TIME: Almanac 1993/TIME Almanac 1993.iso/time/caps/84/84att30

Text File | 1992-09-25 | 9.8 KB | 189 lines

                                                                                January 16, 1984

ECONOMY & BUSINESS

Breaking Up Is Hard to Do


Ma Bell is gone and big problems face the eight baby companies
she spawned


At the stroke of midnight, at his vacation home in Florida,
American Telephone & Telegraph Chairman Charles Brown and his
wife Ann Lee raised glasses. Said Brown:  "To the men and women
of the Bell System."  A thousand miles away, at a party near New
York City, a longtime Bell manager lamented, "The world's best
phone system is being broken up. What's there to be cheerful
about?"

While much of the U.S. was offering champagne toasts or blowing
noisemakers to welcome the new year, the world's biggest
company, the Bell System, died quietly. It broke up into eight
giant pieces -- a new and smaller AT&T plus seven regional
holding companies -- in line with an out-of-court settlement of
an antitrust suit reached on Jan. 8, 1982, between the Justice
Department and Bell.

Seldom has anything so big ended so unceremoniously or
uneventfully. Ma Bell simply walked offstage after 107 years,
to no applause and no disruption in service. Millions of
Americans picked up their telephones on New Year's Day and still
got dial tones, as if nothing had happened. Some 800 million
calls a day went through as before. Nearly a million employees
reported to work on Tuesday to more or less the same places they
had gone the previous Friday.

Once they got to work, though, plenty was going on, including
celebratory breakfasts, pizza parties and balloon poppings. In
san Francisco, a giant banner showing the company's globelike
logo was unfurled at AT&T's regional headquarters. At its
Manhattan offices, the new, slimmed-down AT&T got quickly down
to work and showed that things would be changing in American
business. On Monday, the company signed an agreement under
which Convergent Technologies, a computer manufacturer, will
build new products for AT&T. Before the breakup, such a move
would have been barred by the Government.

Institutional investors like pension-fund managers showed
interest again in the eight new companies. Those stocks had not
changed in value much since trading started in November, but
they rose smartly last week. The biggest gainer was US West,
which climbed more than 7 points to 63 7/8. The other operating
companies also showed handsome increases.

Although more than 10,000 telephone people spent the past two
years working out details of the divestiture, Americans last
week still had millions of questions about their new phone
company -- or companies. Unfortunately, at every level of what
used to be the Bell System and in the regulatory commissions of
all 50 states, there were many more questions than answers.
Confesses William McKeever, telecommunications analyst at Dean
Witter Reynolds:  "Everybody is confused. The customers are
thoroughly confused. The employees are confused. The companies
are confused. So are the regulatory commissions, the unions and
the stockholders. And so am I."

Uncertainty prevails, too, over long-distance charges. Last
week AT&T announced it would cut those tolls by more than 10.5%.
But the company linked the reduction to congressional
acceptance of a special charge for access to long-distance lines
that the Federal Communications Commission has mandated.

Nothing much is likely to be resolved in the next few weeks or
even months. In the Northeast, customers will be getting bills
this week that will average nine pages and include statements
for local service, various kinds of long-distance tolls, and
equipment charges. Countless users have convinced themselves
that they have to do something with their phones now that
divestiture has taken place. Not true, as AT&T is pointing out
in an expensive TV advertising campaign featuring Andy Griffith.
Customers can continue to rent their phones as they did before
the split-up, they can buy the Bell phones they have been using
or they can turn them in and buy new ones, either from AT&T
Information Systems or from any of several new suppliers.

Not many consumers seemed to realize that. In Chicago, a few
days before divestiture, long lines formed at the Illinois Bell
Telephone service center in the Loop as customers rushed to turn
in telephones and exchange them for others before Illinois Bell
went out of the telephone-supply business. "What a mess!"
declared Margaret Jackson, one of five harried clerks wearing
a T-shirt imprinted with BREAKING UP IS HARD TO DO. She tossed
a pink Princess phone onto a growing, brightly colored pile of
discarded equipment behind the service desk. Said she of the
long line of short-tempered customers glowering at her:  "I
really feel for them. So many of them don't know what is going
on."  The scene was the same in Atlanta, where Service
Representative Muffin Morrison said, "People are panicking."

Inside the operating companies, bizarre developments were
taking place. Phone-company officials in some old Bell System
facilities set up barriers to separate operating-company
employees from those working for the new AT&T. In West Chicago,
AT&T must now share a third of its space in a sprawling plant
with Ameritech, the regional holding company for five Midwestern
states. A partition is being installed between double doors at
the building's main entrance, and the plan is to have employees
enter on either the Ameritech or the AT&T side. Inside, about
450 people have been separated by walls, including one in the
cafeteria. No one is forbidden to cross over to fraternize, but
the implicit message is "Keep to your own turf." Said James
Quinlan, Ameritech's plant manager:  "If the lawyers had their
way, this place would be divided up with six-foot concrete-
block walls and rolls of barbed wire on the top."  New Jersey
Bell is more direct:  it has canceled its annual softball game
with AT&T.

The segregation was in line with both the letter and the spirit
of the divestiture terms agreed to by AT&T and the Government.
U.S. Judge Harold H. Greene during the past two years has
overseen all details of the split-up, issuing numerous rulings
affecting everything from Yellow Pages advertising to who could
use the Bell logo and name.

Of course, rough edges are expected in any corporate
realignment involving $155 billion in assets. Most of the minor
troubles will be worked out in time, but some of the problems
run deeper. Executives in the regional holding companies, as
well as those in the local operating companies, are wrestling
with the crucial and politically delicate issue of deciding how
much to charge the public for what kinds of service. Said Paul
F. Levy, chairman of the Massachusetts department of public
utilities:  "January 1 was the operation. After that we go into
intensive care."

It is a subtly sophisticated job made all the more so by the
fact that rates will begin reflecting the true costs of
telephone service for the first time in half a century. Until
now, long-distance rates were artificially high and helped
subsidize local service. Documenting the need for rate increases
is a laborious, painstaking procedure requiring the talents of
scores of people. But officials at the New York public service
commission complain that it has been extraordinarily difficult
to communicate with rate people at New York Telephone and that
this has hampered the company's proposed $775 million rate
increase. The commission may challenge almost all of the rate
request, in part because of questions about claimed divestiture
costs. William Burns, vice chairman of the regional holding
company NYNEX, admits to some disorder in New York Telephone's
regulatory staff, but claims that it is the commission and not
the company that is confused.

If rates are not set speedily, or if they turn out to be fixed
too high, large corporate phone users will be encouraged to set
up their own communications systems, bypassing local phone
companies and depriving them of revenues. That poses a severe
threat to the typical user's phone bill. If too much revenue
is lost because of defecting Big Business customers, the
operating companies will be forced to raise bills to consumers.
Says Levy, "Our job is to make sure that the rates we have in
effect are economic, so as to minimize uneconomic bypass."

Industry analysts fear that if the operating companies cannot
move deftly in some of the newer regulatory areas, they will
have even more trouble when they try to adjust to direct
competition, a relatively new experience. Admits Richard
Santagati, who heads NYNEX's business-information-systems sales
staff:  "There's a steep learning curve to overcome."

The telephone companies are trying to solve their problems in
part by elevating good managers and encouraging poor ones to
leave. They are also quietly pressuring some executives into
early retirement. But only a small number of managers have so
far opted for it. Of the 110,000 people who would become part
of AT&T Information Systems alone because of divestiture, only
4% have accepted retirement deals. Tradition-bound Bell will
have to move fast to keep up with the increasingly competitive
telecommunications industry. Says Analyst McKeever:  "AT&T has
to realize that they are in the real world."

In the long run, AT&T, the regional phone companies and the
American public will probably adjust to the new world of phone
service more easily than they thought last week. H. Trevor
Jones, president of Pac Tel Communications Systems, which is
part of the new Pacific Telesis company, which covers California
and Nevada, sees a parallel with the 1940s, when utilities
stopped supplying light bulbs and people had to buy their own.
Said Jones:  "Customers will adapt. They historically have."

--By John S. DeMott.  Reported by Thomas McCarroll/New York and
Conan Putnam/Chicago