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AT&T Corporation

AT&T Corporation



One AT&T Way
Bedminster, New Jersey 07921
U.S.A.

Telephone: (908) 221-2000
Fax: (908) 532-1675
Web site: http://www.att.com


Public Company
Incorporated:
1885 as American Telephone and Telegraph Company
Employees: 61,600
Sales: $34.52 billion (2003)
Stock Exchanges: New York
Ticker Symbol: T
NAIC: 517110 Wired Telecommunications Carriers; 334111 Electronic Computer Manufacturing; 334210 Telephone Apparatus Manufacturing; 515210 Cable and Other Subscription Programming; 522298 All Other Non-Depository Credit Intermediation; 522320 Financial Transactions Processing, Reserve, and Clearing House


AT&T Corporation organizes its business into two segments, business services and consumer services. AT&T's consumer services business, the bedrock of its existence for more than a century, provides domestic and international long-distance telephone service to roughly 35 million residential customers in the United States, as well as Internet service through AT&T Worldnet and AT&T digital subscriber line (DSL) service to a much smaller portion of the U.S. population. AT&T's business services segment, which the company regards as its future, involves offering global communications services to three million customers, ranging from small businesses to large, multinational corporations. For its corporate clientele, AT&T provides domestic and international voice service, domestic and international data and Internet protocol (IP) services, networking services, and domestic and international wholesale transport services.

Beginnings

AT&T had its origin in the invention of the telephone in 1876 by Alexander Graham Bell. In 1877, Bell and several financial partners formed the Bell Telephone Company, and in 1878 they formed the New England Telephone Company to license telephone exchanges in New England. The two companies licensed local operating companies in Chicago, New York, and Boston. Over the next year, Bell and his backers sold a controlling interest in the companies to a group of Boston financiers.

The companies were soon embroiled in patent disputes with Western Union Telegraph Company, the world's largest telegraph company. During the dispute, the two Bell companies were consolidated into the National Bell Telephone Company, and Theodore J. Vail was named general manager. In November 1879, the patent suit was settled out of court. Western Union left the telephone business and sold its system of 56,000 telephones in 55 cities to Bell. Bell agreed to stay out of the telegraph business and paid Western Union a 20 percent royalty on telephone equipment leases for the next 17 years. Between 1877 and 1881, Bell licensed numerous local operating companies as a way to promote the telephone without having to raise capital. The companies signed five- to ten-year contracts, under which Bell got $20 per telephone per year and the right to buy the licensee's property when the contract expired.

National became the American Bell Telephone Company in 1880 and obtained more capital at that time. Starting in 1881, Bell urged the locals to make the contracts permanent, rescinding Bell's right to buy the respective properties but giving Bell variously 30 to 50 percent ownership of the operating companies. The companies could build long-distance lines to connect exchanges in their territories, but they were prohibited from connecting them with those of other operating companies or independent phone companies. Bell thus became a partner in the local telephone business, allowing it to influence the locals and conserve capital for long-distance operations. American Bell needed large amounts of equipment, and in 1881 it acquired Western Electric, a major Western Union supplier, to serve as its manufacturer. Bell then consolidated into Western Electric several other manufacturers it had licensed to make telephones.

More long-distance lines were being built as telephone technology improved. In 1884, Bell built an experimental line between Boston and New York. The next year, it added a Philadelphia-New York line. To construct, finance, and operate its long-distance system, Bell established the American Telephone and Telegraph Company in 1885 to operate as its long-distance subsidiary. At that time, the nascent U.S. telephone system was primarily a series of unconnected local networks. Vail, who was named AT&T president, wanted to get a long-distance network in place before Bell's basic patents expired in 1894. By the time it established AT&T, Bell was in firm control of the telephone business. It regulated the operating companies' long-distance lines and Western Electric, their major supplier. It also had the right to take over their property if they violated their contracts.


In 1888, a huge blizzard in New England knocked most telephones out of service. The company responded by pushing to put more cables underground. Later that year, it became clear that a long-distance network would cost more than planned, and AT&T floated $2 million in bonds to raise capital. The company returned to public investors frequently throughout its history to finance its ever-expanding enterprises. For decades, AT&T stock was the most widely held in the world. In order to attract so many investors, AT&T was forced to be efficient, even though it lacked real competition for much of its history.

Technical advances came regularly. The first coin-operated public telephone was installed in 1889. During 1891, two-party and four-party service was introduced, and the first automatic dial system was patented. A New York-Chicago long-distance line opened in 1892, and Boston-Chicago and New York-Cincinnati lines were initiated in 1893.

Bell initially had a monopoly on the telephone because of its patents, but in 1894 its patent expired. Rather than compete by providing better and less expensive service, Bell often took the growing independent phone companies to court, claiming patent infringements. As Western Electric would not sell equipment to the independents, new manufacturers sprung up to accommodate them. The independents were particularly successful in rural areas in the West and Midwest where Bell did not provide service. By 1898, some cities had two unconnected phone systems, one Bell and one independent. This competition forced Bell to expand faster than it otherwise would have. It jumped from 240,000 phones in 1892 to 800,000 in 1899.

The company needed capital to keep up with this expansion, and Massachusetts, where American Bell was based, presented far more regulatory interference than New York, where AT&T was based. As a result, in 1899 AT&T became the parent company of the Bell System until the breakup in 1984. AT&T's capital jumped from $20 million to more than $70 million. By 1900, AT&T was organizing itself into the vertical structure that characterized it for decades thereafter. It had assets of $120 million compared with a total of $55 million for the independents, but its finances were run overly conservatively and its service was reputedly poor.

Meanwhile, the telephone was having a dramatic impact on the United States, where large numbers of people still lived in the relative isolation of farms or small towns. The telephone lessened their isolation, and the response to the new invention was enthusiastic. The number of rural telephones shot from 267,000 in 1902 to 1.4 million in 1907. The telephone was coming to be viewed as indispensable by virtually all businesses and most private homes.


Fighting the Independents: Early 1900s

Competition from independents continued to mount. Their rates were sometimes half of Bell's, and the United States was in an antimonopoly mood. Many rural communities started their own not-for-profit phone companies that were later sold to independents or Bell. By 1907, the independents operated 51 percent of all phones. AT&T was fighting back, having made the decision to take on the independents when it moved and changed its name. The company's first and most effective action was to slash rates. The arrogance of early company officials was replaced by a desire to please customers. AT&T also bought out independents, set up its own "independents," and used its political and financial clout to strangle competitors. AT&T's greatest advantage was its virtual monopoly of long-distance service, which it refused to let independents use.

The invention of a certain electric device, the loading coil, in 1899 gave long-distance service a push by allowing smaller-diameter wires to be used, which made underground long-distance cables feasible. They were implemented for an underground New York-Philadelphia line in 1906, but long-distance signals remained weak and difficult to hear until the invention of the vacuum-tube repeater in 1912.

Competition had given AT&T a necessary push, forcing it to expand and grow, but it also weakened its finances. Between 1902 and 1906, debt grew from $60 million to $200 million. Through a series of bond purchases starting in 1903, financier J.P. Morgan tried to wrest control of the company from the Boston capitalists, beginning a free-for-all that lasted several years. When the dust cleared in 1907, Morgan and his New York and London backers had won, and they brought back Vail as president. Vail had left in 1887 because of differences with the Bostonians, whose view was focused narrowly on short-term profit. Vail and his backers had a wider vision than the Bostonians, believing they should create a comprehensive, nationwide communications system.

Company Perspectives:

It takes the right technology, the right people, and a bold vision to be the "The World's Networking Company." For more than 125 years, AT&T has been known for unparalleled quality and reliability in communications. Backed by the research and development capabilities of AT&T Labs, our commitment to innovation has made us a global leader in local, long distance, Internet, and transaction-based voice and data services.


In 1907, AT&T boasted 3.12 million telephones in service, but had a terrible public image, low staff morale, poor service, serious debts, and a bevy of technological problems. Within a decade, Vail turned the company around, making it a model of corporate success. He soon sold millions of dollars in bonds by offering them at a discount to shareholders, which reestablished confidence in the company. He also dramatically increased research and development, hiring talented young scientists and laying the foundation for what would, in 1925, become Bell Labs. Vail concentrated the company's visionaries into central management and left day-to-day network decisions to workers more interested in practical questions. For its first two decades, AT&T had put profits for its shareholders above service for its customers; Vail was one of the first U.S. business leaders to balance profit with customer satisfaction.


At the same time, Vail was a monopolist, believing competition had no place in the telephone industry. He and Morgan set out to make AT&T the sole supplier of U.S. telecommunications services. In 1910, Vail became president of Western Union after AT&T bought 30 percent of Western's stock. For the first time telegrams could be sent and delivered by phone. Telephone and telegraph lines could back each other up in emergencies. AT&T gobbled up independent phone companies at an ever-increasing rate. When Morgan found an independent in financial trouble, he used his power as a leading banker to squeeze its credit, often forcing it to sell to AT&T. By 1911, AT&T had bought so many small independents that Vail consolidated them into a smaller number of state and regional companies. AT&T's ownership was motivated partly by profit but also by the desire to ensure good service.

Antimonopoly pressures from consumers and government began to mount on AT&T well before then. A crucial turning point came in 1913, after Morgan's death, when Vail decided to sell Western Union and allow independents access to AT&T's long-distance lines. The move cost $10 million and ended AT&T's dream of a national telecommunications monopoly, but it won AT&T respect and ended growing pressure to dismember it.


Coast-to-Coast Long-Distance Achieved in 1915

By that time, AT&T was working on the first coast-to-coast telephone line, using loading coils and repeaters. On January 25, 1915, Alexander Graham Bell, in New York, and former collaborator, Thomas Watson, in San Francisco, engaged in a coast-to-coast repeat of the first-ever telephone conversation 39 years earlier. AT&T was also making important progress in automatic switching systems and sent the first transatlantic radio message in 1915. As the telephone became a matter of national interest, pressure for federal regulation mounted, and Vail welcomed it as long as regulators were independent.


During World War I, the AT&T network was used for domestic military communications. AT&T also set up extensive radio and telephone communications lines in France. The war pushed AT&T's resources to the limit, with a $118 million construction budget for 1917. In 1918, a year in which AT&T had ten million phones in service, the U.S. government took over the telephone system. The government set rates and put AT&T under a branch of the post office, although the company continued to be run by its board of directors. One of the government's first decisions was to start a service connection charge. It then raised both local and long-distance rates. Lower rates had been touted as a major benefit of public ownership. When the rates went up, support for government ownership collapsed, and in August 1919 the government gave up its control of AT&T. Vail retired in the same year, leaving the presidency to Harry Bates Thayer, and died in 1920.

AT&T grew rapidly as a regulated monopoly during the laissez-faire 1920s. The Graham Act of 1921 exempted telephony from the Sherman Antitrust Act. The Bell System controlled 64 percent of almost 14 million telephones in the United States in 1921. Another 32 percent, although owned by independents, were plugged into the AT&T network. Commercial radio boomed, and AT&T entered cross-licensing patent agreements with General Electric, Westinghouse, and Radio Corporation of America, with which it was soon embroiled in legal disputes. By the end of 1925, AT&T had a national network of 17 radio stations. AT&T put its first submarine cable into service between Key West, Florida, and Havana, Cuba, in 1921. In 1925, Bell Labs became a separate company, jointly funded by AT&T and Western Electric. The same year, Thayer retired and was succeeded by Walter S. Gifford, who served for the next 23 years. His influence on the U.S. telephone industry was second only to Vail's.

Key Dates:

1885:
The American Telephone and Telegraph Company (AT&T) is formed, establishing the first national telephone network.
1889:
The first coin-operated pay phone is installed in Hartford, Connecticut.
1908:
AT&T begins reducing its prices to wrest control away from independent telephone companies.
1922:
AT&T establishes WEAF in New York City, marking its entry in the commercial radio business.
1947:
Microwave radio becomes the technological basis of long-distance telephone calls.
1962:
Telstar, the first AT&T satellite, is launched.
1983:
Plans for the breakup of AT&T are approved, leading to the creation of independent, regional telephone companies and freeing AT&T to enter non-telecommunications businesses.
1984:
AT&T is organized into two divisions, AT&T Communications and AT&T Technologies.
1991:
AT&T acquires NCR Corporation, a computer maker, in a $7.4 billion transaction.
1993:
AT&T enters the cellular telephone business with the $12.8 billion acquisition of McCaw Cellular Communications.
1995:
AT&T announces it is splitting into three companies, AT&T Corporation, Lucent Technologies, and NCR Corporation.
1999:
AT&T acquires cable television giant, TeleCommunications Inc., in a $53.5 billion deal.
1999:
AT&T outbids Comcast and Microsoft to acquire MediaOne Inc., making the company the nation's largest operator of cable television.
2001:
Comcast acquires AT&T Broadband for $72 billion.
2004:
AT&T Wireless is sold for $41 billion to Cingular Wireless.



Gifford quickly got AT&T out of radio and other side ventures, although it tried to establish a controlling interest in motion picture sound technology in the late 1920s. He reduced the fee licensees paid from the 4.5 percent of gross revenue established in 1902, to 4 percent in 1926, and 2 percent in 1928. AT&T stockholders grew from 250,000 in 1922 to nearly 500,000 in 1929. In 1929, Bell Labs gave the first U.S. demonstration of color television. By 1932, AT&T had the second largest financial interest in the film industry but sold it in 1936.

The first years of the Great Depression badly hurt AT&T. Many subscribers could no longer afford telephones. AT&T sales for 1929 were $1.05 billion; by 1933, they were $853 million. Western Electric sales in 1929 were $411 million; 1933 sales were $70 million. Western Electric laid off 80 percent of its employees, and AT&T laid off 20 percent.

By 1933, telephone use began growing again, and by 1937 it exceeded pre-Depression levels. During the late 1930s, the newly formed Federal Communications Commission (FCC) conducted a long, damaging investigation of AT&T's competitive practices that reopened the battle over AT&T as a monopoly. In 1939, AT&T had assets of $5 billion, by far the largest amount of capital ever controlled by a corporation up to that time. It controlled 83 percent of all U.S. telephones and 98 percent of long-distance wires. Subsidiary Western Electric manufactured 90 percent of all U.S. telephone equipment. The FCC's final report was initially ignored due to the outbreak of World War II but had significant impact later.


Growth During World War II

Telephone use, particularly long distance, grew tremendously during World War II, with 1.4 million new telephones installed in 1941 alone. Western Electric and Bell Labs devoted themselves primarily to military work from 1942 to 1945, filling thousands of government contracts and making technological innovations. The most important work was in radar, the experience that gave AT&T a huge lead when microwave radio relay became the principal means of transmitting long-distance telephone and television signals in the postwar period.

The FCC forced AT&T to lower rates during the war, and its plants and infrastructure were worn out by wartime production. AT&T's business boomed after the war, as population and prosperity increased, and the habit of long-distance telephoning acquired during the war continued. The company installed more than three million telephones in 1946. Benefits of wartime technology were many. Moving vehicles were brought into the telephone system by radio in 1946. Coaxial cable was first used to take television signals over long distances in 1946. Microwave radio began transmitting long-distance calls in 1947. Bell Labs brought out the transistor, a replacement for the vacuum tube and one of the important inventions of the 20th century, in 1948; its inventors won the Nobel Prize in 1956.

The end of the war brought serious labor trouble. AT&T and the National Federation of Telephone Workers faced off over wages, working conditions, and benefits, producing a nationwide strike in 1947. Public opinion went against the strikers, and the eventual compromise favored AT&T.

Gifford retired in 1948, and Leroy A. Wilson became president. His first task was to push a rate increase past government regulators. He got one in 1949 that helped AT&T sell more stock to raise needed capital. As an outgrowth of the 1930s FCC investigation, the U.S. Department of Justice filed suit in 1949, seeking to split Western Electric from AT&T. AT&T succeeded in delaying the case until the Eisenhower administration, which was not as interested in regulation, took power. In the meantime, the government talked Western Electric into taking over the management of an advanced weapons research laboratory. It formed Sandia Corp. in 1949 to do so. In the 1950s, Western Electric worked on the Nike antiaircraft missiles, making $112.5 million on the venture. Western and Bell Labs worked with others on a huge air-defense radar system. These defense projects gave AT&T a powerful lever against the antitrust suit. In a consent decree in 1956, AT&T agreed to limit its business to providing common-carrier services and to limit Western Electric's to providing equipment for the Bell System, except for government contracts. The antitrust case was settled on this basis.

In 1951, Wilson died and Cleo Craig became president. In the next few years, AT&T made it possible to dial directly to other cities without using an operator. This and ensuing developments enabled long-distance charges to be repeatedly reduced. In 1955, AT&T laid the first transatlantic telephone cable, jointly owned with the British Post Office and the Canadian Overseas Telecommunications Corporation. Craig retired in 1956, and Frederick R. Kappel became president.


AT&T was in enviable financial shape by the late 1950s, although some accused it of getting there by overcharging subscribers. The booming U.S. economy led to unprecedented calling volumes, particularly from teenagers, many of whom were getting their own telephones. Telephones moved from shared party lines to private lines, and telephone services like weather and time announcements became widespread, adding further revenue. AT&T split its stock three-for-one in 1959 and two-for-one in 1964. By 1966, AT&T had three million stockholders and nearly one million employees. In 1954, AT&T began offering telephones in colors other than black. In 1961, it developed Centrex, a system in which an office maintained its own automatic switching exchange; in 1963, it offered the first Touch-Tone service; and in 1968, it brought out the Trimline phone, with the dial built into the handset. By 1965, the Bell System served 85 percent of all households in the areas in which it operated, compared with 50 percent in 1945, and was providing a vast array of services at a variety of rates.


Expanding into Space: Bellcom and Telstar

AT&T formed Bellcom to supply most of the communications and guidance systems for the U.S. space program from 1958 to 1969. Bell Labs worked intensively on satellite communications, and the first AT&T satellite, Telstar, was launched in 1962. Comsat, a half-public, half-private company handling U.S. satellite communications, was founded in 1962, with AT&T owning 27.5 percent at a cost of $58 million.

AT&T worked on an electronic switching system throughout the 1950s and 1960s. The project was more complicated than expected, and by the time the first electronic equipment was installed in 1965, AT&T had spent about $500 million on the project. The speed and automation that electronic switches gave the phone system, however, made possible the vast increases in traffic volume in the 1970s and 1980s, as the United States moved to an information-based society.

In the 1950s and 1960s, other companies began trying to capture specific portions of AT&T's business. The Hush-a-Phone Company marketed a plastic telephone attachment that reduced background noise. Microwave Communications Inc. (MCI) tried to establish private-line service between Chicago and St. Louis. Carter Electronics Corporation marketed a device that connected two-way radios with the telephone system. AT&T responded by forbidding the connection of competitors' equipment to the Bell System. Several FCC investigations followed, with decisions that created competition for terminal equipment and intercity private-line service. AT&T began to face serious competition for the first time in 50 years.

Kappel retired in 1967 and was replaced by H.I. Romnes, a former president of Western Electric. AT&T's earnings were leveling off after tremendous growth in the early 1960s. There also were service problems in 1969 and 1970, with numerous consumer complaints in New York. Similar predicaments followed in Boston, Denver, and Houston. AT&T borrowed money and raised rates to pay for repairs.

More serious problems were beginning for AT&T. In the early 1970s, sales by the interconnect industry were growing, and businesses were buying telephone equipment from AT&T competitors. The U.S. Equal Employment Opportunity Commission accused AT&T of discriminating against women and minorities. AT&T, without admitting it had done so, signed consent decrees under which it agreed to increase the hiring, promotion, and salaries of women and minorities.

MCI claimed AT&T was still preventing it from competing and filed an antitrust lawsuit in 1974. The situation became disastrous when the Department of Justice (DOJ) filed another antitrust suit later in 1974, this time asking for the dismemberment of AT&T. The DOJ charged that AT&T had used its dominant position to suppress competition. The suit dragged on for years.

During the years of the suit, AT&T continued to grow. Both 1980 and 1981 were years of record profits. The $6.9 billion AT&T made in 1981 was the highest profit for any company to that time.


The Breakup of the Bell System in the 1980s

The DOJ suit finally came to trial in 1981. By then, AT&T and the government both wanted to settle the case. AT&T longed to get into computers and information services but was prevented from doing so by its 1956 agreement. In 1982, the FCC required AT&T to set up a separate, unregulated subsidiary called American Bell to sell equipment and enhanced services. In January 1982, AT&T and the DOJ jointly announced a deal to break up the Bell System, while freeing the remainder of AT&T to compete in non-long-distance areas such as computers.

Federal Judge Harold Greene gave final approval for the AT&T breakup in August 1983. At that time, AT&T was the largest corporation in the world; its $155 billion in assets made it larger than General Motors, Mobil, and Exxon combined. After the breakup, on January 1, 1984, AT&T had $34 billion in assets. Its net income dropped from $7.1 billion to $2.1 billion, and its workforce from 1.09 million to 385,000. Its 22 regional operating companies were split off into seven regional holding companies, and AT&T lost the right to use the Bell name. AT&T stockholders received one share in each of the regional companies for every ten AT&T shares they owned. AT&T also lost the highly profitable Yellow Pages, which went to the regional companies.

The new AT&T consisted of two primary parts: AT&T Communications, the long-distance business, and AT&T Technologies, a group of other businesses that mainly involved the manufacture and sale of telecommunications equipment for consumers and businesses. Western Electric was broken up and folded into AT&T Technologies. Long distance was expected to provide the bulk of short-term revenue for the new AT&T, but the unregulated technologies group, backed by Bell Labs, was expected to quickly blossom. AT&T Technologies initially concentrated on switching and transmissions systems for telephone companies. AT&T was losing ground to competitors in that sector and wanted to fight back. The company also worked on telephone-equipment sales, sold through AT&T phone centers and such retailers as Sears. American Bell changed its name to AT&T Information Systems and began pushing computers. AT&T International quickly signed a deal with the Dutch company N.V. Philips to sell switching equipment throughout the world, setting up AT&T Network Systems International.

To help pay for the breakup, AT&T took a fourth-quarter charge of $5.2 billion in 1984, the largest to that time. AT&T, however, was now free to go into computers, a field it had longed to get into since the 1956 consent decree, and the company began spending hundreds of millions of dollars to develop and market a line of computers. James E. Olson became president of AT&T in 1985, cutting 24,000 jobs from the information division later that year to improve its profits. In 1986, Olson became chairman, and Robert E. Allen became president. Olson concentrated on centralizing management and refocusing company strategy around the idea of managing the flow of information.

The company chose Brussels, Belgium, as the site for its regional headquarters serving Europe, the Middle East, and Africa. It also began joint ventures with companies in Spain, Italy, Ireland, Denmark, South Korea, and Taiwan to get its telecommunications products into foreign markets. Still, foreign revenues accounted for only 10 percent of company earnings, compared with 40 percent for many other U.S.-based multinationals. Company earnings declined because of a slumping business equipment market and greater than expected reorganization costs. Earnings also suffered from a drop in rental revenues as more AT&T customers decided to buy their telecommunications equipment outright.

Meanwhile AT&T's computer operations were in trouble. The company had developed a new operating system, Unix, for its computers. While Unix had some advantages, users of personal computers were not familiar with it, manufacturers of larger computers were committed to their own proprietary systems, and buyers stayed away. AT&T computer operations lost $1.2 billion in 1986 alone. At the end of the year, the company restructured its computer operations to concentrate on telecommunications-based computers and computer systems. It custom designed a system for American Express that automatically phoned customers while putting customer information on a terminal screen. At the end of 1986, AT&T cut another 27,400 jobs and took a $3.2 billion charge. Income for the year was only $139 million.

In 1987, the DOJ recommended that the regional operating companies be allowed to compete with AT&T in long distance and telecommunications equipment manufacturingits two core businesses. The idea was unacceptable to Judge Harold Greene, overseer of the AT&T breakup. Because of fierce competition from MCI and other companies, AT&T retained 76 percent of the long-distance market, down from 91 percent in 1983.

Unix made some gains in 1986 and 1987, and AT&T formed the Archer Group, a consortium of computer makers manufacturing Unix systems. It included Unisys and Sun Microsystems. After nearly $2 billion in losses in computers, the data systems group finally signed a major contract with the U.S. Air Force in 1988. The $929 million contract for minicomputers provided only a slim profit margin, but AT&T hoped that the deal would push its computers over the top, make Unix an industry standard, and lead to further government sales. Olson died in 1988, and Allen became chairman.


More Changes in the Late 1980s

MCI and others continued to erode AT&T's share of the $50 billion long-distance market, which stood at 68 percent at the end of 1988. To fight back, AT&T redeployed 2,500 employees to sales positions and aggressively tackled the business communications market. AT&T also took a $6.7 billion charge to modernize its telephone network and cut 16,000 positions. As a result, the company lost $1.7 billion in 1988, its first-ever yearly loss. Some industry analysts, however, felt the company was finally turning around after four years of confusion and drift. It won two major government contracts that year. One, expected to earn AT&T $15 billion by 1989, was to build a new government telephone system. Competitor US Sprint Communications won a $10 billion contract for a second part of the same system. Regulators finally gave AT&T the right to match the low prices of MCI and US Sprint, leading to the end of the long-distance price wars waged since the AT&T breakup. AT&T showed a $2.7 billion profit for 1989, its largest since the breakup.

In mid-1990, AT&T raised its long-distance rates after low second-quarter earnings. It had been hurt by declining long-distance revenue and slow equipment sales. The company, however, soon made several important sales. It received an extension of a $100 million personal computer sale to American Airlines's Sabre Travel Information Network and signed an agreement to upgrade China's international communications system. AT&T made its first entry into Mexico's communications market, winning a $130 million contract from Mexico's national telephone company, Telefonos de Mexico. It signed a $157 million contract to build an undersea fiber-optic cable between Hawaii and the U.S. mainland, and announced that it planned to build a high-capacity undersea cable between Germany and the United States, with Deutsche Bundespost Telekom. It also won a $600 million contract from GTE Corporation to build cellular network equipment.

Hoping to make money from its financial and information resources, AT&T launched a credit card, Universal Card, in early 1990. By late 1990, it was the eighth leading credit card in the United States, with revenue of $750 million. Wall Street analysts, however, expected the credit card's startup costs to hold back AT&T earnings until at least 1992. Bell Labs announced important breakthroughs in computer technology in 1990, including the world's first computer using light. Products based on the new technologies were years off, but AT&T continued to manufacture computers. AT&T signed an agreement with Japan's Mitsubishi Electric Corporation to share memory-chip technology, and licensed technology from Japan's NEC Corporation to make semiconductors. Late in the year, Philips, under financial pressure, sold back its 15 percent stake in AT&T Network Systems International.

In the early 1990s, AT&T's overseas ventures began bearing fruit. About 15 percent of its revenue, more than $5 billion yearly, came from international calling and sales to foreign buyers of equipment and services. In 1991, AT&T made a major acquisition in the computer industry, buying NCR Corporation through an exchange of stock valued at $7.4 billion. AT&T officials believed the purchase of NCR, which accounted for about 60 percent of its sales in international markets, would put AT&T on the path to becoming a truly global company and a leader in networked computing. NCR had introduced more new products than any other computer company in the preceding year. NCR officials saw advantages of the merger to be an increased customer base, access to the research and development capabilities of Bell Labs, and the addition of AT&T's technical, marketing, and sales resources.


AT&T's fortunes looked solid following the NCR acquisition. The company's stock price was climbing, and several of its previously sluggish operations posted their best earnings figures in years. One area in which AT&T needed market presence was cellular telephone service, even though the company was the largest manufacturer of cell phone system switching devices. In August 1993, the company acquired McCaw Cellular Communications for $12.8 billion in stock. The Kirkland, Washington-based McCaw operated one of the largest cellular systems in the United States, with coverage of one-third of the country.


Division into Three Companies in 1995

Despite these positive developments, AT&T was still having problems. NCR in particular was not earning its keep and lost $600 million in 1994. AT&T's long-distance service profits accounted for the bulk of the corporation's income, but competition was growing ever fiercer. On September 20, 1995, the company announced it was splitting up yet again, this time into three separate entities. The largest would be known as AT&T Corporation and consist primarily of the long distance businesses, AT&T Wireless, the Universal Credit Card, and AT&T Labs. The next largest would be Lucent Technologies, which would consist of the company's consumer and business products operations and Bell Labs. The smallest would be NCR Corporation, consisting more or less of what it had been when AT&T purchased it four years earlier. The breakup, the largest corporate restructuring in history, was accomplished by means of a spin-off of stock to AT&T shareholders. Some 40,000 of the company's employees were also expected to lose their jobs.

Other developments at this time included AT&T's first foray into the world of cyberspace, with the introduction of an array of business and home Internet access services. Also, in February 1996, Congress passed a new telecommunications act which ended monopolies for providers of local phone service. AT&T vowed to become a presence in the local service arena again, though this would entail leasing lines from the largely unfriendly Baby Bells.


In the months following the company's restructuring, corporate morale and investor confidence ebbed as AT&T's efforts to fine-tune the reconfiguration proceeded slowly. CEO Bob Allen, nearing his planned retirement date of January 1998, saw his chosen successor rejected by the board in mid-1997. Finally, on November 1, Hughes Electronics CEO C. Michael Armstrong was approved to take over the reins at AT&T, and Allen stepped down.


Armstrong quickly set about cutting fat and implementing new strategies. He sold the company's credit card unit to Citibank for $3.5 billion, and its communications outsourcing business to Cincinnati Bell for $625 million. He purchased Teleport Communications Group, a local exchange business-service carrier in New York and 65 other cities, for $11.3 billion. International efforts, always a weak point with AT&T, were boosted by the formation of a joint venture with British Telecom. Advertising expenses were cut for a second time in two years, and an additional 18,000 layoffs were announced. Armstrong's biggest move during his first year came in the summer of 1998, when he cut a deal to purchase cable television giant TCI for $53.5 billion in stock.


In October 1998, the company merged its Wireless Services division with Vanguard Cellular Systems, a Northeast U.S.-based cell phone company with 625,000 subscribers. AT&T also started its own "dial-around" service, Lucky Dog. A host of new competitors had emerged who were offering low residential long-distance rates via special 7-digit access numbers. The heavily advertised Lucky Dog was an attempt to tap into this market and was promoted with no mention of its corporate owner. In December, a deal worth $5 billion was reached to buy IBM's Global Network Internet access business, which was expected to provide a starting point for the joint venture with British Telecom.


Restructuring at the Turn of the 21st Century

Armstrong's first year performance was winning rave reviews, and he continued at full throttle in 1999 with the $60 billion acquisition of a second major cable provider, MediaOne. In a heated battle, AT&T had outbid both Comcast and Microsoft. As a sop to the latter, an agreement was reached to sell the computer giant $5 billion in AT&T stock and to use Microsoft products in the company's new cable boxes. Deals with Comcast and Time Warner also brought more cable subscribers to the company. Armstrong's vision for AT&T's future was to offer both telephone and Internet services through the newly acquired cable TV networks, taking advantage of the large data-transmission capacity they offered. This would eliminate the slow download speed experienced by Internet users who connected via telephone line and modem. Billions of dollars would have to be invested to retrofit cable systems for interactivity and telephone use for the plan to succeed.

One constant during AT&T's development was change, particularly during the latter half of the 20th century. As the company prepared for the 21st century, its inconstancy was true to form, as AT&T struggled to find a lasting identity for itself. In October 2000, a little more than two years after Armstrong hailed the beginning of new age for AT&T, the company announced plans to split into four separate companies. Armstrong's vision of using cable-TV networks to deliver broadband Internet access and local phone service to residential customers was abandoned, shelved in favor of creating four distinct businesses: AT&T Consumer, AT&T Business, AT&T Broadband, and AT&T Wireless. "The creation of these four companies," Armstrong remarked in a November 6, 2000 interview with Business Week, "is the foundation for a path to value creation. The journey hasn't been simple, but I believe it will be successful."

As the company entered a new decade, the process of stripping itself down to assume a new strategic stance began again, although not according to Armstrong's plan. Major facets of AT&T's business were divested, leaving the company focused on two business areas. In mid-2001, Comcast Corp. offered $40 billion for AT&T Broadband, eventually gaining the assets after it increased its bid to $72 billion at the end of 2001. In early 2004, Cingular Wireless and Vodafone Group launched a bidding war for AT&T Wireless, with Cingular's $41 billion cash offer emerging the winner. The deal was approved by AT&T shareholders in May 2004, leaving AT&T with two business segments, AT&T consumer services and AT&T business services.

By the end 2004, AT&T was preparing for the beginning of a new era. The company's residential telephone business, described by Armstrong in a November 8, 2000 interview with Knight Ridder/Tribune Business News as "in systemic decline," offered little opportunity for future growth. In July 2004, the company announced it would stop courting residential customers and instead focus its future on its business services segment. In the years ahead, AT&T planned on providing global voice and data communications services to clients ranging from small businesses to large multinational conglomerates, hoping its expertise in networking, Internet protocol (IP), and e-commerce services would provide a stable foundation for future growth.


Principal Subsidiaries

ACC Corporation; Alascom, Inc.; ATTCapital Holdings, Inc.; ATTCredit Holdings, Inc.; ATTCommunications, Inc.; ATTCommunications of California, Inc.; ATTCommunications of Delaware, LLC; ATTCommunications of Hawaii, Inc.; ATTCommunications of Illinois, Inc.; ATTCommunications of Indiana, Inc.; ATTCommunications of Maryland, LLC; ATTCommunications of Michigan, Inc.; ATTCommunications of the Midwest, Inc.; ATTCommunications of the Mountain States, Inc.; ATTCommunications of Nevada, Inc.; ATTCommunications of New England, Inc.; ATTCommunications of New Hampshire, Inc.; ATTNew Jersey Holdings, LLC; ATTCommunications of New York, Inc.; ATTCommunications of Ohio, Inc.; ATTCommunications of the Pacific Northwest, Inc.; ATTCommunications of Pennsylvania, LLC; ATTCommunications of the South Central States, LLC; ATTCommunications of the Southern States, LLC; ATTCommunications of the Southwest, Inc.; ATTCommunications of Virginia, LLC; ATTCommunications of Washington D.C., LLC; ATTCommunications of West Virginia, Inc.; ATTCommunications Holdings of Wisconsin, LLC.; ATTCommunications Services International Inc.; ATTGlobal Communications Services Inc.; ATTCommunications Services of Jamaica LLC; ATTSolutions Inc.; ATTGlobal Network Services Group LLC; ATTof Puerto Rico, Inc.; ATTof the Virgin Islands, Inc.; Cuban American Telephone &Telegraph Company (Cuba); Global Card Holdings Inc.; Teleport Communications Group Inc.


Principal Operating Units

AT&T Business Services; AT&T Consumer Services.


Principal Competitors

MCI Inc.; Sprint Corporation; Verizon Communications Inc.


Further Reading

Anderson, Julia, "Clark County, Wash., AT&T Broadband Subscribers to Become Customers of Comcast," Knight Ridder/Tribune Business News, December 5, 2002.

"AT&T: Breaking up Is Still Hard to Do," Business Week, November 6, 2000, p. 173.

Bonamici, Kate, "Bells and Whistles," Fortune, April 19, 2004, p. 146.

Brooks, John, Telephone: The First Hundred Years, New York: Harper and Row, 1976.

Evans, David S., ed., Breaking Up Bell: Essays on Industrial Organization and Regulation, New York: Elsevier Science Publishing Co., 1983.

Faletra, Robert, "What Is AT&T Thinking with Its Dramatic Shift in Channels," Computer Reseller News, October 18, 2004, p. 94.

Finneran, Michael, "The AT&T Breakup: A New Model for a Global Telecom Colossus," Business Communications Review, November 1995, pp. 789.

Goldblatt, Henry, "AT&T Finally Has an Operator," Fortune, February 16, 1998, pp. 7980.

Greenfield, Karl Taro, "Ma Everything!," Time, May 17, 1999, pp. 5860.

Greenwald, John, "AT&T's Power Shake," Time, July 6, 1998, pp. 768.

Howe, Peter J., "AT&T Chairman Addresses Boston Audience on Future of Company," Knight Ridder/Tribune Business News, November 8, 2000.

Kirkpatrick, David, "Could AT&T Rule the World?," Fortune, May 17, 1993, p. 54.

, "AT&T Has the Plan," Fortune, October 16, 1995, pp. 846.

Kosseff, Jeffrey, "Comcast, AT&T Merger Will Alter 2 Million E-Mail Addresses," Knight Ridder/Tribune Business News, December 4, 2002.

Kupfer, Andrew, "AT&T's $12 Billion Cellular Dream," Fortune, December 12, 1994, p. 100.

, "AT&T: Ready to Run, Nowhere to Hide," Fortune, April 29, 1996, pp. 11618.

, "AT&T Gets Lucky," Fortune, November 9, 1998, pp. 10810.

Loomis, Carol J., "AT&T Has No Clothes," Fortune, February 5, 1996, pp. 7880.

Mehta, Stephanie N., "Great Balls of Fire," Fortune, November 13, 2000, p. 44.

, "The New AT&T: Not Quite Its Old Self," Fortune, July 12, 2004, p. 34.

McCarroll, Thomas, "How AT&T Plans to Reach out and Touch Everyone," Time, July 5, 1993, p. 44.

Scheisel, Seth, "AT&T Conjures up Its Vision for Cable, But Can It Deliver?," New York Times, May 7, 1999, p. 1C.

Sims, Calvin, "AT&T's New Call to Arms," New York Times, January 22, 1989.

Slutsker, Gary, "The Tortoise and the Hare," Forbes, February 1, 1993, p. 66.

Snyder, Beth, "AT&T Joins Wave of Marketers Hiding IDs Behind New Brands: Lucky Dog Dial-Around Service Aims for Value-Conscious Crowd," Advertising Age, November 2, 1998, p. 17.

Trager, Louis, "AT&T Sticks to Consumer Path," Interactive Week Online, May 3, 1999.

Villano, Matt, "Who Ya Gonna Call?," Computer Reseller News, November 1, 2004, p. 80.

Waserman, Todd, "AT&T: We're All About Business Now," Brandweek, August 9, 2004, p. 4.


Scott M. Lewis
updates: Frank Uhle; Jeffrey L. Covell

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Lewis, Scott; Uhle, Frank; Covell, Jeffrey. "AT&T Corporation." International Directory of Company Histories. 2005. Retrieved June 25, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3429500019.html

AT&T Corporation

AT&T Corporation

32 Avenue of the Americas
New York, New York 10013
U.S.A.
(212) 387-5400
(800) 222-0300
Fax: (212) 387-5695
Web site: http://www.att.com

Public Company
Incorporated:
1885 as American Telephone and Telegraph Company
Employees: 107,800
Sales: $53.22 billion (1998)
Stock Exchanges: New York Philadelphia Boston Midwest Pacific Tokyo London Paris Geneva Brussels
Ticker Symbol: T
NAIC: 51331 Wired Telecommunications Carriers; 513322 Cellular & Other Wireless Telecommunications; 51334 Satellite Telecommunications; 541611 Administrative Management & General Management Consulting Services; 522210 Credit Card Issuing; 514191 Internet Access Providers; 513210 Cable Broadcasting Networks

The predecessor of AT&T Corporation, the American Telephone and Telegraph Company, was the largest corporation in the world for much of the 20th century. A government-regulated monopoly for most of its existence, it built most of the U.S. telephone system and was the standard of the worldwide telecommunications industry. It was dismembered in 1984 as a consequence of an action by the U.S. Department of Justice (DOJ) and through a consent decree signed that year. Its local operating companies became separate entities, leaving AT&T with the longdistance segment of the business, the only remaining government-regulated aspect of the company. In 1995 it was divided into three more parts, with only the long-distance and other service-oriented businesses left under the name AT&T. Under new CEO C. Michael Armstrong, the reconfigured company began moving toward offering a combination of telephone, television, and Internet services following the acquisitions of major cable providers TCI Communications and MediaOne.

Beginnings

AT&T had its origin in the invention of the telephone in 1876 by Alexander Graham Bell. In 1877 Bell and several financial partners formed the Bell Telephone Company, and in 1878 they formed the New England Telephone Company to license telephone exchanges in New England. The two companies licensed local operating companies in Chicago, New York, and Boston. Over the next year Bell and his backers sold a controlling interest in the companies to a group of Boston financiers.

The companies were soon embroiled in patent disputes with Western Union Telegraph Company, the worlds largest telegraph company. During the dispute, the two Bell companies were consolidated into the National Bell Telephone Company, and Theodore J. Vail was named general manager. In November 1879, the patent suit was settled out of court. Western Union left the telephone business and sold its system of 56,000 telephones in 55 cities to Bell. Bell agreed to stay out of the telegraph business, and paid Western Union a 20 percent royalty on telephone equipment leases for the next 17 years. Between 1877 and 1881, Bell licensed numerous local operating companies as a way to promote the telephone without having to raise capital. The companies signed five- to ten-year contracts, under which Bell got $20 per telephone per year and the right to buy the licensees property when the contract expired.

National became the American Bell Telephone Company in 1880 and obtained more capital at that time. Starting in 1881 Bell urged the locals to make the contracts permanent, rescinding Bells right to buy the respective properties, but giving Bell variously 30 to 50 percent ownership of the operating companies. The companies could build long-distance lines to connect exchanges in their territories, but they were prohibited from connecting them with those of other operating companies or independent phone companies. Bell thus became a partner in the local telephone business, allowing Bell to influence the locals and conserve capital for long-distance operations. American Bell needed large amounts of equipment, and in 1881 it acquired Western Electric, a major Western Union supplier, to serve as its manufacturer. Bell then consolidated into Western Electric several other manufacturers it had licensed to make telephones.

More long-distance lines were being built as telephone technology improved. In 1884 Bell built an experimental line between Boston and New York. The next year it added a PhiladelphiaNew York line. To construct, finance, and operate its long-distance system, Bell established the American Telephone and Telegraph Company in 1885 to operate as its long-distance subsidiary. At that time the nascent U.S. telephone system was primarily a series of unconnected local networks. Vail, who was named AT&T president, wanted to get a long-distance network in place before Bells basic patents expired in 1894. By the time it established AT&T, Bell was in firm control of the telephone business. It regulated the operating companies long-distance lines and Western Electric, their major supplier. It also had the right to take over their property if they violated their contracts.

In 1888 a huge blizzard in New England knocked most telephones out of service. The company responded by pushing to put more cables underground. Later that year it became clear that a long-distance network would cost more than planned, and AT&T floated $2 million in bonds to raise capital. The company returned to public investors frequently throughout its history to finance its ever-expanding enterprises. For decades AT&T stock was the most widely held in the world. To attract investors so often, AT&T was forced to be efficient, even though it lacked real competition for much of its history.

Technical advances came regularly. The first coin-operated public telephone was installed in 1889. During 1891 two-party and four-party service was introduced, and the first automatic dial system was patented. A New York-Chicago long-distance line opened in 1892, and Boston-Chicago and New York-Cincinnati lines were initiated in 1893.

Bell initially had a monopoly on the telephone because of its patents, but in 1894 its patent expired. Rather than compete by providing better and less expensive service, Bell often took the growing independent phone companies to court, claiming patent infringements. As Western Electric would not sell equipment to the independents, new manufacturers sprung up to accommodate them. The independents were particularly successful in rural areas in the West and Midwest where Bell did not provide service. By 1898 some cities had two unconnected phone systems, one Bell and one independent. This competition forced Bell to expand faster than it otherwise would have. It jumped from 240,000 phones in 1892 to 800,000 in 1899.

The company needed capital to keep up with this expansion, and Massachusetts, where American Bell was based, presented far more regulatory interference than New York, where AT&T was based. As a result, AT&T in 1899 became the parent company of the Bell System until the breakup in 1984. AT&Ts capital jumped from $20 million to more than $70 million. By 1900 AT&T was organizing itself into the vertical structure that characterized it for decades thereafter. It had assets of $120 million compared with a total of $55 million for the independents, but its finances were run overly conservatively and its service was reputedly poor.

Meanwhile, the telephone was having a dramatic impact on the United States, where large numbers of people still lived in the relative isolation of farms or small towns. The telephone lessened their isolation, and the response to the new invention was enthusiastic. The number of rural telephones shot from 267,000 in 1902 to 1.4 million in 1907. The telephone was coming to be viewed as indispensable by virtually all businesses and most private homes.

The Early 1900s: Fighting the Independents

Competition from independents continued to mount. Their rates were sometimes half of Bells, and the United States was in an antimonopoly mood. Many rural communities started their own not-for-profit phone companies that were later sold to independents or Bell. By 1907 the independents operated 51 percent of all phones. AT&T was fighting back, having made the decision to take on the independents when it moved and changed its name. The companys first and most effective move was to slash rates. The arrogance of early company officials was replaced by a desire to please customers. AT&T also bought out independents, set up its own independents, and used its political and financial clout to strangle competitors. AT&Ts greatest advantage was its virtual monopoly of long-distance servicewhich it refused to let independents use.

The invention of a certain electric device, the loading coil, in 1899 gave long-distance service a push by allowing smaller-diameter wires to be used, which made underground long-distance cables feasible. They were implemented for an underground New YorkPhiladelphia line in 1906, but longdistance signals remained weak and difficult to hear until the invention of the vacuum-tube repeater in 1912.

Company Perspectives:

We aspire to be the most admired and valuable company in the world. Our goal is to enrich our customers personal lives and to make their businesses more successful by bringing to market exciting and useful communications services, building shareowner value in the process.

Competition had given AT&T a necessary push, forcing it to expand and grow, but it also weakened its finances. Between 1902 and 1906 debt grew from $60 million to $200 million. Through a series of bond purchases starting in 1903, financier J. P. Morgan tried to wrest control of the company from the Boston capitalists, beginning a free-for-all that lasted several years. When the dust cleared in 1907, Morgan and his New York and London backers had won, and they brought back Vail as president. Vail had left in 1887 because of differences with the Bostonians, whose view was focused.narrowly on short-term profit. Vail and his backers had a wider vision than the Bostonians, believing they should create a comprehensive, nationwide communications system.

In 1907 AT&T boasted 3.12 million telephones in service, but had a terrible public image, low staff morale, poor service, serious debts, and a bevy of technological problems. Within a decade Vail turned the company around, making it a model of corporate success. He soon sold millions of dollars in bonds by offering them at a discount to shareholders, which reestablished confidence in the company. He also dramatically increased research and development, hiring talented young scientists and laying the foundation for what would, in 1925, become Bell Labs. Vail concentrated the companys visionaries into central management and left day-to-day network decisions to workers more interested in practical questions. For its first two decades AT&T had put profits for its shareholders above service for its customers; Vail was one of the first U.S. business leaders to balance profit with customer satisfaction.

At the same time, Vail was a monopolist, believing competition had no place in the telephone industry. He and Morgan set out to make AT&T the sole supplier of U.S. telecommunications services. In 1910 Vail became president of Western Union after AT&T bought 30 percent of Westerns stock. For the first time telegrams could be sent and delivered by phone. Telephone and telegraph lines could back each other up in emergencies. AT&T gobbled up independent phone companies at an ever-increasing rate. When Morgan found an independent in financial trouble, he used his power as a leading banker to squeeze its credit, often forcing it to sell to AT&T. By 1911 AT&T had bought so many small independents that Vail consolidated them into a smaller number of state and regional companies. AT&Ts ownership was motivated partly by profit, but also by the desire to ensure good service.

Antimonopoly pressures from consumers and government began to mount on AT&T well before then. A crucial turning point came in 1913, after Morgans death, when Vail decided to sell Western Union and allow independents access to AT&Ts long-distance lines. The move cost $10 million and ended AT&Ts dream of a national telecommunications monopoly, but it won AT&T respect and ended growing pressure to dismember it.

Coast to Coast Long Distance Achieved in 1915

By that time AT&T was working on the first coast-to-coast telephone line, using loading coils and repeaters. On January 25, 1915, Alexander Graham Bell, in New York, and former collaborator, Thomas Watson, in San Francisco, engaged in a coast-to-coast repeat of the first-ever telephone conversation 39 years earlier. AT&T was also making important progress in automatic switching systems and sent the first transatlantic radio message in 1915. As the telephone became a matter of national interest, pressure for federal regulation mounted, and Vail welcomed it as long as regulators were independent.

During World War I the AT&T network was used for domestic military communications. AT&T also set up extensive radio and telephone communications lines in France. The war pushed AT&Ts resources to the limit, with a $118 million construction budget for 1917. In 1918, a year in which AT&T had ten million phones in service, the U.S. government took over the telephone system. The government set rates and put AT&T under a branch of the post office, although the company continued to be run by its board of directors. One of the governments first decisions was to start a service connection charge. It then raised both local and long distance rates. Lower rates had been touted as a major benefit of public ownership. When the rates went up, support for government ownership collapsed, and in August 1919 the government gave up its control of AT&T. Vail retired in the same year, leaving the presidency to Harry Bates Thayer, and died in 1920.

AT&T grew rapidly as a regulated monopoly during the laissez-faire 1920s. The Graham Act of 1921 exempted telephony from the Sherman Antitrust Act. Of almost 14 million telephones in the United States in 1921, the Bell System controlled 64 percent; and 32 percent, although owned by independents, were plugged into the AT&T network. Commercial radio boomed, and AT&T entered cross-licensing patent agreements with General Electric, Westinghouse, and Radio Corporation of America, with which it was soon embroiled in legal disputes. By the end of 1925, AT&T had a national network of 17 radio stations. AT&T put its first submarine cable into service between Key West, Florida, and Havana, Cuba, in 1921. In 1925 Bell Labs became a separate company, jointly funded by AT&T and Western Electric. The same year, Thayer retired and was succeeded by Walter S. Gifford, who served for the next 23 years. His influence on the U.S. telephone industry was second only to Vails.

Gifford quickly got AT&T out of radio and other side ventures, although it tried to establish a controlling interest in motion picture sound technology in the late 1920s. He reduced the fee licensees paid from the 4.5 percent of gross revenue established in 1902, to four percent in 1926, and two percent in 1928. AT&T stockholders grew from 250,000 in 1922 to nearly 500,000 in 1929. In 1929 Bell Labs gave the first U.S. demonstration of color television. By 1932 AT&T had the second largest financial interest in the film industry, but sold it in 1936.

The first years of the Great Depression badly hurt AT&T. Many subscribers could no longer afford telephones. AT&T sales for 1929 were $1.05 billion; by 1933 they were $853 million. Western Electric sales in 1929 were $411 million; 1933 sales were $70 million. Western Electric laid off 80 percent of its employees, and AT&T laid off 20 percent.

By 1933 telephone use began growing again, and by 1937 it exceeded pre-Depression levels. During the late 1930s the newly formed Federal Communications Commission (FCC) conducted a long, damaging investigation of AT&Ts competitive practices that reopened the battle over AT&T as a monopoly. In 1939 AT&T had assets of $5 billion, by far the largest amount of capital ever controlled by a corporation up to that time. It controlled 83 percent of all U.S. telephones and 98 percent of long-distance wires. Subsidiary Western Electric manufactured 90 percent of all U.S. telephone equipment. The FCCs final report was initially ignored due to the outbreak of World War II but had significant impact later.

Growth During World War II

Telephone use, particularly long distance, grew tremendously during World War II, with 1.4 million new telephones installed in 1941 alone. Western Electric and Bell Labs devoted themselves primarily to military work from 1942 to 1945, filling thousands of government contracts and making technological innovations. The most important work was in radar, the experience that gave AT&T a huge lead when microwave radio relay became the principal means of transmitting long-distance telephone and television signals in the postwar period.

The FCC forced AT&T to lower rates during the war, and its plants and infrastructure were worn out by wartime production. AT&Ts business boomed after the war, as population and prosperity increased, and the habit of long-distance telephoning acquired during the war continued. The company installed more than three million telephones in 1946. Benefits of wartime technology were many. Moving vehicles were brought into the telephone system by radio in 1946. Coaxial cable was first used to take television signals over long distances in 1946. Microwave radio began transmitting long-distance calls in 1947. Bell Labs brought out the transistor, a replacement for the vacuum tube and one of the important inventions of the 20th century, in 1948; its inventors won the Nobel Prize in 1956.

The end of the war brought serious labor trouble. AT&T and the National Federation of Telephone Workers faced off over wages, working conditions, and benefits, producing a nationwide strike in 1947. Public opinion went against the strikers, and the eventual compromise favored AT&T.

Gifford retired in 1948 and Leroy A. Wilson became president. His first task was to push a rate increase past government regulators. He got one in 1949 that helped AT&T sell more stock to raise needed capital. As an outgrowth of the 1930s FCC investigation, the U.S. Department of Justice filed suit in 1949, seeking to split Western Electric from AT&T. AT&T succeeded in delaying the case until the Eisenhower administration, which was not as interested in regulation, took power. In the meantime the government talked Western Electric into taking over the management of an advanced weapons research laboratory. It formed Sandia Corp. in 1949 to do so. In the 1950s Western Electric worked on the Nike antiaircraft missiles, making $112.5 million on the venture. Western and Bell Labs worked with others on a huge air-defense radar system. These defense projects gave AT&T a powerful lever against the antitrust suit. In a consent decree in 1956 AT&T agreed to limit its business to providing common-carrier services and to limit Western Electrics to providing equipment for the Bell System, except for government contracts. The antitrust case was settled on this basis.

In 1951 Wilson died and Cleo Craig became president. In the next few years AT&T made it possible to dial directly to other cities without using an operator. This and ensuing developments enabled long-distance charges to be repeatedly reduced. In 1955 AT&T laid the first transatlantic telephone cable, jointly owned with the British Post Office and the Canadian Overseas Telecommunications Corporation. Craig retired in 1956, and Frederick R. Kappel became president.

AT&T was in enviable financial shape by the late 1950s, although some accused it of getting there by overcharging subscribers. The booming U.S. economy led to unprecedented calling volumesparticularly from teenagers, many of whom were getting their own telephones. Telephones moved from shared party lines to private lines, and telephone services like weather and time announcements became widespread, adding further revenue. AT&T split its stock three-for-one in 1959 and two-for-one in 1964. By 1966 AT&T had three million stockholders and nearly one million employees. In 1954 AT&T began offering telephones in colors other than black. In 1961 it developed Centrex, a system in which an office maintained its own automatic switching exchange; in 1963 it offered the first Touch-Tone service; in 1968 it brought out the Trimline phone, with the dial built into the handset. By 1965 the Bell System served 85 percent of all households in the areas in which it operated, compared with 50 percent in 1945, and was providing a vast array of services at a variety of rates.

Expanding into Space: Bellcom and Telstar

AT&T formed Bellcom to supply most of the communications and guidance systems for the U.S. space program from 1958 to 1969. Bell Labs worked intensively on satellite communications, and the first AT&T satellite, Telstar, was launched in 1962. Comsat, a half-public, half-private company handling U.S. satellite communications, was founded in 1962, with AT&T owning 27.5 percent at a cost of $58 million.

AT&T worked on an electronic switching system throughout the 1950s and 1960s. The project was more complicated than expected, and by the time the first electronic equipment was installed in 1965, AT&T had spent about $500 million on the project. The speed and automation that electronic switches gave the phone system, however, made possible the vast increases in traffic volume in the 1970s and 1980s, as the United States moved to an information-based society.

In the 1950s and 1960s other companies began trying to capture specific portions of AT&Ts business. The Hush-a-Phone Company marketed a plastic telephone attachment that reduced background noise. Microwave Communications Inc. (MCI) tried to establish private-line service between Chicago and St. Louis. Carter Electronics Corporation marketed a device that connected two-way radios with the telephone system. AT&T responded by forbidding the connection of competitors equipment to the Bell System. Several FCC investigations followed, with decisions that created competition for terminal equipment and intercity private-line service. AT&T began to face serious competition for the first time in 50 years.

Kappel retired in 1967 and was replaced by H. I. Romnes, a former president of Western Electric. AT&Ts earnings were leveling off after tremendous growth in the early 1960s. There also were service problems in 1969 and 1970, with numerous consumer complaints in New York. Similar predicaments followed in Boston, Denver, and Houston. AT&T borrowed money and raised rates to pay for repairs.

More serious problems were beginning for AT&T. In the early 1970s sales by the interconnect industry were growing, and businesses were buying telephone equipment from AT&T competitors. The U.S. Equal Employment Opportunity Commission accused AT&T of discriminating against women and minorities. AT&T, without admitting it had done so, signed consent decrees under which it agreed to increase the hiring, promotion, and salaries of women and minorities.

MCI claimed AT&T was still preventing it from competing and filed an antitrust lawsuit in 1974. The situation became disastrous when the DOJ filed another antitrust suit later in 1974, this time asking for the dismemberment of AT&T. The DOJ charged that AT&T had used its dominant position to suppress competition. The suit dragged on for years.

During the years of the suit, AT&T continued to grow. Both 1980 and 1981 were years of record profits. The $6.9 billion AT&T made in 1981 was the highest profit for any company to that time.

The Breakup of the Bell System

The DOJ suit finally came to trial in 1981. By then AT&T and the government both wanted to settle the case. AT&T longed to get into computers and information services, but was prevented by its 1956 agreement. In 1982 the FCC required AT&T to set up a separate, unregulated subsidiary called American Bell to sell equipment and enhanced services. In January 1982 AT&T and the DOJ jointly announced a deal to break up the Bell System, while freeing the remainder of AT&T to compete in non-long-distance areas such as computers.

Federal Judge Harold Greene gave final approval for the AT&T breakup in August 1983. At that time AT&T was the largest corporation in the world; its $155 billion in assets made it larger than General Motors, Mobil, and Exxon combined. After the breakup, on January 1,1984, AT&T had $34 billion in assets. Its net income dropped from $7.1 billion to $2.1 billion, and its workforce from 1.09 million to 385,000. Its 22 regional operating companies were split off into seven regional holding companies, and AT&T lost the right to use the Bell name. AT&T stockholders received one share in each of the regional companies for every ten AT&T shares they owned. AT&T also lost the highly profitable Yellow Pages, which went to the regional companies.

The new AT&T consisted of two primary parts: AT&T Communications, the long-distance business, and AT&T Technologies, a group of other businesses that mainly involved the manufacture and sale of telecommunications equipment for consumers and businesses. Western Electric was broken up and folded into AT&T Technologies. Long distance was expected to provide the bulk of short-term revenue for the new AT&T, but the unregulated technologies group, backed by Bell Labs, was expected to quickly blossom. AT&T Technologies initially concentrated on switching and transmissions systems for telephone companies. AT&T was losing ground to competitors in that sector and wanted to fight back. The company also worked on telephone-equipment sales, sold through AT&T phone centers and such retailers as Sears. American Bell changed its name to AT&T Information Systems and began pushing computers. AT&T International quickly signed a deal with the Dutch company N.V. Philips to sell switching equipment throughout the world, setting up AT&T Network Systems International.

To help pay for the breakup, AT&T took a fourth-quarter charge of $5.2 billion in 1984, the largest to that time. AT&T, however, was now free to go into computers, a field it had longed to get into since the 1956 consent decree, and the company began spending hundreds of millions of dollars to develop and market a line of computers. James E. Olson became president of AT&T in 1985, cutting 24,000 jobs from the information division later that year to improve its profits. In 1986 Olson became chairman, and Robert E. Allen became president. Olson concentrated on centralizing management and refocusing company strategy around the idea of managing the flow of information.

The company chose Brussels, Belgium, as the site for its regional headquarters serving Europe, the Middle East, and Africa. It also began joint ventures with companies in Spain, Italy, Ireland, Denmark, South Korea, and Taiwan to get its telecommunications products into foreign markets. Still, foreign revenues accounted for only ten percent of company earnings, compared with 40 percent for many other U.S.-based multinationals. Company earnings declined because of a slumping business equipment market and greater than expected reorganization costs. Earnings also suffered from a drop in rental revenues as more AT&T customers decided to buy their telecommunications equipment outright.

Meanwhile AT&Ts computer operations were in trouble. The company had developed a new operating system, Unix, for its computers. Unix had some advantages; but the users of personal computers were not familiar with it, manufacturers of larger computers were committed to their own proprietary systems, and buyers stayed away. AT&T computer operations lost $1.2 billion in 1986 alone. At the end of the year the company restructured its computer operations to concentrate on telecommunications-based computers and computer systems. It custom designed a system for American Express that automatically phoned customers while putting customer information on a terminal screen. At the end of 1986 AT&T cut another 27,400 jobs and took a $3.2 billion charge. Income for the year was only $139 million.

In 1987 the DOJ recommended that the regional operating companies be allowed to compete with AT&T in long distance and telecommunications equipment manufacturingits two core businesses. The idea was unacceptable to Judge Harold Greene, overseer of the AT&T breakup. Because of fierce competition from MCI and other companies, AT&T retained 76 percent of the long-distance market, down from 91 percent in 1983.

Unix made some gains in 1986 and 1987, and AT&T formed the Archer Group, a consortium of computer makers manufacturing Unix systems. It included Unisys and Sun Microsystems. After nearly $2 billion in losses in computers, the data systems group finally signed a major contract with the U.S Air Force in 1988. The $929 million contract for minicomputers provided only a slim profit margin, but AT&T hoped that the deal would push its computers over the top, make Unix an industry standard, and lead to further government sales. Olson died in 1988, and Allen became chairman.

More Changes in the Late 1980s

MCI and others continued to erode AT&Ts share of the $50 billion long-distance market, which stood at 68 percent at the end of 1988. To fight back, AT&T redeployed 2,500 employees to sales positions and aggressively tackled the business communications market. AT&T also took a $6.7 billion charge to modernize its telephone network and cut 16,000 positions. As a result, the company lost $1.7 billion in 1988, its first-ever loss for the year.

Some industry analysts, however, felt the company was finally turning around after four years of confusion and drift. It won two major government contracts that year. One, expected to earn AT&T $15 billion by 1989, was to build a new government telephone system. Competitor US Sprint Communications won a $10 billion contract for a second part of the same system. Regulators finally gave AT&T the right to match the low prices of MCI and US Sprint, leading to the end of the long-distance price wars waged since the AT&T breakup. AT&T showed a $2.7 billion profit for 1989, its largest since the breakup.

In mid-1990 AT&T raised its long-distance rates after low second-quarter earnings. It had been hurt by declining longdistance revenue and slow equipment sales. The company, however, soon made several important sales. It received an extension of a $100 million personal computer sale to American Airliness Sabre Travel Information Network and signed an agreement to upgrade Chinas international communications system. AT&T made its first entry into Mexicos communications market, winning a $130 million contract from Mexicos national telephone company, Teléfonos de Mexico. It signed a $157 million contract to build an undersea fiber-optic cable between Hawaii and the U.S. mainland, and announced that it planned to build a high-capacity undersea cable between Germany and the United States, with Deutsche Bundespost Telekom. It also won a $600 million contract from GTE Corporation to build cellular network equipment.

Hoping to make money from its financial and information resources, AT&T launched a credit card, Universal Card, in early 1990. By late 1990 it was the eighth leading credit card in the United States, with revenue of $750 million. Wall Street analysts, however, expected the credit cards startup costs to hold back AT&T earnings until at least 1992. Bell Labs announced important breakthroughs in computer technology in 1990, including the worlds first computer using light. Products based on the new technologies were years off, but AT&T continued to manufacture computers. AT&T signed an agreement with Japans Mitsubishi Electric Corporation to share memory-chip technology, and licensed technology from Japans NEC Corporation to make semiconductors. Late in the year, Philips, under financial pressure, sold back its 15 percent stake in AT&T Network Systems International.

In the early 1990s AT&Ts overseas ventures began bearing fruit. About 15 percent of its revenue, more than $5 billion yearly, came from international calling and sales to foreign buyers of equipment and services. In 1991 AT&T made a major acquisition in the computer industry, buying NCR Corporation through an exchange of stock valued at $7.4 million. AT&T officials believed the purchase of NCR, which accounted for about 60 percent of its sales in international markets, would put AT&T on the path to becoming a truly global company and a leader in networked computing. NCR had introduced more new products than any other computer company in the preceding year. NCR officials saw advantages of the merger to be an increased customer base, access to the research and development capabilities of Bell Labs, and the addition of AT&Ts technical, marketing, and sales resources.

AT&Ts fortunes looked solid following the NCR acquisition. The companys stock price was climbing, and several of its previously sluggish operations posted their best earnings figures in years. One area in which AT&T needed market presence was cellular telephone service, though the company was the largest manufacturer of cell phone system switching devices. In August 1993 the company acquired McCaw Cellular Communications for $12.8 billion in stock. The Kirkland, Washington-based McCaw operated one of the largest cellular systems in the United States, with coverage of a third of the country.

Division into Three Companies

Despite these positive developments, AT&T was still having problems. NCR in particular was not earning its keep and lost $600 million in 1994. AT&Ts long-distance service profits were accounting for the bulk of the corporations income, but competition was growing ever fiercer. On September 20, 1995 the company announced it was splitting up yet again, this time into three separate entities. The largest would be known as AT&T Corporation and consist primarily of the long distance businesses, AT&T Wireless, the Universal Credit Card, and AT&T Labs. The next largest would be Lucent Technologies, which would consist of the companys consumer and business products operations and Bell Labs. The smallest would be NCR Corporation, consisting more or less of what it had been when AT&T purchased it four years earlier. The breakup, the largest corporate restructuring in history, was accomplished by means of a spin-off of stock to AT&T shareholders. Some 40,000 of the companys employees were also expected to lose their jobs.

Other developments at this time included AT&Ts first foray into the world of cyberspace, with the introduction of an array of business and home Internet access services. Also, in February 1996, Congress passed a new telecommunications act which ended monopolies for providers of local phone service. AT&T vowed to become a presence in the local service arena again, though this would entail leasing lines from the largely unfriendly Baby Bells.

In the months following the companys restructuring, corporate morale and investor confidence ebbed as AT&Ts efforts to fine-tune the reconfiguration proceeded slowly. CEO Bob Allen, nearing his planned retirement date of January 1998, saw his chosen successor rejected by the board in mid-1997. Finally, on November 1, Hughes Electronics CEO C. Michael Armstrong was approved to take over the reins at AT&T, and Allen stepped down.

Armstrong quickly set about cutting fat and implementing new strategies. He sold the companys credit card unit to Citibank for $3.5 billion, and its communications outsourcing business to Cincinnati Bell for $625 million. He purchased Teleport Communications Group, a local exchange business-service carrier in New York and 65 other cities, for $11.3 billion. International efforts, always a weak point with AT&T, were boosted by the formation of a joint venture with British Telecom. Advertising expenses were cut for a second time in two years, and an additional 18,000 layoffs were announced. Armstrongs biggest move during his first year came in the summer, when he cut a deal to purchase cable television giant TCI for $53.5 billion in stock.

In October the company merged its Wireless Services division with Vanguard Cellular Systems, a Northeast U.S.-based cell phone company with 625,000 subscribers. AT&T also started its own dial-around service, Lucky Dog. A host of new competitors had emerged who were offering low residential long-distance rates via special 7-digit access numbers. The heavily advertised Lucky Dog was an attempt to tap into this market, and was promoted with no mention of its corporate owner. In December, a deal worth $5 billion was reached to buy IBMs Global Network Internet access business, which was expected to provide a starting point for the joint venture with British Telecom.

Armstrongs first year performance was winning rave reviews, and he continued at full throttle in 1999 with the $60 billion acquisition of a second major cable provider, MediaOne. In a heated battle, AT&T had outbid both Comcast and Microsoft. As a sop to the latter, an agreement was reached to sell the computer giant $5 billion in AT&T stock, and to use Microsoft products in the companys new cable boxes. Deals with Comcast and Time Warner also brought more cable subscribers to the company. Armstrongs vision for AT&Ts future was to offer both telephone and Internet services through the newly acquired cable TV networks, taking advantage of the large data-transmission capacity they offered. This would eliminate the slow download speed experienced by Internet users who connected via telephone line and modem. Billions of dollars would have to be invested to retrofit cable systems for interactivity and telephone use for the plan to succeed.

This new direction would take AT&T full circle, back into the direct-wired residential telecommunications business it had consisted of before the 1984 breakup. The companys big gamble would take years to pay off, but many were betting on AT&T to succeed. For the first time since the breakup of the Bell System, AT&T seemed to be coming to grips with both its past and its future, as it began to gird for the challenges of the changing telecommunications market of the 21st century.

Principal Subsidiaries

AT&T Campuswide Access Solutions, Inc.; AT&T Capital Holdings, Inc.; AT&T Communications Americas, Inc.; AT&T Communications of Illinois, Inc.; AT&T Communications of Indiana, Inc.; AT&T Communications of New Jersey, Inc.; AT&T Communications of Ohio, Inc.; AT&T Communications of Pennsylvania, Inc.; AT&T Communications of the Midwest, Inc.; AT&T Communications of the Mountain States, Inc.; AT&T Communications of the South Central States, Inc.; AT&T Communications of the Southern States, Inc.; AT&T Communications of the Southwest, Inc.; AT&T Communications of Virginia, Inc.; AT&T Communications of Washington, D.C., Inc.; AT&T Communications of West Virginia, Inc.; AT&T Communications of Wisconsin, Inc.; AT&T Global Network Services; AT&T Microelectronica de España S.A. (Spain); AT&T Network Systems International B.V. (Netherlands); AT&T of Puerto Rico, Inc.; AT&T of Tampa, Inc.; AT&T of the Virgin Islands, Inc.; AT&T Solutions, Inc.; AT&T Web Site Services; AT&T Wireless Services, Inc.; AT&T WorldNet Service; Actuarial Sciences Associates, Inc.; Alascom, Inc.; Istel Group, Ltd. (U.K.); Liberty Media Group; Liberty Media International; Lucky Dog Phone Co.; Transoceanic Communications, Inc.

Principal Divisions

Consumer Markets Division; Business Services; AT&T Solutions; AT&T Wireless Services; AT&T Local Services Division; Network Services; AT&T Labs.

Further Reading

Brooks, John, Telephone: The First Hundred Years, New York: Harper and Row, 1976.

Evans, David S., ed., Breaking Up Bell: Essays on Industrial Organization and Regulation, New York: Elsevier Science Publishing Co., 1983.

Finneran, Michael, The AT&T Breakup: A New Model for a Global Telecom Colossus, Business Communications Review, November 1995, pp. 78-9.

Goldblatt, Henry, AT&T Finally Has an Operator, Fortune, February 16, 1998, pp. 79-80.

Greenfield, Karl Taro, Ma Everything!, Time, May 17, 1999, pp. 58-60.

Greenwald, John, AT&Ts Power Shake, Time, July 6, 1998, pp. 76-8.

Kirkpatrick, David, AT&T Has the Plan, Fortune, October 16,1995, pp. 84-6.

_____, Could AT&T Rule the World?, Fortune, May 17, 1993, p. 54.

Kupfer, Andrew, AT&T Gets Lucky, Fortune, November 9, 1998, pp. 108-10.

_____, AT&T: Ready to Run, Nowhere to Hide, Fortune, April 29, 1996, pp. 116-18.

_____, AT&Ts $12 Billion Cellular Dream, Fortune, December 12, 1994, p. 100.

Loomis, Carol J., AT&T Has No Clothes, Fortune, February 5, 1996, pp. 78-80.

McCarroll, Thomas, How AT&T Plans to Reach Out and Touch Everyone, Time, July 5, 1993, p. 44.

Scheisel, Seth, AT&T Conjures Up Its Vision for Cable, But Can It Deliver?, New York Times, May 7, 1999, p. 1C.

Sims, Calvin, AT&Ts New Call to Arms, New York Times, January 22, 1989.

Slutsker, Gary, The Tortoise and the Hare, Forbes, February 1, 1993, p. 66.

Snyder, Beth, AT&T Joins Wave of Marketers Hiding IDs Behind New Brands: Lucky Dog Dial-Around Service Aims for Value-Conscious Crowd, Advertising Age, November 2, 1998, p. 17.

Trager, Louis, AT&T Sticks to Consumer Path, Interactive Week Online, May 3, 1999.

Scott M. Lewis

updated by Frank Uhle

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AT&T Corporation

AT&T CORPORATION

The AT&T story is the saga of a giant "natural monopoly" compelled to engage in periodic massive reorganizations in order to comply with the swings in government policy from non-regulation to regulation to de-regulation. The American Telephone and Telegraph Company (AT&T) was established by the American Bell Telephone Company in 1885 as its long-distance subsidiary. At the time the U.S. telephone system consisted primarily of unconnected local networks; Bell wanted to put a long-distance network in place before its patents expired in 1894. Theodore J. Vail, Bell's general manager since 1879, was named president of AT&T, but he left in 1887 over differences with Bell's Boston-based financiers.

As AT&T discovered it would be more expensive to lay underground cables for a long-distance telephone network, the company raised funds by selling bonds to public investors. Throughout its history, AT&T would raise money from the public through the sale of stocks and bonds, and for many years AT&T stock was the most widely held in the world. The need to attract investors disciplined AT&T to be an efficiently run company, even though it faced little competition for much of its history.

In 1892 the company completed a New York-Chicago long-distance line, and the following year Boston-Chicago and New York-Cincinnati lines were introduced. When Bell's patents expired in 1894, the company faced increasing competition from independent telephone companies, especially in the West and Midwest. Bell was forced to expand more rapidly than it had planned, growing from 240,000 telephones in 1892 to 800,000 in 1899.

The rapid expansion in the last decade of the nineteenth century forced Bell to raise more capital. American Bell was based in Massachusetts, which imposed more regulatory interference to Bell's plans than did New York, where AT&T was based. As a result, the company reorganized and made AT&T the parent company of the Bell System, which it remained until the breakup of the company in 1984.

AT&T aggressively met the challenge from independent telephone companies, which were unable to compete with it for very long. Telephone systems sprouted like weeds in rural areas, increasing from 267,000 in 1902 to 1.4 million in 1907, a year in which independent phone companies operated 51 percent of all phones. AT&T's response was to slash phone rates, emphasize customer service, and buy out the failing independent companies. The company often used its political and financial clout to make it hard for the competition to survive.

As AT&T grew in the first decade of the twentieth century, its finances weakened, allowing financier J.P. Morgan to gain control of the company in 1907. Morgan and his investor group brought back Vail as president for the purpose of creating a comprehensive, nationwide communications system. At the time Vail took over AT&T's operations, it had more than three million telephones in service, but was plagued with a bad public image, low morale, poor service, numerous debts, and serious technological problems.

Vail was one of the first U.S. business leaders who knew how to balance the profit motive with the need to please customers. Within a decade he turned AT&T around and made it a model of corporate success. He improved the company's finances by selling bonds at a discount to shareholders. He increased the amount of research and development and laid the foundation for what would become Bell Labs in 1925.

Although Vail and Morgan were monopolists, they were unable to make AT&T the sole supplier of U.S. telecommunications services. After acquiring a controlling interest in Western Union in 1910 and buying out numerous independent telephone companies, Vail decided to sell Western Union in 1913 and allow the independents access to AT&T's long-distance lines. These decisions were made in response to growing anti-monopoly sentiments against AT&T and resulted in a better image for the company.

In 1915 AT&T completed the first coast-to-coast long-distance line from New York to San Francisco. Thus, AT&T dramatized their linkup when Alexander Graham Bell and Thomas Watson re-enacted their famous first-ever telephone conversation between the two cities. AT&T was also able to send the first transatlantic message in 1915. With the telephone becoming a matter of national interest, pressure for federal regulation was growing.

AT&T provided significant support to the military during World War I (1914-1918) when its telephone network was used for military communications. It also set up radio and telephone communication lines in France. In 1918 the U.S. government took control of AT&T, making it a branch of the U.S. Post Office for the duration of the war. Once the government had control of the nation's telephone lines, however, it began to raise rates and introduce service connection charges. Popular support for government ownership quickly faded and in August 1919 the government gave up control of AT&T. Vail retired that same year.

With telephone communications made exempt from the Sherman Antitrust Act by the Graham Act of 1921, AT&T prospered during the 1920s. It expanded into side businesses, including radio and film. By 1932 AT&T had the second largest financial interest in the film industry which it sold in 1936; its national network of 17 radio stations was sold in the mid-1920s. In 1925 Bell Labs became a separate company, jointly funded by AT&T and Western Electric (AT&T's telephone equipment manufacturing subsidiary). Walter S. Gifford, who became president of the company and would serve in that capacity until 1948, exerted a strong influence on the growing telephone industry.

AT&T suffered during the first years of the 1930s when the Great Depression forced many families to give up their phones because they could no longer afford them. Sales at Western Electric fell from 411 million dollars in 1929 to 70 million dollars in 1933, and revenues from subscribers dropped from 1.05 billion dollars to 853 million dollars for the same period.

Americans soon found, however, that the telephone had become a necessity, not just a convenience and by 1937, phone connections exceeded pre-Depression levels. By 1939 AT&T controlled 5 billion dollars in assetsmore capital than any other company had controlled up to that time. The immense size of AT&T prompted the newly formed Federal Communications Commission (FCC) to investigate AT&T's competitive practices. There were renewed concerns over AT&T's monopoly of telephone service. While the FCC's final report was ignored as World War II (1939-1945) broke out, the findings would have an impact on the company later on.

During World War II, Western Electric and Bell Labs concentrated on military work. This government subsidized research turned into a cornucopia of invention with vast implications for the company in the postwar world. Research brought about patented "spinoff" inventions and technological innovations, like radar and microwave radio relay systems. Other applications based on war-time research included coaxial cable to carry television signals and the invention of the transistor, which eventually replaced the vacuum tube.

In 1949, following up on the FCC's investigation, the U.S. Department of Justice, filed a suit seeking to split Western Electric from AT&T. However, Western Electric's work during the 1950s on Nike anti-aircraft missiles, the air defense radar system, and other defense projects gave AT&T some leverage with the Justice Department. In 1956 AT&T settled the antitrust suit by agreeing to limit its business to providing common carrier service and to confine Western Electric to providing equipment to the Bell System.

During the 1950s AT&T improved telephone communications and lowered long-distance rates by making it possible to dial directly to other cities without using an operator. In 1955 it laid the first transatlantic telephone cable, which it owned jointly with the British Post Office and the Canadian Overseas Telecommunications Corporation. As the nation's economy boomed in the late 1950s, telephone usage reached unprecedented levels. Private lines replaced party lines, and telephone based services became more common. AT&T was in enviable financial shape.

AT&T became involved in satellite communications when it formed Bellcom to supply most of the communications and guidance systems for the U.S. space program from 1958 to 1969. The first AT&T satellite, Telstar, was launched in 1962. That same year Comsat was launched as a half public, half private company to handle U.S. satellite communications; AT&T owned a 27.5 percent interest at a cost of 58 million dollars.

AT&T spent more than 500 million dollars to develop another communications innovation, an electronic switching system, during the 1950s and 1960s. As the United States became more of an information-based society, the speed and automation of the system made possible huge increases in telephone hardware efficiency during the 1970s and 1980s,.

AT&T's dominance in the communications industry again prompted concern about its monopoly status. In 1974 the company faced two antitrust lawsuits. One suit, brought by long-distance provider MCI, claimed AT&T was preventing it from competing in long-distance calling. The second suit, brought by the Department of Justice, called for the dismemberment of AT&T, charging that it had used its dominant position to stifle competition. As the Department of Justice suit dragged on, AT&T earned record profits in 1980 and 1981.

When the Department of Justice suit came to trial in 1981, both sides wanted to settle the case. AT&T wanted to enter the computer and information services business but was prevented from doing so by the 1956 consent decree. In 1982 AT&T was forced to set up a separate, unregulated subsidiary called American Bell to sell equipment and enhanced services. In January 1982 AT&T and the Justice Department reached an agreement to break up the Bell System, leaving AT&T free to compete in non-long-distance businesses such as computers. Final approval to the AT&T breakup was given in August 1983 by Federal Judge Harold Greene and the breakup became effective January 1, 1984.

At the time of the breakup, AT&T was the largest corporation in the world with 155 billion dollars in assets (even more than General Motors). After the breakup its assets were reduced to 34 billion dollars and net income dropped from 7.1 billion dollars to 2.1 billion dollars. Its 22 regional operating companies were divided into seven regional holding companies and AT&T was prohibited from using the Bell name.

The company was then organized in two major groups: AT&T Communications, which handled the company's long-distance services, and AT&T Technologies, which manufactured and marketed telecommunications equipment. The latter began concentrating on switching and transmission systems for telephone companies, an area in which AT&T was losing ground to competitors. American Bell became AT&T Information Systems and began investing heavily in computers.

In 1986 James E. Olson became chairman of AT&T, and Robert E. Allen became president. AT&T's computer operations lost 1.2 billion dollars in 1986, due to the lack of acceptance of AT&T's newly developed Unix operating system. After Unix made some progress in 1986 and 1987, AT&T formed a consortium of Unix manufacturers that included Unisys and Sun Microsystems. AT&T won two major government contracts, including one to build a new government telephone system. When Olson died in 1988, Allen became chairman and CEO until 1997, when he was replaced by C. Michael Armstrong, former chairman of Hughes Electronics.

AT&T reported its first-ever loss in 1988, a staggering 1.7 billion dollars. Then in 1989 it had a 2.7 billion dollars profit, the largest since the breakup. With AT&T losing market share in long-distance services, regulators gave the company permission to match the low prices of its long-distance competitors such as MCI and U.S. Sprint. Long-distance service was the company's primary source of revenue, but it used its financial and information resources to enter other businesses. In 1990 it introduced its Universal Card, which combined the features of credit and calling cards. In 1993 it acquired McCaw Cellular for 11.5 billion dollars, making it the dominant provider of wireless communication services. AT&T's structure as an integrated services, equipment, and computer company was no longer appropriate for the rapidly changing industry;

In September of 1995, AT&T announced that it would be splitting into three companies. One, a "new" AT&T, would concentrate on providing communications services. A second company, Lucent Technologies, would work in the area of research and development of communications technologies. The third new company, NCR, acquired in 1996 for an exchange of stock valued at 7.3 billion dollars, would focus on transaction-intensive computing. NCR and Lucent Technologies became separate, independent companies, leaving telecommunications and long-distance services AT&T's core business.

AT&T itself split into three main divisions addressing specific markets: business markets, consumer markets, and wireless services. For 1997, business markets generated 22.03 billion dollars in revenue, consumer markets brought in 23.52 billion dollars, and wireless services generated 4.43 billion dollars. The company's net income was 4.6 billion dollars, down from the 5.9 billion dollars net income in 1996. Other businesses and divisions that remained attached to AT&T included AT&T Solutions (an integrated partner of the business markets division); the local services division (which led the company's efforts to enter local service markets); and AT&T Universal Card Services (the company's credit card unit). These divisions were supported by Network and Computing Services, which ensured the reliability of AT&T products and services, and AT&T Labs, which created new technologies, products, and services.

Throughout its history, AT&T's financial strength allowed it to grow, improve, and make acquisitions. Its accomplishments included the multi-billion-dollar digitization of its entire network as well as its entrance into the international market in more than 200 countries. AT&T launched WorldNet to meet competition from the Internet arena and it also introduced DIRECTV, a television satellite system. At the end of 1998 AT&T announced it would acquire IBM's Global Network business for 5 billion dollars in cash. The IBM Global Network served large global companies, mid-sized businesses, and individual Internet users in 59 countries. At the beginning of 1999 AT&T acquired cable television giant, TCI (Tele-Communications Inc.), for 46 billion dollars, giving it 12.5 million cable subscribers who were also potential customers for local telephone service, a market AT&T was interested in developing. As the twentieth century drew to a close, AT&T's prospects looked bright. It continued to be on the cutting edge of technology and product development. As a polymorphous entity that acquired and divested itself of huge subsidiaries, it had outlasted the public's limited attention span and survived the threat of government regulation. Maybe it was a monopoly and maybe it wasn't. One thing was sure: the phone bills kept going up.

See also: Interstate Commerce Commission

FURTHER READING

"AT&T Corporate History," available from the World Wide Web @ http://www.att.com/factbook/co_history.html

"AT&T Corporate Structure," available from theWorld Wide Web @ http://www.att.com/factbook/co_overview.html

"AT&T Shareowners Vote in Favor of TCI Merger," available from the World Wide Web @ http://www.att.com/press/

"AT&T to Acquire IBM's Global Data Network," available from the world wide web @ http://www.att.com/globalnetwork/

Coll, Steve. The Deal of the Century: The Breakup of AT&T. New York: Simon & Schuster, 1986.

Dellinger, Margaret. AT&T's Total Quality Approach. Indianapolis: AT&T Customer Information Center, 1992.

Greenwald, John. "AT&T's Second-Chance CEO: Hughes Electronics Boss C. Michael Armstrong Takes the Top Job a Year after Turning it Down." Time, October 27, 1997.

Kahaner, Larry. On the Line: How MCI Took on AT&Tand Won! New York: Warner Books, 1987.

"Dialing for Dollars (Purchase of TCI)." Fortune, March 1, 1999.

Smith, George D. The Anatomy of a Business Strategy: Bell, Western Electric, and the Origins of the American Telephone Industry. Baltimore: Johns Hopkins University Press, 1985.

Stone, Alan. Wrong Number: The Breakup of AT&T. New York: Basic Books, 1989.

at&t aggressively met the challenge from independent telephone companies, which were unable to compete with it for very long. . . . the company often used its political and financial clout to make it hard for the competition to survive.

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