Incorporated: 1983 as American Information Technologies Corporation
Sales: $10.66 billion
Stock Exchanges: New York Boston Midwest Pacific Philadelphia London Tokyo Amsterdam Basel Geneva Zürich
Ameritech is one of the largest telecommunications companies in the United States. The Ameritech Bell Group is made up of Illinois Bell, Indiana Bell, Michigan Bell, Ohio Bell, and Wisconsin Bell; Ameritech Services; and Ameritech Information Systems. The Bell Group provides exchange telecommunications and local exchange access service for business and residential customers in the Midwest. Other Ameritech subsidiaries, offering communications-related products and services, are Ameritech Mobile Communications, Inc., Ameritech Credit Corp., Ameritech Publishing Inc., Ameritech Audiotex Services, Ameritech Development, the Tigon Corporation, and Ameritech International.
In January 1982 the U.S. Department of Justice (DOJ) ended a 13-year antitrust suit against the world’s largest corporation, American Telephone and Telegraph Company (AT&T). AT&T was required, under the landmark court-ordered consent decree, to divest itself of 22 local telephone operating companies. The key issue of the divestiture was to demonopolize the telecommunications industry and ensure equal access to the local exchange facilities by all long-distance carriers.
AT&T retained its Western Electric Manufacturing subsidiary, Bell Laboratories research facilities, as well as its long distance operations, while the 22 local companies were divided into seven regional holding companies (RHCs). The midwest regional Bell operating companies (BOCs), including Illinois Bell, Indiana Bell, Michigan Bell, Ohio Bell, and Wisconsin Bell, were assigned to the RHC American Information Technologies Corporation, called Ameritech for short. In 1991 the company formally changed its name to Ameritech.
Some felt that Judge Harold Greene imposed a stiff sentence upon the new RHCs. According to the modified final judgment, all RHCs were limited upon the initial breakup to providing only basic phone service, the strictly regulated arm of the U.S. telecommunications industry. Any new ventures had to be presented to the Federal Communications Commission (FCC) and Judge Greene. If approved these unregulated businesses had to be operated through separate subsidiaries.
Ameritech, with its six sibling RHCs, shared $147 billion in assets. The RHCs, however, were also ordered to share with AT&T any company debt as well as the costs of antitrust suits initiated prior to January 1, 1984, the official date of divestiture.
William L. Weiss, named president and CEO of Illinois Bell in 1981, was preceded in that position by both John DeButts, late chairman of AT&T, and Charles Brown, president and CEO of AT&T during divestiture. While the Illinois Bell CEO position appeared a stepping stone to the CEO position at AT&T, Weiss actively chose to take his chances at running an RHC rather than remain with what had been the parent company.
Anticipating its solo operation, Weiss diversified Ameritech operations into unregulated businesses that were allowed by the court. In September 1983 Ameritech incorporated several subsidiaries. One was Ameritech Services, Inc., a support company owned equally by all the midwest BOCs and designed to provide marketing, technical, and regulatory planning as well as new product development, purchasing, and national management services. The same year brought the formation of the Ameritech Development Corp., designed to target, research, and develop business-growth areas for all the Ameritech BOCs. In November Ameritech moved into publishing telephone directories through its subsidiary, Ameritech Publishing, Inc. In October 1983 Ameritech Mobile Communications, Inc., a provider of wire-free cellular telephones, was first in North America to offer cellular phone service.
Within six months Ameritech’s cellular phone test markets were a model for many competitors. Under previous mobile telephone systems, operating areas could use only 12 channels, working from a single antenna; busy lines for up to 30 minutes were the norm. In contrast, by April 1984, under the cellular system, regions were divided into small areas called cells, and because each cell had its own antenna, Ameritech’s Chicago-based system could accommodate up to 50,000 calls per hour. Company researchers forecasted that the total cellular service market could reach $3 billion by 1990, with equipment sales reaching $600 million. It came as no surprise that companies such as Motorola, General Electric, and Panasonic were jockeying for the chance to set up cellular systems. Ameritech Mobile Communications planned a Detroit cellular start-up by September 1984.
By summer 1984 Ameritech led the RHCs in first-quarter earnings. While Wall Street analysts did not expect the trend to continue, Weiss did. The Ameritech region, referred to disparagingly as the Rust Belt, had an image not so much to uphold as to dispel; and dispel it, it did. Barron’s November 12, 1984, issue listed Ameritech as recording the highest return on equity of all the RHCs, after nine months of operation. Weiss was credited for all the positive numbers; he kept operating expenses low by trimming his work force by 20% prior to divestiture. Ameritech concentrated on the telephone business, investing nearly $2 billion in new technology.
Ameritech ran into some stumbling blocks on the road to independence. Modernization of Centrex, the company’s central exchange switching system that linked local and longdistance carriers, was a must. Increased competition and new game rules following deregulation, however, allowed any company to buy a switchboard and thereby sidestep having to use Ameritech’s Centrex system. In addition the FCC consent decree ordered Ameritech to charge access fees to users of its Centrex system, a point Weiss argued against with state regulators. Ameritech was losing money due to the bypass and enforced access fees.
To step out of the tangle, Weiss launched the corporation into converting its central offices to electronic digital switching, which used the best available technology and was a cheaper system to maintain. In the meantime Ameritech’s unregulated subsidiaries, less constrained by FCC and state restrictions, surged ahead. Ameritech Mobile expanded its cellular systems, moving into the retail sector. Following a February 1985 agreement with Tandy Corporation, Tandy’s Radio Shack stores marketed Ameritech cellular phones.
In March 1985 Ameritech ventured into office automation systems with Real Com, an IBM Satellite Business Systems subsidiary. With Aetna Telecommunications Laboratories, Ameritech worked on simultaneous transmission of voice, video, and data via fiber-optic cables. Despite growing potential, Weiss did not see Ameritech putting more than one-fifth of its resources into these newer ventures. Following Springer’s lead, in March 1985, Ameritech Development purchased a minority interest in Davox Corporation, a producer of integrated voice and data communication systems.
Ameritech Publishing, also on the upswing, acquired Cleveland-based Purchasing Directories, Inc., in 1985 and began publishing telephone directories in Ohio, Illinois, Indiana, and Michigan. As a marketing consultant, Ameritech assisted AT&T in publishing a directory in Thailand in July 1985.
Barely through the second year of operations, the RHCs were still legally bound to seek permission from U.S. District Court Judge Greene before starting up businesses. In August 1985 an Ameritech attorney faced the FCC, asking the board to waive such restrictions. Earlier rulings outlined under the FCC’s decisions known as Computer I and II established these distinctions: basic, or regulated, services comprised of local telephone hook-up and related maintenance; enhanced, or non-regulated, services, which included the development and manufacture of telephone equipment.
Computer III, announced in January 1986, ruled that the RHCs could provide enhanced communications and computer generated data and storage, through existing corporations. Accountability requirements included safeguards known as comparably efficient interconnection, open network architecture, and stringent cost accounting methods. These measures were designed by the FCC to assure competing telecommunications companies fair access to local exchange facilities currently controlled by the RHCs. The equal access was necessary for non-Bell companies to offer comprehensive information packages.
Ameritech, following competitor Bell Atlantic’s lead, began diversifying to the extent it was able. In January 1986 the corporation bought Applied Data Research Inc., a database management software producer for IBM mainframe computers. Ameritech also purchased Speech Plus, Inc., a developer of speech-synthesis technology.
Ameritech Publishing extended its holdings with the May 1986 acquisition of Old Heritage Advertising & Publishing. Within two years the subsidiary expanded its coverage to 90 telephone directories in 15 states.
By June 1986 the FCC loosened its reins further. Ameritech was the first RHC authorized to enter international telecommunications as well as foreign manufacturing and nontelecom-munications businesses. Ameritech’s movement was limited, however. It was required to establish a subsidiary to manufacture telecommunications products, provided that the subsidiary had no financial interest in the U.S. telecommunications industry; products were not to be sold in the United States, Canada, or the U.S. Virgin Islands. In addition, Ameritech had two other restrictions. It could not buy, sell, or patent technology manufactured by, or enter joint research projects with its foreign subsidiary. Finally Ameritech had to make available any software or technology from its foreign manufacturer to any U.S. companies that requested such information. Satisfied with the ruling, Ameritech indicated that it was likely to move cautiously, via a joint venture with a foreign company.
Ameritech’s presence in foreign countries was not new; through Applied Data Research, by summer 1986, Ameritech reached 40 nations. In August Ameritech Publishing bought a portion of AT&T’s international telephone directory businesses. Ameritech Development, always investigating opportunities, consulted in Japan on several projects.
On the home front the company gradually expanded as well, with Ameritech Development joining David Systems of California in ongoing research and development into local network setups. Ameritech Mobile commissioned Motorola to develop a multi-feature cellular telephone. By November 1986 Ameritech Mobile was providing cellular service in Chicago-area commuter trains.
In September 1986 Ameritech Services and Siemens Communications Systems, Inc. sealed a three-year contract, the first of its kind to be made with a company other than AT&T or Northern Telecom, the RHCs’ usual suppliers. Under the agreement, Siemens agreed to supply to all Ameritech Bell companies a mobile switching unit featuring business applications of the integrated services digital network (ISDN) for Ameritech’s central offices.
Ameritech ended its third year as a strong competitor in the telecommunications industry. Conditions supporting Ameritech’s position varied. A new price flexibility because of state deregulation allowed Illinois Bell to project service fees based on cost without consulting regulator approval, thus speeding up local service. Ameritech’s moderate moves into publishing and foreign manufacturing ventures kept the company on solid financial footing. CEO Weiss also decided to buy back some of Ameritech’s stock, a wise decision according to industry analysts.
Ameritech chief financial officer William Springer projected 33% of 1987 earnings to come from nontelephone operations. Ameritech put its energies into fiber-optic and digital technologies, spending nearly 10% more than it had the previous year. The corporation planned to have nearly 150,000 miles of fiber-optic cable installed by year-end 1987, to serve one-fourth of its customers on digital switching lines. Through the newly established Ameritech Business Network, the company stepped up marketing of digital products designed to provide integrated information systems.
In January 1987 Ameritech once again faced a DOJ proposal, which considered lifting the current restrictions on BOCs’ manufacturing and information services. In preparation for such a policy change, Weiss announced plans to develop databases for electronic telephone directories. Other possibilities considered were joint ventures in foreign manufacturing, which would lessen Ameritech’s dependence on AT&T, its major supplier.
As reported in Telephony, February 23, 1987, Weiss criticized the DOJ restrictions on interexchange services. Under the current rules, the large companies continued to bypass local exchange carriers run by the RHCs, while the small business and residential customers continued to have no choice of providers of local service. On the other hand, Weiss said, “The network architecture now serving large business customers reduces to insignificance any influence a BOC could leverage in related markets. . . . The MFJ [modified final court judgment] order has kept the BOCs out of the interexchange market.” Weiss said Ameritech’s goal—to be a provider of integrated systems to major customers—could be realized only if restrictions were lifted and if Ameritech were to be allowed to enter data transmission and private line services. Competition would be fostered as well.
Notwithstanding the pending but as yet unresolved DOJ decision, in August 1987 Ameritech paid $5 million for the option to gain a 15% equity in a Canadian-based electronic messaging company. The purchase was Ameritech’s effort to enter information database markets. MCI opposed the venture, charging that it violated the MFJ. Successfully securing DOJ approval by October, Ameritech, together with Bell Canada Enterprises and Telenet Communications, announced iNet, the first computer-based information management service to be offered in the United States. The service was available through data terminals, personal computers, and word processors equipped with a telephone line and modem.
In September 1987 Ameritech’s Wisconsin Bell proposed two experimental ventures with Warner Cable Communications of Milwaukee, and a six-month trial of pay-per-view cable television began. Using existing networks, Wisconsin Bell also planned to monitor gas, electric, and water meters in homes and offices. By October Ameritech Publishing was producing telephone directories in western Pennsylvania and in New York state. In response to the year’s significant changes, in December 1987 Ameritech set up a midwestern regional committee to review the company’s regulated and unregulated subsidiaries.
One unpredictable challenge Ameritech faced in its fifth year of operation was a fire at the Hinsdale, Illinois, switching center, which interrupted service for 35,000 customers in the greater Chicago area for more than two days. The fire began when damaged cables began arcing. The fuses, not designed to recognize arcing, did not open. As a result, by 1989, many new safety guidelines were implemented, including a variety of fire detector types, together with posted instructions for manual power-down procedures.
On the corporate level, Ameritech initiated large-scale reorganization. In March 1988 Ameritech Applied Technologies, Inc., a fully owned subsidiary, was formed. Its goal was to integrate and update computers at all Ameritech Bell locations to one standardized system. Existing differences in administration, billing, and software would be eliminated.
Although Ameritech diversified, it streamlined into ventures closely connected, both geographically and technologically, to its bread-and-butter business, the Bell telephone systems. While the company’s restructuring was a reaction to the gradual loosening of government enforced regulations, there was another significant factor. Ameritech lost more of its 1987 revenue to bypass technology than any other RHC. With the iNet system as a base, the company began modernization of all its exchange networks, developing electronic digital switching and fiber-optic transmission systems. Ameritech planned to have 300,000 miles of fiber-optic cable in place to serve all of its customer lines. The company used fiber optics to speed up long-distance carriers’ local access capabilities. Through the system FiberHub, for example, Ameritech routed long-distance calls from AT&T, US Sprint, or MCI to their respective customer destinations via an electronic expressway interchange.
In step with these changes, Ameritech unloaded its 17% interest in the Canadian cellular service, Cantel, for $85 million. While Weiss saw the cellular business as profitable, he did not want to sink too much money in a venture far from his midwestern business base. Ameritech Mobile, on the upswing, increased cellular service by 68% and covered 17% more territory. In September 1988 Ameritech Mobile Communications acquired the paging assets of both Multicom, Inc., from sibling Pacific Telesis, and A Beeper Company, from Bell Atlantic. Through the acquisitions, Ameritech strengthened its midwestern holdings.
Ameritech Development kept pace, buying the midwest operations of Telephone Announcement Systems, Inc., in September 1988. Through the purchase the company also acquired Telephone Announcement’s audiotex network, a voice-response system that gives information to callers via touch-tone telephones. Then in Chicago and in Grand Rapids, Michigan, Ameritech planned to extend the service to Cleveland, Ohio; Detroit, Michigan; Indianapolis, Indiana; and Milwaukee, Wisconsin. With the October acquisition of The Tigon Corporation, a Dallas voice-mail company, Ameritech gained 200 corporate clients, a two-year jump on voice messaging technology, as well as a leadership position in the industry. Ameritech planned to add messaging services as an option to midwest customers.
In the largest single transaction of the busy year, Ameritech sold its software subsidiary, Applied Data Research, for $170 million, incurring an after-tax loss of $8.1 million. Two other major changes in December 1988 included the formation of Ameritech Enterprise Holdings, a holding company for Ameritech Audiotex Services, Inc., and the Tigon Corporation. By this time Tigon had reached Japan and the United Kingdom with its voice mail services. In January 1989 Ameritech Information Systems was formed to install business systems as well as to provide marketing and product and technical design support to large business customers in the Ameritech region.
Facing its sixth year, Ameritech and its representatives continued asking the FCC to remove all restrictions on information services. The previous year’s gain had been the lift on information transmission—yet Ameritech, bound to transmit information generated by another company, was still unable to transmit its own information. Regardless of the 1987 pay-per-view cable trial in Wisconsin, the linkage of cable to existing networks was still forbidden. In a minor, perhaps unrelated, concession in February 1989, Ameritech was granted a waiver, allowing the company to offer directory assisted customer-name-and-address (CNA) service, provided that CNA revenues subsidized local telephone rates. As reported in the October 1989 issue of Communications News, Ameritech vice chairman Ormand Wade said the court-imposed limitations not only inhibited competition, it weakened U.S. potential in the international telecommunications market.
Ameritech continued research and development in information transmission, testing an electronic digital loop carrier system designed to allow transmission of large amounts of data. Fiber-optic rings linked customer locations to central offices or long-distance carriers. Ameritech targeted investment through 1994 of more than $200 million in a database, Signaling System 7 (SS7), intended to support a new software-based intelligence system.
Ameritech pushed further into retail markets. Ameritech Mobile offered cellular service through appliance centers and retail locations, including Sears and Silo, in Chicago, Detroit, Milwaukee, and Columbus and Cincinnati, Ohio. Ameritech Mobile also increased its Michigan-area paging operations, acquiring T-Com Inc., from Rochester Telephone Company. In February 1989 the Tigon subsidiary negotiated a multimillion dollar deal to supply Texas Instruments with voice-mail capability reaching 140 national and international locations.
Ameritech, with CEO Weiss’s prodding, increased marketing in several areas. With US Sprint and Telesphere, Ameritech ’s audiotex services agreed to process “900” calls; with Teleline of Los Angeles, it entered negotiations to resell the VoiceQuest system. Ameritech Publishing announced a talking telephone directories service in the midwest Bell regions, to be accessed through a number listed in Ameritech Pages Plus directories. In 1989 Ameritech was publishing directories in 30 states as well as English-language directories in Japan.
Together with several other RHCs, Ameritech faced employee strikes in 1989. By August Ameritech union workers walked out, displeased with current wage-increase structures and health benefits. After several weeks Ameritech and the union reached agreements on the issues.
To strengthen its position, in November 1989 Ameritech restructured slightly, eliminating its subsidiary boards. The corporation also continued bidding with other RHCs in an effort to gain new national and international business. By December Illinois Bell took part in the first installation of ISDN service, linking the Andersen Consulting offices of Chicago and Tokyo. In early 1990, with manufacturer Northern Telecom, American Information Systems worked directly with end users to test telephone audio deficiencies. Their tests resulted in new design standards to improve the transmission quality of telephones. Advancing in fiber optics, in September 1990 Ameritech initiated the nation’s first passive optic network. Also in 1990 Ameritech pursued additional international ventures. With Bell Atlantic and two New Zealand companies, it bought Telecom New Zealand from that country’s government. The U.S. companies planned to offer a portion of their shares to the public. Another 1990 purchase was Wer Leifert Was? (Who Supplies What?), a publisher of industrial directories in Germany and Austria.
Ameritech’s greatest challenge in 1990 was centralizing. Glen Arnold, Ameritech Applied Technologies CEO, proposed a five-year data center consolidation to reduce costs resulting from duplication of work; its intent was to install company-wide information systems, trimming the number of working data centers from 21 to 4. As Glen Arnold stated in Computerworld, April 30, 1990: “We’ve got to do for Ameritech what Ameritech can do for other customers.” Based on its past record, Ameritech is clearly up to the job.
Ameritech Bell Group: Ameritech Services, Inc.; Ameritech Information Systems, Inc.; Illinois Bell; Indiana Bell; Michigan Bell; Ohio Bell; Wisconsin Bell; Ameritech Mobile Communications, Inc.; Ameritech Publishing Inc.; Ameritech Credit Corp.; Tigon Corporation; Ameritech Audiotex Services, Inc.; Ameritech Development Corp.; Ameritech International.
Pauly, David, et. al., “Ma Bell’s Big Breakup,” Newsweek, January 18, 1982; Kuttner, Bob, “Ma Bell’s Broken Home,” The New Republic, March 17, 1982; Militzer, Kenneth, and Martin Wolf, “Deregulation in Telecommunications,” Business Economics, July, 1985; Leopold, George, “Will the FCC Free ’The Bell Operating Company Seven?,’ ” Electronics, January 20, 1986; Mikolas, Mark, “Still Yearning to Be Free at Divestiture + 3½,” Telephone Engineer and Management, September 15, 1987.
—Frances E. Norton