.:  "Don't be surprised if, in some parts of
the country in the future, it will cost you $100 to have the
telephone repairman come to your home."  Most likely to suffer
are people in rural areas, where telephone equipment is often
aging and the number of subscribers is low. To prevent a
runaway surge in local costs and fees, Congressman Wirth
proposes establishing a national telecommunications fund. The
fund would use surcharges on long-distance calls to help offset
the cost of maintaining local service.

Another basic question that remains up in the air is the
corporate shape of the divested telephone companies.
Theoretically, AT&T could spin these off as 22 separate
companies or even as one new and enormous operating company.
Though 22 operating companies might produce administrative
overlap and waste, simply creating a single megacompany could
perpetuate the firm's current dominance over supplying
telecommunications equipment in the U.S.

One possible compromise might be to create five or ten
regional operating companies, each big enough to benefit from
economies of scale. At the same time, the existence of several
large potential equipment buyers would make it difficult for
any one supplier to corner the entire market.

No matter how those complex issues are finally resolved, the
coming battle in telecommunications will be a multi-billion-
dollar struggle of giants. AT&T is already one of the world's
leading producers of an array of highly sophisticated electronics
equipment and computer-driven data and information-processing
equipment. Yet the outside world rarely learns of its prodigious
high-tech output, since virtually all of it is consumed
internally by subsidiaries and affiliates throughout the Bell
System. Now the company can begin offering its products to
anyone who wants to buy them.

In the field of telecommunications alone, AT&T already has under
development such 21st century-sounding devices as phones that use
miniature display screens to identify the source of a call before
the receiver is answered; phones that can edit out and block pre-
selected callers from reaching a person's number at all; phones
that can even double as personal desk-top computers. Also in the
works is a broad range of video phones for offices and, most
exotic of all, portable and cordless little devices that can
provide instant direct-dial access to telephones around the
world. Beyond telecommunications, divestiture is expected to
take AT&T into such red-hot markets as office automation,
electronic information and bank-at-home services, and even the
main-frame computer business, a field now dominated by IBM.

Shorn of its local operating subsidiaries, AT&T's gross revenues
are expected to drop from a current level of $57 billion to $30
billion. But a 270-page study of the impact of the settlement on
the company by International Resource Development Inc., a
Connecticut-based consulting firm, projects that inflation-
adjusted revenues will double in the coming eight years, with
nearly all of the gain coming from new businesses.

For AT&T's rivals, the shake-up will create both opportunities
and challenges aplenty. Virtually overnight, a giant new
competitor has loomed up to cast its shadow over their markets.
To stay in business, even such multi-billion-dollar corporations
as IBM, ITT, RCA and General Telephone & Electronics will have
to run harder and innovate faster than they ever have before.
Meanwhile, just behind the American companies are Japanese firms
like Nippon Electric that are becoming more important every year
in the rapidly growing field of high-technology communications.

AT&T's competitors, though, are ready to do battle. Earlier
this month IBM completed a major restructuring of its marketing
operation in order to be in a better position to maintain its
computer market dominance. RCA, which already has four
communications satellites above the earth, is likewise undaunted.
Even tiny MCI, the long-distance phone company that has already
launched a serious fight for some of AT&T's long-distance
markets, is confident that it can stand up to the giant. Said
MCI President V. Orville Wright:  "We can beat them from the
standpoint of cost. I see the possibility now that we could get
a third of he long-distance market.

The challenge for AT&T will be to capitalize on its extraordinary
opportunity. Though it is the world's largest corporation, with
more than a million employees and $137 billion in assets,
financial strength alone does not guarantee company success. One
immediate problem for which no amount of corporate bulk can
compensate is the firm's lack of marketing expertise.

Having grown to maturity as a regulated and protected monopoly,
Bell has never really had to sell anything, and some of the
company's attempts at consumer marketing have been
disappointments. For example, while a number of aggressive
young companies were designing and promoting imaginative and
increasingly sophisticated telephone receivers and terminals
that could be connected to Bell System lines, AT&T was stuffing
its 1,500 retail PhoneCenter outlets with uninspired designer
phones in the shapes of Mickey Mouse and Snoopy. Says Rosemarie
Tevelow, who oversees Bankers Trust Co.'s investment portfolio
of 5.2 million shares in AT&T, the second largest block held
anywhere:  "I am only modestly bullish on AT&T's future. It is
hard for me to put a value on a stream of products as yet
uninvented, a marketing operation as yet not in place, and a
distribution system that is still largely nonexistent.
Conceptually, AT&T's potential is tremendous, just so long as
you are aware that if you buy into the company now you are
buying a concept and nothing more."

Another challenge facing AT&T as a result of divestiture will
be to assure continued effective management of both the main
company and the local operating firms that will go off on their
own. Said Morris Tanenbaum, AT&T's executive vice president
for planning:  "In the past we built a network around as much
integration of operations as possible. Now we will have to
divide everything into two pieces. We will have to bring this
about in a graceful way so that it will have no negative effect
on users. That will be a tremendous job."

The route to senior corporate positions in AT&T has traditionally
passed through Bell System subsidiaries and field operations.
Illinois Bell, for example, was long a proving ground for
executives on the way to AT&T corporate headquarters in New York.
In the future, a top job there could mean the end of the line,
not a transfer and a raise. Similarly, AT&T employees in years
to come may find that the route to the chairmanship passes
through Bell Labs or perhaps the company's finance or planning
departments.

Some company employees see the coming changes as the end of a
golden era and the beginning of a period of uncertainty. Said
Delbert Staley, president of New York Telephone:  "I cannot say
that I will be left in an unhappy job. It is just that after
35 years in the Bell System there is a feeling that something
has been lost."  Said Greg Anderson, 30, a telephone repairman
with Pacific Telephone and Telegraph in San Francisco:  "The
workers are troubled by the lack of information. There has just
been none. The whole thing has been pretty shady."  Added
Leonard Moody, 38, a systems repairman in Los Angeles:  "I think
the telephone company is one of the few things in this country
that still works. People complain about it, but the telephone
service is something the country can be proud of. Why try to
fix something that already works?"

The really important question raised by the breakup of AT&T, of
course, is whether it will undermine or enhance the quality of
American telephone service. That is something that no one can
know for sure until the divestiture takes place and telephone
users across the country actually experience the results. Yet
there is good reason to be optimistic.

Though AT&T officials have argued for years that the Justice
Department's assiduous efforts to break up their company would
imperil the smooth and efficient functioning of the entire
system, the claim has never had much validity. Nearly 20% of
the nation's telephone subscribers are served by independently
owned and operated companies that are not part of the Bell
System, yet the quality of their service is virtually identical.
Having now shaken hands with the Government on a divestiture
plan that could bring enormous benefits to AT&T. Ma Bell must
see to it that such quality is fully maintained.

--By Christopher Byron. Reported by David S. Jackson/Washington
and Frederick Ungeheuer/New York


Bluest of the Blue Chips

To millions, the picture of Alexander Graham Bell on each share
of American Telephone & Telegraph Co. stock is as soothing and
comforting as that of George Washington on the dollar bill. The
firm's 812.8 million shares are owned by 3,026,000 people and
institutions, more than the population of Los Angeles or more
than the stockowners of any other U.S. company. General Motors
is not even a close second with almost 1.2 million.

The great majority of AT&T shareholders are small investors.
Only 139,038 people and organizations own more than 600 shares
each, while 938,457 have fewer than 20 each. Impresario Billy
Rose once owned 80,000 shares of Telephone worth $11.2 million
and liked to brag that he was the company's largest single
shareholder. Today the largest block of stock is controlled
by the College Retirement Equities Fund, a pension plan for
teachers, which has 7.2 million shares worth $423 million.

AT&T has for years been considered a stock for "widows and
orphans" because it was virtually risk-free and paid good
dividends for 100 consecutive years, even during the Great
Depression. For the past two decades, those dependable
dividends have been the stock's most attractive feature. Since
1960, they have increased from $1.65 to $5.40 per share, a 9.2%
return based on last week's final close. The price of the stock
has not performed nearly so well. Over the past five years, it
has been relatively stagnant, trading at between $45 and $66 per
share.

Rarely has AT&T attracted the attention of stock market traders
as it did last week, following the company's agreement to split
off its 22 local telephone operations. Trading in the stock was
held up twice because the New York Stock Exchange was flooded
with more orders than it could handle. Among them was one for
an immense block of 1.3 million shares that was eventually
acquired for $78.8 million. By the time the hectic week was
over, 6.2 million shares changed hands. AT&T closed the week at
58 3/4, up 1/8.

Wall Street watchers expect that the new AT&T will no longer be a
stodgy, lackluster stock. Shares in the core of the company,
which will be competing in the glamorous but risky high-
technology industry, are expected to be volatile in price, but
high-flying. Says Seth Glickenhaus, who already holds a large
block of shares through his investment advisory firm of
Glickenhaus & Co.:  "AT&T will be an outstanding technological
company."  But other analysts fear that products from the new Ma
Bell may not turn out to be profitable. As for the 22 local AT&T
companies, or their survivors, they are less likely to be large
profit makers or an attractive investment because states closely
regulate the rates they can charge for phone services.

No one yet knows exactly what AT&T shareholders will own when the
company finally splits up. Wall Streeters speculate that
investors will eventually exchange their AT&T stock for shares in
both the new Ma Bell and in one or more of the local companies.


Bell Labs:  Imagination Inc.

With 22,500 people on its payroll (3,000 of them Ph.D.s), 19,000
patents and an annual budget of $1.6 billion, Bell Laboratories
is a mighty engine of research and development. It is possibly
the finest, and certainly the largest, private operation of its
kind anywhere.

The think tank of the Bell System, Bell Labs is also a gigantic
down-to-earth workshop, where imagination is turned into
practical products and services. To one degree or another, Bell
Labs has been responsible for most of the innovations in voice
communications in this century. That is why AT&T was so anxious
to keep this corporate crown jewel, when the Government forced
the telephone company to spin off some of its operations.

Bell officials say that the wonders coming out of its labs should
increase now that Washington is freeing it to go into other
fields. They claim that massive regulation of the utility has
slowed development of a number of Bell Labs products and kept
others off the market:  Typical is the example of an advanced
mobile telephone. The company came up with the technology for
the product in the 1960s, but the Federal Communications
Commission gave it final clearance to sell the service only
last month. Says Bell Labs Executive Vice President Solomon J.
Buchsbaum:  "The agreement should unleash us."

Even without being unleashed, Bell Labs has built up an
impressive record of technological innovation in the nearly 60
years since it was formed from the engineering department of
Western Electric, with a research budget of $12.6 million.
There are not 18 labs in the Bell Labs organization, most of
them clustered around its headquarters in Murray Hill, N.J.,
with others in Colorado, Georgia, Ohio, Illinois and
Massachusetts.

In 1947, Bell Labs gave the world the transistor, for which
three of its scientists won the 1956 Nobel Prize in physics.
It also developed the laser, high-fidelity phonograph records,
stereo and sound movies. In 1927, Bell Labs demonstrated the
first long-distance, live, television transmission over wires.
One of its early computers helped direct anti-aircraft fire
during World War II and knocked down 76% of Nazi buzz bombs in
areas it defended in England. Bell scientists pioneered work
in semiconductors, integrated circuits and microchips, all
necessary parts of the computer explosion. They have now won
a total of seven Nobel Prizes in physics.

For telephone service, Bell Labs invented a plethora of devices
and systems. Among them:  Direct Distance Dialing (1951), Wide
Area Telephone Service (WATS lines, 1961), Touch-Tone (1964) and
the 911 emergency communications system (1968).

Many developments out of the labs are not so obvious to telephone
users. In 1959, engineers came up with Time Assignment Speech
Interpolation (TASI), a high-speed switching and transmission
technique that seeks out natural pauses and listening time during
telephone calls and fits other conversations into those moments
of silence, greatly increasing the carrying capacity of
communications channels.

In the works now, or completed and on Bell's shelves, are scores
of products and services. In Coral Gables, Fla., and Ridgewood,
N.J., Bell has been experimenting with so-called electronic
yellow pages. Using ordinary telephone lines, this service feeds
news and classified ads into subscribers' television sets. Says
Morris Tanenbaum, AT&T's executive vice president for planning:
"We're very bullish on this."

Peering toward the end of the decade, Bell Labs scientists expect
computers and telephone lines to come together in ways that could
yield billions of dollars in revenue to AT&T. The so-called
Advanced Communications Service will enable any computer to
communicate with any other one, regardless of make. A
pharmacist, for example, could order drugs by computer, first
collecting price figures from a number of widely scattered
suppliers.

A major goal at the Labs is making computers easier for the
average person to use. Says Buchsbaum:  "We want to make it
possible for people to talk to computers on people terms, not
just computer terms."  Bell researchers have already developed
a computer that can understand 1,000 spoken words, and they are
working at increasing it to 2,000, the vocabulary of the average
person.

The outpouring of technology from Bell Labs seemingly knows no
end. Now in the testing phase of development are tiny
superconducting switches, smaller than a speck, that can operate
100 times quicker than today's fastest transistors. Scientists
are also working on a new computer memory chip that can store
100 million bits of information (enough to hold the complete
text of War and Peace) on a wafer an inch square.

The success of Bell Labs is due, in large part, to its very
special atmosphere. Says Arno Penzias, co-winner of the 1978
Nobel Prize for his work in radio astronomy:  "Unless it can
be demonstrated that you're really wasting your time and our
money, people leave you alone. The place demands that you work.
But it also demands that you think."  The research aims at
practical products that AT&T can some day put on the market.
But beyond that broad guideline, scientists can let their
imaginations roam. Take Penzias, whose Nobel was awarded for
an achievement that is not likely to have much effect on the
average telephone user. In the mid-1960s, he and fellow Bell
Scientist Robert Wilson detected faint echoes of the creation,
the Big Bang that is believed to have formed the universe.