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Bell Atlantic Corporation

Bell Atlantic Corporation

1095 Avenue of the Americas
New York, New York 10036
U.S.A.
(212) 395-2121
Fax: (212) 466-2416
Web site: http://www.bellatlantic.com

Public Company
Incorporated:
1983
Employees: 141,600
Operating Revenues: $30.2 billion
Stock Exchanges: New York
Ticker Symbol: BEL
SICs: 3651 Household Audio & Video Equipment; 3661 Telephone & Telegraph Apparatus; 3663 Radio & TV Communications Equipment; 4812 Radiotelephone Communications; 4813 Telephone Communications, Except Radiotelephones; 6719 Holding Companies; 7372 Prepackaged Software

Bell Atlantic Corporation is growing ever-more prominent in U.S. and international telecommunications with assets of almost $54 billion. The companys 1997 merger with NYNEX made it the second largest telephone company in the United States with nearly 40 million telephone access lines, 5.4 million wireless customers, and 4.4 million miles of fiber optic cabling. Additionally, Bell Atlantic is the worlds largest publisher of Yellow Pages directories, with over 80 million copies distributed annually, while its global telecommunications services include investments and state-of-the-art ventures in 21 countries.

The Breakup of AT&T: 198284

In January 1982 the U.S. Department of Justice ended a 13-year antitrust suit against the worlds 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 free of AT&T; the company served the northern Atlantic states and oversaw seven telephone subsidiaries. AT&T as a tough competitor rather than a parent company proved an immediate and ever-present challenge for Bell Atlantic. On January 2, 1984, Federal Justice Harold Greene ordered Bell Atlantic to transfer a $30 million contract with the federal government to AT&T, ruling that AT&T was granted the contract pre-divestiture. Bell Atlantic claimed that many terms of the contractwhich included the sale of 200,000 telephones, a year-long maintenance contract worth $6 million involving approximately 275 employeeswere made directly with Bell Atlantic, not AT&T. Bell Atlantic argued, also unsuccessfully, that the transfer of employees would give AT&T knowledge of Bell Atlantics advanced voice and data communications Centrex system, so that AT&T could conceivably design and market a system to underprice Bell Atlantic.

Nevertheless, Bell Atlantic bounced back from its court loss, acquiring a 40 percent interest in A Beeper Company Associates in January 1984. The following month 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.

During this time, skirmishes continued between the RHCs, AT&T, and Justice Harold Greene. Greene asserted that the RHCs were more concerned with entering new business markets than in improving the local networks. In an effort to restrain RHCs from using regulated business profits to finance non-telephone ventures, the consent decree ruled that new endeavors may comprise no more than ten percent of the RHCs yearly revenues and that there be a strict financial separation between regulated telephone business and new ventures. Justice Greene set a March 23, 1984 deadline for all RHCs to submit specific requests for waivers or further explanation of the original consent decree.

In April 1984 Bell Atlantic went to court over the Federal Communications Commissions (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&Ts 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 companys 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. The purchase of Telecommunications Specialists, Inc. (TSI), a Houston-based interconnect firm with offices in Dallas, San Antonio, and Austin, was completed in October 1984, and Bell Atlantic planned to let TSI retain its marketing and sales staff and continue operations. TSI, a marketer of private branch exchange (PBX) and key systems, also offered financing for equipment-leasing customers.

In December 1984 Bell Atlantic bought New Jerseys Tri-Continental Leasing Corporation (Tri-Con), a computer and telecommunications equipment provider. As Tri-Con supplied TSI with financing, Bell Atlantic seemed to be vertically integrating its acquisitions. Another big Tri-Con customer was Basic Four Information Systems, owned by Management Assistance Inc. (MAI). Early in 1985 Bell Atlantic completed the purchase of MAIs Sorbus Inc. division, the second-largest U.S. computer service firm, with 187 locations and 2,200 employees, for $180 million. Bell Atlantic also bought a related company, MAI Canada Ltd. With the Sorbus acquisition Bell Atlantic hoped to strengthen its position with the federal government; as the companys largest customer, the federal government provided three percent of total company revenues in the first year of operation.

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.

Because the original consent decree was drawn to strictly regulate RHC activity and allow long-distance carriers equal access to local networks, fledglings such as Bell Atlantic faced competition on all levels. On the national level, the FCC approved a $2 end-user fee for all subscribers to basic telephone service, another tactic to give the RHCs a cushion in large-business markets. The institution of this fee coincided with the availability of rapidly evolving technology; thus the fee merely encouraged larger customers to create their own information networks, a process termed bypass. To help keep Bell Atlantic competitive in the large-customer marketsthose most vulnerable to bypassseveral states in its region granted the company considerable flexibility in pricing.

Baby Bell Legal Skirmishes in 1985

Of all the unregulated businesses Bell Atlantic was just entering, competition threatened to be even suffer 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 Atlantics recently acquired Sorbus customer base. Larger than many competing companies nonetheless, Bell Atlantic took advantage of the buyers market that the tough competition created; in June 1985 it acquired Com-puShop Inc., a retail computer company with $75 million in sales annually, for $21 million. With the acquisition, Bell Atlantic joined siblings NYNEX (the New England and New York RHC), and Pacific Telesis (the West Coast RHC), as surprise competitors in a market that, in spite of a recent surge in sales, was in decline. The retail computer slump was marked by smaller companies rapid entry into, and exit from, a market with high overhead costs. The entrance of big names such as Bell Atlantic, retail computer experts argued, could provide just the shot in the arm the market needed to take off.

A year-and-a-half 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. Back in July 1984 Bell Atlantic had requested the government waive a body of rules prohibiting the RHCs from supplying their own telephone hardware. Unable to provide equipment for its own Centrex system, Bell Atlantic stood to lose a huge federal government contract to competitorsnearly 370,000 Centrex lines coming up for bid. Having already lost 48,000 Centrex lines due to restrictions of the past year, Bell Atlantic officials thought it was time to confront the issue.

Company Perspectives:

Bell Atlantic has the size, the capability, and the strength for market leadership. Now, as one of the nation s largest communications companies, one of the largest wireless providers in the world, and the worlds largest directory publisher, we are committed to grow top-line revenues faster enter new markets quicker create higher capital returns and build value for shareholders.

Since divestiture, the FCC allowed AT&T to resell basic services, and it considering letting the company provide customer premises equipment as well. IBM, strengthened by its recently acquired Rolm Corporation and Satellite Business Systems, was not restricted in its marketing efforts, but Bell Atlantic was. 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 Atlantics local phone service, its Yellow Pages directory publishing division, due to a disagreement, would be competing with Reuben H. Donnelly Corporation, its previous publisher.

In the meantime, the long-distance market moved uncomfortably close to the RHCs 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 Atlantics chairman and CEO, Thomas Bolger, described the restrictions on RHCs as the most significant problem in the telecommunications industry in Telephone Engineer & Managements mid-December 1985 issue and 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, shouldnt be prohibited from fully competing.

Diversification & More Legal Battles: 198688

Continuing to expand its unregulated businesses in spite of, or perhaps because of, line-of-business restrictions as outlined in the consent decree, in September 1986 Bell Atlantic acquired the real estate assets of Pitcairn Properties, Inc. In October the company followed with the $140-million purchase of Greyhound Capital Corporation, since renamed Bell Atlantic Systems Leasing International, Inc. Bell Atlantic then had a firm position in the financial and real estate markets. One month later, Bell Atlantic became the first RHC to propose a new cost allocation plan under recently outlined requirements to the FCC. The corporation also opted, if allowed, to begin planning its comparably efficient interconnection (CEI) system. By March 1987 Bell Atlantic filed its CEI plan asking for the provision of message storage, hoping to get a jump on offering enhanced services. Due to several regulatory restrictions, development of the service was halted. Continuing to acquire attractive companies, Bell Atlantic acquired Pacific Computer Corp., in June 1987 and Jolynne Service Corp. several months later.

In July 1987 Bell Atlantic announced a restructuring plan, combining operations of basic telephone service and unregulated businesses under one newly-created position, chief operating officer (COO). The plan also called for all staff of separate Bell Atlantic telephone companies to report to their respective presidents. Raymond Smith, a Bell employee since 1959, was named COO, reporting directly to Bolger. In September of that year, Judge Greene ruled to uphold the manufacturing and longdistance restrictions on RHCs, while allowing only limited information services. The RHCs all objected, but none as strongly as Bell Atlantic. The corporation alleged that the judge alluded to information discussed during the original consent decree settlement, which claimed that the Bell operating companies, pre-divestiture, had been accused of engaging in anticompetitive practicesremarks not relevant to the case at hand.

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 senators report was inaccurate. Despite the legal battles, business transpired as usual with Bell Atlantic selling MAI Canada Ltd., and some of the assets of Sorbus Inc., for $146 million. Following that divestiture, the company purchased the European computer maintenance operations of Bell Canada Enterprises, Inc. Next Bell Atlantics Sorbus subsidiary acquired Computer Maintenance Co., Inc., and in 1988, following Judge Greenes approval of its CEI plans, Bell Atlantic announced the introduction of four new information services: an electronic message storage system (allowing subscribers to record messages for consumers to play back); a telephone answering service; a voice mail service; and a videotex gateway service, through which data bases and customers communicated. All services involved monthly surcharges for customers, as well as an hourly fee for videotex and a one-time users fee for message storage.

Juggling its assets a bit more, Bell Atlantic completed the sale of its retail computer CompuShop in June and acquired the assets of CPX Inc., a company specializing in Control Data Corporation equipment in July. Bell Atlantic also acquired the assets of Dyn Service Network.

A New Era in the Late 1980s

Bolger announced his retirement as CEO, effective in January 1989, and COO Smith became the new chief executive officer. Bolger, formerly a vice-president of AT&T in business services and marketing, had led Bell Atlantic through divestiture into a leading position in telecommunications, real estate and leasing finance, and computer maintenance. A strong critic of consent decree restrictions on RHCs, Smith and Bell Atlantic were also active in helping establish international standards for telecommunications. On the national level, however, Judge Greene kept his eye on RHC activities. A Bell Atlantic proposal to conduct a trial involving interstate phone traffic was rejected because it was not deemed a necessity, but rather an advanced, competitive service. Bell Atlantic wanted to cut costs by using a central processor for state-to-state traffic rather than having separate facilities perform the same tasks, and thus held that the judges decision was against the public interest.

Bell Atlantic implemented another reorganization in 1989, trimming its management staff by 1,700 through voluntary retirement and other incentive plans. Significant parts of the restructuring included closing the Washington, D.C., Chesapeake, and Potomac Telephone Company headquarters and merging employees into other locations; refinancing various debts; reassessing computer holdings; and outlining a plan to cover future retirees.

During this time, Bell Atlantic invested $2.3 billion in network services to upgrade telephone facilities. Signaling System 7 (SS7), a high-speed information exchange system, was operating on more than 60 percent of Bell Atlantics telephone lines. To compete in mobile communications, the company marketed an extremely lightweight cellular telephone; at the same time, Bell Atlantic Pagings 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.

Bell Atlantic kept running into challenges stateside, however. In April 1990 the companys 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 worlds largest independent computer maintenance organization by 1990, able to service some 500 brands of computers. With the January 1990 purchase of Control Data Corporations third-party maintenance business, Bell Atlantic sealed its position as the leader in maintenance of both IBM and Digital Equipment Corporation systems.

Other Bell Atlantic acquisitions of 1990 included Northern Telecoms regional PBX operations and Simborg Systems Corporation. Through the latter purchase, renamed Bell Atlantic Healthcare Systems, the company provided software for hospital computer networks. Aggressive as ever, in June 1990 Bell Atlantic, along with sibling U S West became the first two Baby Bells to upgrade systems with synchronous optical fiber through the use of Sonet-based equipment. In addition, Bell Atlantic poured over $2 billion into a host of upgrades, including SS7 and ISDN capabilities. In sum, Bell Atlantic offered more choices by year-end 1990 than any information transmission competitor, and its revenues had reached $12.3 billion with earnings of $1.3 billion.

In the early and mid-1990s Bell Atlantics 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. For its $105 million investment in the Czech deal, Bell Atlantic gained 24.5 percent of both the cellular and public data network; in the New Zealand venture, where the network was already digitally-advanced and in a relaxed regulatory environment, the RHCs initial investment of $1.2 billion was considered a boon to all involved. Additionally, Bell Atlantic and NOR VANS, a Norwegian telecommunications company, jointly applied for a license to develop and operate an independent cellular network in Norway and next came an agreement with the Republic of China to consult in marketing, research, and information exchanges.

Distinguishing Itself: 199196

Continuing international expansion, Bell Atlantic joined Belle Meade International Telephone, Inc. in early 1991 to set up a communication system in the Soviet Union; other big news was Telecom Corp. in New Zealands successful initial public offering on the New York Stock Exchange in July, and its subsequent announcement to have ISDN capabilities for 90 percent of its customers within three years. Stateside, Bell Atlantic was also on the lookout for complementary businesses and merged its own Bell Atlantic Knowledge Systems, Inc. with Technology Concepts Inc. to form Bell Atlantic Software Systems Inc. Metro Mobile, the second largest independent cellular radio telecommunications provider in the United States, was acquired in 1992. 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.

In 1993 Bell Atlantic bought 23 percent of Mexicos second largest telecommunications company, Grupo lusacell, and set to work on a number of projects. On the legal front, Bell Atlantic finally won one, when the U.S. Court of Appeals upheld its right to provide video programming and other services over its established telephone lines. The ruling was a significant win in the cable programming business, as Bell Atlantic was now free to develop video-on-demand, home shopping, and educational programs over telephone wires. The next year, Bell Atlantic and NYNEX moved forward in this area by investing $100 million in CAI Wireless Systems to help in their quest for video programming innovations. Yet before this deal went through, Bell Atlantic made headlines on the legal front again, joining with three other Baby Bells to break the consent decree that had kept them from competing in the long-distance services market.

1995 proved pivotal for Bell Atlantics 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. Bell Atlantic had also been busy overseas as well. The company and Italian conglomerate Ing. C. Olivetti & Co. formed a joint venture in preparation for the breakup of Italys telecommunications monopoly three years hence. Telecom Italia SpA, the state-owned company, was due for regulation in 1998, and Bell Atlantic, as well as several other joint ventures, including one from France Telecom, Duetsche Telekom AG, and Sprint Corp., were ready to offer Italians a myriad of choices. Another global venture, lusatel S.A., Bell Atlantics partnership in Mexico with Grupo lusacell S.A., was given the green light to provide both national and international long-distance services to at least three dozen Mexican cities by the year 2000.

Another major development in 1996 was the announcement that Bell Atlantic and NYNEX would merge and become the nations 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 ironiconce-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 and Beyond

Bell Atlantics merger with NYNEX was completed in early 1997. The new companys 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 500s headquarters, but the U.S. governments 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 lusacell, 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 worlds largest publisher of both print and electronic directories, with over 80 million distributed annually. After a rocky road as Bell Atlantics 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.

Principal Divisions

Bell Atlantic-Delaware, Inc.; Bell Atlantic-Maryland, Inc.; Bell Atlantic-New Jersey, Inc.; Bell Atlantic-Pennsylvania, Inc.; Bell Atlantic-Virginia, Inc.; Bell Atlantic-Washington, D.C., Inc.; Bell Atlantic-West Virginia, Inc.; Bell Atlantic-Massachusetts, Inc.; Bell Atlantic-Vermont, Inc.; Bell Atlantic-Rhode Island, Inc.; Bell Atlantic-New Hampshire, Inc.; Bell Atlantic-Maine, Inc.; Bell Atlantic-New York, Inc.; Bell Atlantic Network Services; Bell Atlantic Data Solutions Group; Bell Atlantic Information Services Group; Bell Atlantic Internet Solutions; Bell Atlantic Mobile.

Further Reading

Barrett, Paul M., Legal Beat: Justices Questions Congress Ban on Phone Concerns Offering Cable, Wall Street Journal, December?, 1995, p. B10.

Cauley, Leslie, Bell Atlantic and NYNEX Discuss Merger to Form Second-Biggest Phone Firm, Wall Street Journal, December 18, 1995, p. A3.

, Bell Atlantic and NYNEX Merger Talks Highlight Roles of Smith and Seidenberg, Wall Street Journal, December 19, 1995, p. A3.

, Technology & Telecommunications: Baby Bells Square Off Against AT&T on Calling Cards, U S West Agreement, Wall Street Journal, October 27, 1995, p. B3.

The Foreign Invasion: New Zealand Discovered the Benefits of Letting Global Companies Be a Part of Reform, Wall Street Journal, October 2, 1995, p. R16.

Gold, Howard, Tom Bolgers One-Stop-Shop, Forbes, March 25, 1985.

Lannon, Larry, Bell Atlantics Bolger Demands His Freedom, Telephony, July 14, 1986.

Lavin, Douglas, European Phone Giants Challenge Italy, Wall Street Journal, November 16, 1995, p. A14.

Mason, Charles, RHC Barred Federal Contracts, Telephony, April 16, 1990.

Naik, Gautam, Technology & Telecommunications: Bells Venture Likely to Place Cellular Order, Wall Street Journal, November 10, 1995, p. B2.

Tell, Lawrence J., Footloose and Fancy Free, Barrons, November 12, 1984.

Frances E. Norton
updated by Taryn Benbow-Pfalzgraf

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Bell Atlantic Corporation

Bell Atlantic Corporation

1600 Market Street
Philadelphia, Pennsylvania 19103
U.S.A.
(215) 963-6000
Fax: (215) 466-2416

Public Company
Incorporated: 1983
Employees: 81,6000
Sales: $11.53 billion
Stock Exchanges: New York Boston Midwest Pacific Philadelphia London Geneva Zürich Frankfurt Tokyo Basel

Bell Atlantic Corporation is prominent in U.S. and international telecommunications. The companys network services division is made up of seven telephone subsidiaries, which provide telephone service, billing services for various interexchange carriers, and printed directory advertising, and Bell Atlanticom, which sells, installs, and maintains communications systems and equipment for large business customers. Other Bell Atlantic divisions include wireless communications, which markets cellular and paging equipment; business systems, which provides integrated computer hardware, software, and support systems; diversified financial services, engaged in lease financing of commercial, industrial, medical, and high-technology equipment; and Bell Atlantic International, a consultant in systems integration services and software development.

In January 1982 the U.S. Department of Justice (DOJ) ended a 13-year antitrust suit against the worlds 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 longdistance operations. On January 1, 1984, AT&T divested itself of 22 local operating companies, which were divided among seven regional holding companies (RHCs). Bell Atlantic serves the northern Atlantic states, and owns seven telephone subsidiaries: New Jersey Bell Telephone Company, The Bell Telephone Company of Pennsylvania, The Diamond State Telephone Company, The Chesapeake and Potomac Telephone Company, The Chesapeake and Potomac Telephone Company of Maryland, The Chesapeake and Potomac Telephone Company of West Virginia, and the Chesapeake and Potomac Telephone Company of Virginia.

Tackling AT&T as a tough competitor rather than a parent company was an immediate and ever-present challenge for Bell Atlantic. On January 2, 1984, federal Justice Harold Greene ordered Bell Atlantic to transfer a $30 million contract with the federal government to AT&T, ruling that AT&T was granted the contract pre-divestiture. Bell Atlantic claimed that many terms of the contractwhich included the sale of 200,000 telephones, a year-long maintenance contract worth $6 million, and involved approximately 275 employeeswere made directly with Bell Atlantic, not AT&T. Bell Atlantic argued, also unsuccessfully, that the transfer of employees would give AT&T knowledge of Bell Atlantics advanced voice and data communications Centrex system, so that AT&T could conceivably design and market a system to underprice Bell Atlantic.

Bell Atlantic bounced back from its court loss, acquiring a 40% interest in A Beeper Company Associates in January 1984. The following month 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 announced Alex, a cellular telephone service to commence April 2 in the Washington, D.C., and Baltimore, Maryland, markets. Bell Atlantic Mobile Systems invested $15.1 million in the fledgling cellular service.

Skirmishes continued between the RHCs, AT&T, and Justice Harold Greene. Greene asserted that the RHCs were more concerned with entering new business markets than in improving the local networks. In an effort to restrain RHCs from using regulated business profits to finance nontelephone ventures, the consent decree ruled that new endeavors may comprise no more than 10% of the RHCs yearly revenues and that there be a strict financial separation between regulated telephone business and new ventures. Justice Greene set a March 23, 1984, deadline for all RHCs to submit specific requests for waivers or further explanation of the original consent decree.

In April Bell Atlantic went to court over the Federal Communications Commissions (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, it caused Bell Atlantic and its sibling RHCs to cover some of AT&Ts 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 companys cost.)

Bell Atlantic planned to succeed in spite of the access fee tangle. The corporation allotted more than half of its construction budget for improvment 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.

Bell Atlantic made several major acquisitions in its first year of operation. The purchase of Telecommunications Specialists, Inc. (TSI), a Houston, Texas, interconnect firm with offices in Dallas, San Antonio, and Austin, was completed in October 1984. Bell Atlantic planned to let TSI retain its marketing and sales staff and continue operations. TSI, a marketer of private branch exchange (PBX) and key systems, also offered financing for equipment-leasing customers.

In December 1984 Bell Atlantic bought New Jerseys Tri-Continental Leasing Corporation (Tri-Con), a computer and telecommunications equipment provider. As Tri-Con supplied TSI with financing, Bell Atlantic seemed to be vertically integrating its acquisitions. Another big Tri-Con customer was Basic Four Information Systems, owned by Management Assistance Inc. (MAI). Early in 1985 Bell Atlantic completed the purchase of MAIs Sorbus Inc. division, the second-largest U.S. computer service firm, with 187 locations and 2,200 employees, for $180 million. Bell Atlantic also bought a related company, MAI Canada Ltd. With the Sorbus acquisition Bell Atlantic hoped to strengthen its position with the federal government; as the companys largest customer, the federal government provided 3 % of total company revenues in the first year of operation.

With the most aggressive diversification of all the RHCs, Bell Atlantic planned to be a full-service company in the inceasingly 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 mediumsized customers. Bell Atlantic offered this customer base everything from information services equipment and data processing to computer maintenance.

Because the original consent decree was drawn to strictly regulate RHC activity and allow long-distance carriers equal access to local networks, fledglings such as Bell Atlantic faced competition on all levels. On the national level, the FCC approved a $2 end-user fee for all subscribers to basic telephone service, another tactic to give the RHCs a cushion in large-business markets. The institution of this fee coincided with the availability of rapidly evolving technology; thus the fee merely encouraged larger customers to create their own information networks, a process termed bypass. To help keep Bell Atlantic competitive in the large-customer marketsthose most vulnerable to bypassseveral states in its region granted the company considerable flexibility in pricing.

In the unregulated businesses Bell Atlantic was just entering, competition threatened to be even stiffer in the PBX market. By early 1985 IBM and Digital Equipment were offering maintenance for their mainframe users, a large portion of Bell Atlantics recently acquired Sorbus customer base.

Larger than many competing companies nonetheless, Bell Atlantic took advantage of the buyers market that the tough competition created: in June 1985 it acquired CompuShop Inc., a retail computer company with $75 million in sales annually, for $21 million. With the acquisition, Bell Atlantic joined siblings NYNEX, the New England and New York RHC, and Pacific Telesis, the west coast RHC, as surprise competitors in a market that, in spite of a recent surge in sales, was in decline. The retail computer slump was marked by smaller companies rapid entry into, and exit from, a market with high overhead costs. The entrance of big names such as Bell Atlantic could, retail computer experts argued, provide just the shot in the arm that the market needed to take off.

A year and a half 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 DOJ for business waivers in an attempt to become more competitive in not only the national but the international telecommunications market. By July 1984 Bell Atlantic requested that the government waive a body of rules that prohibited the RHCs from supplying their own telephone hardware. Unable to provide equipment for its own Centrex system, Bell Atlantic stood to lose a huge federal government contract to competitorsnearly 370,000 Centrex lines that were coming up for bid. Having already lost 48,000 Centrex lines due to restrictions of the past year, Bell Atlantic officials thought it was time to confront the issue.

Since divestiture, the FCC allowed AT&T to resell basic services, and it was considering letting the company provide customer premise equipment as well. IBM, strengthened by its recently acquired Rolm Corporation and Satellite Business Systems, was not restricted in its marketing efforts, but Bell Atlantic was.

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 Atlantics local phone service, its Yellow Pages directory publishing division, due to a disagreement, would be competing with Reuben H. Donne-ley Corporation, its previous publisher.

In the meantime, the long-distance market moved uncomfortably close to the RHCs 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 Atlantics chairman and chief executive officer, Thomas Bolger, quoted in Telephone Engineer & Managements December 15, 1985, issue, described the restrictions on RHCs as the most significant problem in the telecommunications industry. He requested that 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.

Continuing to expand its unregulated businesses in spite of, or perhaps because of, line-of-business restrictions as outlined in the consent decree, in September 1986 Bell Atlantic acquired the real estate assets of Pitcairn Properties, Inc. In October the company followed with the $140 million purchase of Greyhound Capital Corporation, since renamed Bell Atlantic Systems Leasing International, Inc. Bell Atlantic then had a firm position in the financial and real estate markets.

In late November 1986, Bell Atlantic became the first RHC to propose to the FCC a new cost allocation plan under recently outlined requirements. The corporation also opted, if allowed, to begin planning its comparably efficient interconnection (CEI) system. By March 1987 Bell Atlantic filed its CEI plan asking for the provision of message storage, hoping to get a jump on offering enhanced services. Due to several regulatory restrictions, development of the service was halted. Continuing operations as usual, in June 1987 Bell Atlantic acquired Pacific Computer Corp., and within several months, the company purchased Jolynne Service Corp.

On July 2, 1987, Bell Atlantic announced a restructuring plan, combining operations of basic telephone service and unregulated businesses under one newly created position, chief operating officer (COO). The plan also called for all staff of separate Bell Atlantic telephone companies to report to their respective presidents. Raymond Smith, a Bell employee since 1959, was named COO, and would report to Bolger.

On September 10, 1987, Federal Judge Harold Greene ruled to uphold the manufacturing and long-distance restrictions on RHCs, while allowing only limited information services. The RHCs all objected, but none as strongly as Bell Atlantic. The corporation alleged that the judge alluded to information discussed during the original consent decree settlement, which claimed that the Bell operating companies, pre-divestiture, had been accused of engaging in anticompetitive practices-remarks not relevant to the case at hand.

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 senators report was inaccurate.

Business transpiring as usual, that same month Bell Atlantic sold MAI Canada Ltd., and some of the assets of Sorbus Inc., for $146 million. Following that divestiture, in February the company purchased the European computer maintenance operations of Bell Canada Enterprises, Inc. Later that year, Bell Atlantics Sorbus subsidiary acquired Computer Maintenance Co., Inc.

In 1988, following Judge Greenes approval of its CEI plans, Bell Atlantic announced it would introduce four new information services: an electronic message storage system, which would allow the subscriber to record a message for comsumers to play back; a telephone-answering service; a voice-mail service; and a videotex gateway service, through which data bases and customers could communicate. All services involved monthly surcharges for customers, as well as an hourly fee for videotex and a one-time users fee for message storage.

Juggling its assets a bit more, in June Bell Atlantic completed the sale of its retail computer CompuShop, to Compu-Com Systems, Inc., and acquired in July the assets of CPX Inc., a company specializing in Control Data Corporation equipment, through subsidiary Camex CPX, Inc. Bell Atlantic also acquired the assets of Dyn Service Network.

Thomas E. Bolger announced his retirement as CEO, effective January 1, 1989; Raymond W. Smith, chief operating officer since 1987, would become the new chief executive officer. Bolger, formerly a vice president of AT&T in business services and marketing, led Bell Atlantic through divestiture into a leading position in telecommunications, real estate and leasing finance, and computer maintenance. A strong critic of consent decree restrictions on RHCs, by January 1989, Bell Atlantic also was active in helping establish international standards for telecommunications.

On the national level, however, Judge Greene kept his eye on RHC activities. A January 1989 Bell Atlantic proposal to conduct a trial involving interstate phone traffic was rejected on the basis that the service was not a necessary, but an advanced, competitive service. Bell Atlantic wanted to cut costs by using a central processor for state-to-state traffic rather than having separate facilities perform the same tasks. Bell Atlantic held that the judges decision was against the public interest.

Bell Atlantic implemented another reorganization in 1989, trimming its management staff by 1,700 through voluntary retirement and other incentive plans. Significant parts of the restructuring included closing the Washington, D.C., Chesapeake and Potomac Telephone Company headquarters and merging employees into other locations; refinancing various debts; reassessing computer holdings; and outlining a plan to cover future retirement of nonmanagement staff. Negotiations with its union employees resulted in Bell Atlantics initiating a trust to cover nonmanagement union employees future medical and dental fees.

Bell Atlantic invested $2.3 billion in network services to upgrade telephone facilities. Signaling System 7 (SS7), a highspeed information exchange system, was operating on more than 60% of Bell Atlantic telephone lines. To compete in mobile communications, the company marketed an extremely lightweight cellular telephone. Bell Atlantic Paging customers increased by 16%. In partnership with GTE, Bell Atlantic Yellow Pages increased its customer base through a new subsidiary, the Chesapeake Directory Sales Company. In October 1989 Tri-Con Leasing bought the assets and operations of Minneapolis-based Dougherty Dawkins Lease Corporation, Inc., a public lease financing group. Bell Atlantic also formed Bell Atlantic Systems Integration in 1989 to research and explore marketing capabilities in voice and data communications and 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.

No matter how well the company was doing overseas, Bell Atlantic kept running into walls in the United States. In April 1990 the companys Chesapeake and Potomac Telephone Company was charged with fraud and was prohibited from seeking federal contracts by the U.S. Department of the Treasury. The dispute was over a long-running federal contract competition that AT&T had won twice; AT&Ts contract award was withdrawn a third time because Bell Atlantic argued that the equipment necessary to fulfill the contract was not in current production. That was the same basis the Treasury used to charge Bell Atlantic with misrepresentation, claiming Bell Atlantic did not have the Northern Telecom integrated-services-digital network (ISDN) handset necessary to fulfill contract terms. (An ISDN combines telephone and computer transmissions on a single line.) AT&T, however, was not suspended from the bidding process; thereafter Bell Atlantic claimed the Treasury Department was operating on a double standard and abusing its authority. The contract was valued at $100 million and could be worth twice that after a two-year period.

Undaunted by its squabbles with the government, Bell Atlantic, by 1990, boasted the worlds largest independent computer maintenance organization. Through its business systems division, the company was capable of servicing 500 brands of computers. With the January 1990 purchase of Control Data Corporations third-party maintenance business, Bell Atlantic sealed its position as the leader in maintenance of both IBM and Digital Equipment Corporation systems.

Several other Bell Atlantic acquisitions of 1990 included Northern Telecoms regional PBX operations and Simborg Systems Corporation. Through the latter purchase, renamed Bell Atlantic Healthcare Systems, the company could offer hospital computer network software.

Aggressive as ever, in June 1990 Bell Atlantic, along with sibling U S West, upgraded to use synchronous optical fiber via Sonet-based equipment. These were the first two RHCs to use the systems; others waited for the technological standards to be established. In network services, Bell Atlantic invested more than $2 billion. SS7 was available in 80% of its customer lines, and ISDN was already operational in several universities and federal agencies. In sum, Bell Atlantic offered more choices by year-end 1990 than any information transmission competitor.

Bell Atlantics biggest strides after six years in operation were in its international division. In May 1990 the corporation teamed up with the Korean Telecommunications Authority in a variety of research, marketing, and information exchanges. In June Bell Atlantic joined U S West and signed with the Czech-oslovakian Ministry of Posts and Telecommunications to modernize the countrys telecommunications network, which included both the construction and operation of a mobile cellular communications system. Bell Atlantics investment of $105 million, to be paid over ten years, would give Bell Atlantic 24.5% of both the cellular and public data network.

That same month Bell Atlantic, with Ameritech and two New Zealand companies, acquired the Telecom Corporation of New Zealand. The purchase was a boon for all companies involved, as the New Zealand network was already digitally advanced and in a relaxed regulatory environment. The RHCs each paid an initial investment of $1.2 billion.

In October 1990, Bell Atlantic and NORVANS, a Norwegian telecommunications company, jointly applied for a license to develop and operate an independent cellular network in Norway. In November, with the Directorate General of Telecommunications of the Republic of China, Bell Atlantic signed an agreement to consult in marketing, research, and information exchanges. Continuing international expansion, Bell Atlantic early in 1991 joined the Belle Meade International Telephone, Inc., in a joint venture to set up a communication system in the Soviet Union. Bell Atlantic was keeping on its course of becoming an international telecommunications leader.

Principal Subsidiaries

Bell Atlantic Network Services, Inc.; New Jersey Bell Telephone Company; The Bell Telephone Company of Pennsylvania; The Diamond State Telephone Company; The Chesapeake and Potomac Telephone Company; The Chesapeake and Potomac Telephone Company of Maryland; The Chesapeake and Potomac Telephone Company of Virginia; The Chesapeake and Potomac Telephone Company of West Virginia; Bell Atlanticom Systems, Inc.; Bell Atlantic Capital Corporation; Bell Atlantic Customer Services, Inc.; Bell Atlantic Mobile Systems, Inc.; Bell Atlantic Systems Integration Corp.; Bell Atlantic Directory Graphics, Inc. (81 %); Bell Atlantic Education Services, Inc.; Bell Atlantic International, Inc.; Chesapeake Directory Sales Co. (51%); Technology Concepts, Inc.; Telecommunications Specialists, Inc.; Bell Atlantic Capital Advisors, Inc.; Bell Atlantic Financial Services, Inc.; Bell Atlantic Properties, Inc.

Further Reading

Tell, Lawrence J., Footloose and Fancy Free, Barrons, November 12, 1984; Gold, Howard, Tom Bolgers one-stop-shop, Forbes, March 25, 1985; Lannon, Larry, Bell Atlantics Bölger Demands His Freedom, Telephony, July 14, 1986; Mason, Charles, RHC barred from federal contracts, Telephony, April 16, 1990.

Frances E. Norton

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