Bell Atlantic Corporation

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Bell Atlantic Corporation

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

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

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

In January 1982 the U.S. Department of Justice (DOJ) ended a 13-year antitrust suit against the world’s largest corporation, the American Telephone and Telegraph Company (AT&T). Pursuant to a consent decree, AT&T maintained its manufacturing and research facilities, as well as its longdistance operations. On January 1, 1984, AT&T divested itself of 22 local operating companies, which were divided among seven regional holding companies (RHC’s). Bell Atlantic serves the northern Atlantic states, and owns seven telephone subsidiaries: New Jersey Bell Telephone Company, The Bell Telephone Company of Pennsylvania, The Diamond State Telephone Company, The Chesapeake and Potomac Telephone Company, The Chesapeake and Potomac Telephone Company of Maryland, The Chesapeake and Potomac Telephone Company of West Virginia, and the Chesapeake and Potomac Telephone Company of Virginia.

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

Bell Atlantic bounced back from its court loss, acquiring a 40% interest in A Beeper Company Associates in January 1984. The following month the company announced the formation of Bell Atlanticom Systems, a systems and equipment subsidiary, to market traditional, cordless, and decorator telephones, wiring components, and home-security and healthcare systems. Bell Atlantic Mobile Systems took off early from the starting gate: in March 1984 the company announced Alex, a cellular telephone service to commence April 2 in the Washington, D.C., and Baltimore, Maryland, markets. Bell Atlantic Mobile Systems invested $15.1 million in the fledgling cellular service.

Skirmishes continued between the RHCs, AT&T, and Justice Harold Greene. Greene asserted that the RHCs were more concerned with entering new business markets than in improving the local networks. In an effort to restrain RHCs from using regulated business profits to finance nontelephone ventures, the consent decree ruled that new endeavors may comprise no more than 10% of the RHCs’ yearly revenues and that there be a strict financial separation between regulated telephone business and new ventures. Justice Greene set a March 23, 1984, deadline for all RHCs to submit specific requests for waivers or further explanation of the original consent decree.

In April Bell Atlantic went to court over the Federal Communications Commission’s (FCC) delay in charging tariffs for customers accessing the local network. Delaying implementation of the access fee not only violated the consent decree, Bell Atlantic charged, it caused Bell Atlantic and its sibling RHCs to cover some of AT&T’s service costs in the interim. To make matters worse, because Bell Atlantic was the lowest-cost provider of all the RHCs, it was losing the most money. (The FCC system was one of allocation, with access-fee funds collected first, then distributed to RHCs based on the company’s cost.)

Bell Atlantic planned to succeed in spite of the access fee tangle. The corporation allotted more than half of its construction budget for improvment of the network. Bell Atlantic became the first RHC to employ the use of digital termination systems, a microwave technology for local electronic message distribution. The company experimented with a local area data transport system, and planned to install 50,000 miles of optical fiber within a year.

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

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

With the most aggressive diversification of all the RHCs, Bell Atlantic planned to be a full-service company in the inceasingly related merging telecommunications and computer sectors. As a struggle for large customers was inevitable, and because the larger customers could potentially set up their own information systems, the company decided to target mediumsized customers. Bell Atlantic offered this customer base everything from information services equipment and data processing to computer maintenance.

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

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

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

A year and a half after divestiture, Bell Atlantic, along with its sibling RHCs and other companies, realized that convergence of telephone hardware and computer data processing was a huge business. Over the next several years the RHCs repeatedly petitioned the DOJ for business waivers in an attempt to become more competitive in not only the national but the international telecommunications market. By July 1984 Bell Atlantic requested that the government waive a body of rules that prohibited the RHCs from supplying their own telephone hardware. Unable to provide equipment for its own Centrex system, Bell Atlantic stood to lose a huge federal government contract to competitors—nearly 370,000 Centrex lines that were coming up for bid. Having already lost 48,000 Centrex lines due to restrictions of the past year, Bell Atlantic officials thought it was time to confront the issue.

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

By the end of 1985 Bell Atlantic earnings were $1.1 billion on revenues of $9.1 billion. Rated against its competitors, Bell Atlantic was the only RHC close to turning a profit on its unregulated businesses, worth $600 million in revenues. While profits remained strong in Bell Atlantic’s local phone service, its Yellow Pages directory publishing division, due to a disagreement, would be competing with Reuben H. Donne-ley Corporation, its previous publisher.

In the meantime, the long-distance market moved uncomfortably close to the RHCs’ local turf. AT&T and other carriers began competing to carry toll calls in local areas. While this would seem to benefit the residential consumer, it did not; outside competitors cutting into RHC profits merely threatened the very profit margin that helped subsidize the cost of local service.

Ending its second year in operation, Bell Atlantic’s chairman and chief executive officer, Thomas Bolger, quoted in Telephone Engineer & Management’s December 15, 1985, issue, described the restrictions on RHCs as “the most significant problem in the telecommunications industry.” He requested that the Justice Department come to a decision before the scheduled January 1, 1987, date. If the purpose of the breakup was to promote maximum competition in the industry, the RHCs reasoned that they, the most likely competitors of industry leaders AT&T and IBM, should not be prohibited from fully competing.

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

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

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

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

The tables turned rather quickly for Bell Atlantic. In January 1988 the company found itself, along with BellSouth, accused of misconduct in bidding attempts to win government contracts. Senator John Glenn of Ohio led the accusations that the two RHCs had been given confidential price information by a General Services Administration chief. Bell Atlantic disputed the charges entirely, claiming that the senator’s report was inaccurate.

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

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

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

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

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

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

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

Perhaps the biggest opportunity for Bell Atlantic came at year-end 1989, when it stepped up activity in the international arena. Economic changes in the Soviet Union and eastern Europe opened up entirely new possibilities in global telecommunications. Slowly exploring opportunities abroad since divestiture, Bell Atlantic was, by 1989, assisting in the installation of telephone software systems for the Dutch national telephone company, PTT Telecom, B.V., as well as for the national telephone company in Spain. A Bell Atlantic German subsidiary was awarded a contract to install microcomputers and related equipment at U.S. Army locations in Germany, Belgium, and the United Kingdom. With consultants located in Austria, France, Italy, and Switzerland, Bell Atlantic planned a European headquarters, Bell Atlantic Europe, S.A., to be located in Brussels, Belgium.

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

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

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

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

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

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

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

Principal Subsidiaries

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