AT&T Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The history of AT&T provides an interesting dialectic of how a firm is created and severely wounded by technology; is aided and hindered by regulation; welcomes and hides from competition; and uses and abuses shareholder and market valuations.

On February 14, 1876, Alexander Graham Bell’s patent on the telephone was filed at the Patent Office in Washington, D.C., and on July 9, 1877, the American Bell Telephone Company was formed. Between 1880 and 1894 AT&T had monopoly protection and telephone growth was a steady 33 percent per year. However, after the patent protection expired, independent telecommunication companies (ITCs) were quick to enter the market. As a result, between 1894 and 1907, prices declined 47.5 percent for business customers and 64.9 percent for residential customers in competitive markets.

In 1905 Theodore Vail, AT&T’s chairman, embarked on a strategy of rapid acquisition of ITCs. As telecommunications grew domestically and became an increasingly important component in everyday life, federal and state governments began to exercise increasing intervention. The legislative response was the Communication Act of 1934 that created the Federal Communications Commission for the regulation of interstate telecommunications.

The advent of World War II spurred significant technological development by Bell Labs in radio telecommunications. The invention in 1947 of the transistor ushered in the modern era of computers. Bell

Labs also did breakthrough research on satellites in 1960, fiber optics in 1977, and cellular technology in 1983; however, the commercialization of each of these innovations was severely limited by a regulatory process that discouraged replacement technologies.

During the 1950s and 1960s, AT&T sparred with government institutions but managed to fend off regulatory interference by providing high-quality and low-priced telephone service to an ever-increasing number of Americans. Beginning in the mid-1970s, competition was introduced into the U.S. long distance telephone market, first with MCI and later with Sprint and resellers. First radio technology and then fiber optics provided a cost-effective technology for competitive entry.

In the early 1980s, the Justice Department and Second Circuit Federal District Court in Washington, D.C., approved the Modification of Final Judgment (MFJ) that required AT&T to divest the 22 regional Bell operating companies (RBOCs) but permitted it to keep Western Electric and Bell Labs. With the new market freedoms, AT&T in 1986 also had a new chairman and corporate unifying “Single Enterprise” strategy. Bob Allen, who took over after Jim Olson’s death in 1988, employed a dramatically different strategy, focused on individual business unit profitability and overall corporate shareholder value.

In 1991, AT&T acquired NCR ($7.3 billion) in a hostile takeover to increase its data networking and international presence and in 1993 acquired McCaw Cellular Communications ($11.5 billion)—renamed AT&T Wireless—to enter the rapidly growing cellular market. On September 20, 1995, Chairman Allen surprised almost everyone when he announced that AT&T shareholders would be better served by AT&T restructuring into three separate publicly traded companies: a systems and equipment company (Lucent Technologies), a computer company (NCR), and a communications services company (AT&T).

To increase competition in the telecommunications industry, Congress enacted the Telecommunications Act of 1996 that allowed RBOCs to offer long distance service and allowed long distance carriers to offer local service.

In 1997 the Board chose its first outside CEO, C. Michael Armstrong, who had experience with Hughes Electronics and IBM. Armstrong envisioned AT&T as a full-service communication provider, enabled by cable television providing access and driven by the “convergence” of video, voice, and high-speed internet data. The internet bubble provided AT&T with the financial resources to make a string of acquisitions: Teleport Communication Group ($11.3 billion), Tele-Communications ($48 billion), and MediaOne Group ($54 billion). The strategy was not without doubters; many questioned the “inflated” price AT&T paid for these companies, others questioned performance of the voice-overcable technology. With long distance revenues dramatically dropping and little incremental revenues accruing from the new acquisitions, the market punished AT&T in October 2000. Similar to Allen, Armstrong announced that he would break AT&T into four separate firms: cable/broadband, cellular/wireless, business, and consumer/residential. Soon after, Comcast bought the cable unit for $52 billion, and Armstrong left AT&T to be its CEO.

In November 2002, when David Dorman assumed leadership of AT&T consumer and business areas, the global telecommunications industry entered an era of chaos and instability—highlighted by oversupply, fraud, a complicated regulatory environment, and nonstop pricing pressures. Once again AT&T tried another strategic transformation, i.e., to evolve from a consumer-oriented voice company to an enterprise-focused company based on global internet protocol networking. In January 2005 the remaining parts of AT&T were sold to SBC Communications for only $16 billion. SBC renamed the combined entity AT&T and hopes to create the industry’s premier communications and networking company—what the original AT&T once was. So ends the proud history of arguably one of the greatest 20th-century companies.

Bibliography:

AT&T, “Milestones in AT&T History,” www.corp.att.com/history (cited March 2009);
Wymbs, “Telecommunications, An Instrument of Radical Change for Both the 20th and 21st Centuries,” Technological Forecasting & Social Change: North-Holland (v.71/7, 2004).

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