BellSouth Corporation

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BellSouth Corporation

1155 Peachtree Street, Northeast
Atlanta, Georgia 30367
U.S.A.
(404) 249-2000

Public Company
Incorporated: 1983
Employees: 102,000
Sales: $14.35 billion
Stock Exchanges: New York Boston Midwest Pacific Philadelphia London Zürich Basel Geneva Frankfurt Amsterdam Tokyo

BellSouth Corporation is one of seven regional telephone holding companies in the United States, each with a virtual monopoly on local telephone service in its region. BellSouth is the largest and fastest growing of the seven. In addition to local telephone service it also is engaged in cellular telephone services, telephone directories, data telecommunications, and long-distance telephone services outside the United States.

BellSouth was formed in 1983 as part of the court-ordered breakup of the American Telephone and Telegraph Company (AT&T), at that time the world’s largest corporation. AT&T had built most of the U.S. phone system but was frequently accused of suppressing competition through unfair trade practices. It was broken up in keeping with a consent decree to settle a lawsuit brought by the U.S. Department of Justice. AT&T had left the operation of local telephone service in the United States to 22 local telephone companies, all operating under AT&T’s umbrella. The breakup divided the 22 locals among seven regional holding companies (RHCs). BellSouth was formed from the combination of Southern Bell Telephone and Telegraph Co. and South Central Bell Telephone Co. Its territory is composed of Florida, Georgia, South Carolina, North Carolina, Kentucky, Tennessee, Alabama, Mississippi, and Louisiana. BellSouth and the other RHCs were not free to enter any business they chose. The consent decree prohibited them from using their monopoly power to their advantage and from entering certain businesses, including long-distance telephone service. At that time the new corporation named John L. Clendenin chairman.

BellSouth began as the 12th-largest corporation in the United States, with $11 billion in assets, 13.4 million telephone lines, and 131,500 employees. It was also the most profitable of the seven regionals, with a promising future because it was located in one of the fastest-growing areas of the country. Six of the ten fastest-growing counties in the United States were in BellSouth’s territory. Southern and South Central already were prospering, their combined assets having grown 47% and their combined net income having grown 65% in the four years before the AT&T breakup. Collectively they had spent $15 billion on plant modernization and new facilities in the five years before BellSouth’s creation.

AT&T had often used the South as the testing ground for new technologies, which gave BellSouth a lead in high-technology services, such as using telephone lines to monitor gas meters. Shortly before the breakup, Southern Bell began a joint videotex project, which enables subscribers to use home computers for banking and shopping. BellSouth continued that push into new technologies, starting a mobile phone subsidiary, BellSouth Mobility Inc., in its first year of business. In March 1984 BellSouth Mobility started a cellular telephone system in Chattanooga, Tennessee, in a joint venture with Cellular Radio of Chattanooga, Inc. and Chattanooga-Northwest Georgia Cellular Radio Inc. It then began a $5.2 million cellular system in Memphis, Tennessee. In May 1984 it agreed to develop a $3.3 million cellular network in Baton Rouge, Louisiana, with East Ascension Telephone Co. and Star Telephone Co., and a $4.8 million cellular system in Orlando, Florida. Plans were laid to expand many of these cellular networks even as they were being built. South Central Bell offered fiberoptic lines, completing the first direct customer hookup for Amsouth Bancorp late in 1984. Also in 1984 South Central began offering WatchAlert, a system that allowed a security-alarm signal to be transmitted even if a phone line was busy or cut. To promote these technologies to multitenant business offices, BellSouth Enterprises, Inc. formed BellSouth Systems Technology in 1984. The subsidiary focused on directory publishing and advertising, mobile communications, and computer systems. BellSouth made $1.26 billion in 1984.

BellSouth, along with five other RHCs, began trading on the London Stock Exchange within its first few months of business, to gain access to European capital. In the rapidly changing telecommunications market, BellSouth could not count on all of its large customers continuing to use it for longdistance access. Advances in technology meant that large companies could bypass the local network and tie directly into the long-distance system through microwave antennas. BellSouth hired market researchers to develop profiles of the company’s major customers. It then established special teams to work with the top 200 customers and to encourage them to continue using the BellSouth network for long-distance access. The residential market was split into groups based on income and phone-use patterns, with services pitched to the customer groups that would be most interested in them.

In 1984 South Central put a rate increase into effect before it was approved. The Mississippi Public Service Commission subsequently denied the rate increase. In 1985 South Central paid back—by order of the Mississippi Supreme Court—$199 million to Mississippi customers. In 1985 BellSouth signed a four-year contract to buy telecommunications equipment from Canada’s Northern Telecom Inc. In the same year the Georgia Public Service Commission approved a $27 million rate increase for Southern Bell. The FCC ended its requirement that all Bell operating companies sell cellular telephones through a separate subsidiary. BellSouth earned $1.42 billion in 1985.

In February 1986 BellSouth Enterprises increased its presence in the lucrative cellular telephone market when it bought 15% of Mobile Communications Corp. of America for $107.5 million. The following year BellSouth Enterprises bought almost all the assets of Universal Communications Systems Inc. for $79.1 million.

By 1986 the national Yellow Pages market reached $6.8 billion, and BellSouth was expanding its Yellow Pages services out of its area of operation in search of greater profits. In February 1986 the company bought L.M. Berry & Co., a large, independent Yellow Pages publisher whose 1985 revenues topped $780 million. That made BellSouth a world leader in the profitable directory publishing business and the largest Yellow Pages publisher in the United States. The company, however, faced stiff competition for the Yellow Pages market from other companies, particularly Southwestern Bell, which was also trying to expand Yellow Pages services.

In 1987 BellSouth began offering an information gateway service that let customers access data bases using a personal computer. By dialing a number in the Atlanta area, customers could get stock quotes and make airline reservations. Customers with cellular phones could also dial a number to get local traffic reports. BellSouth continued foreign expansion by buying an Australian phone-answering machine company.

BellSouth and the other regional holding companies were dealt a major legal setback in 1987 when Justice Harold Greene, who was overseeing the breakup of AT&T, ruled that the companies still could not enter the long-distance telephone business in the United States, offer advanced information services, or manufacture phone equipment. Greene ruled that removing the restrictions would impede competition and violate antitrust laws. BellSouth and the other regionals appealed. Greene’s ruling, however, prevented the regionals from transmitting only information they collected themselves. The regionals could not own or develop their own databases, but they were allowed to transmit third parties’ databases. BellSouth was, therefore, able to sign an agreement with Telenet Corporation to link some of its local and national communications networks.

BellSouth hoped to increase the use of on-line information services and increase the revenue from its local network. In 1987 BellSouth’s government systems division won a $25 million contract from the U.S. Army to modernize telecommunications systems at six installations in Alaska, Arizona, Colorado, and Texas.

By 1988 BellSouth was the fastest growing regional holding company, with an impressive use of new technologies and services and the addition of 600,000 new telephone lines to the network every year. That growth allowed BellSouth to install new switches and fiber-optic cables without having to tear out old equipment before it was fully depreciated. BellSouth had the largest sales, $13.6 billion; most assets, $28.5 billion; and highest profits, $1.7 billion, of all the regional holding companies in 1988. Part of the growth came from the Southeast’s rapid expansion. The area’s population had grown 4.3% since 1984, adding 4.5% to annual phone-line growth. The growth also came partly because BellSouth’s network was the most technologically advanced in the United States, with 95.3% of its switching offices using electronic controls and nearly 98% of its major trunk lines using high-capacity fiber-optic cable. Profits were helped because BellSouth had avoided the ill-fated diversification pursued by most other RHCs, sticking instead to telephone-related businesses. While most other RHCs suffered demoralizing strikes over health care costs in 1988, BellSouth had kept down health care costs and avoided confrontation. In 1989 Fortune magazine labeled the company “the most admired utility” for these reasons.

In 1988 BellSouth spent $3.2 billion on advanced digital switching and transmissions systems to improve communications and lay the groundwork for new telecommunications services. Clendenin wanted to use BellSouth’s advanced network to transmit a great variety of voice, data, and television programs into millions of homes for far less money than the cost of using conventional copper lines. It was the first RHC to bring fiber-optic cables directly to homes, hoping to use them to transmit security and energy-management information and cable television, in addition to voices.

BellSouth won a $55 million telephone-switch contract from the U.S. government in late 1987. In 1988, however, amid accusations that it had improperly obtained information from a government employee in the process of bidding on the contract, BellSouth withdrew its bid, and the government awarded the contract to AT&T.

Despite its early entry into cellular systems, BellSouth lost several cellular phone deals to rival RHCs. Cellular service was an area in which the regionals were allowed to compete outside of their local territory, and the lost deals meant lost opportunities to expand BellSouth’s reach in a rapidly growing telecommunications market. In 1988 BellSouth reversed the trend, buying Mobile Communications Corp. for $710 million in stock. The acquisition made BellSouth the third-largest U.S. cellular telephone company, with 345,000 subscribers. It also got BellSouth into paging services. The Republican and Democratic conventions of 1988 were both held in BellSouth’s market area. The company displayed its latest technology at both conventions, hoping to influence government officials to ease restrictions. Profits in 1988 were $1.67 billion.

The year 1989 began with a disappointment when Bell Atlantic beat out BellSouth in the competition for a $220 million, ten-year contract to build an advanced phone system to link government agencies in the Washington, D.C., area. Nevertheless, business was flourishing for BellSouth and for telecommunications in general. Telecommunications was a bigger business than computers or aerospace in 1989, and telephone use was growing three times faster than the population. Industry observers agreed that BellSouth, along with the other regionals, was running and selling basic local phone service better than it had been doing as part of AT&T.

In 1989 BellSouth bought the 60% of Air Call Communications that it did not already own for $34.5 million. BellSouth wanted to offer electronic Yellow Pages, but the idea was rejected in 1989 by Justice Greene, who ruled it would violate the consent decree that broke up AT&T. BellSouth moved toward further expansion of its cellular network when it formed a consortium with two British companies, The General Electric Company, PLC, and The Plessey Company, PLC, to bid on one of the mobile-telephone network licenses being offered by the British government. BellSouth then agreed to merge its cellular properties with LIN Broadcasting Corp., which would have created the second-largest cellular network in the United States. Rival McCaw Cellular Communications Inc., the largest cellular firm in the United States, however, raised its offer for LIN and ended up buying the company after a long battle. McCaw paid BellSouth $66.5 million in merger termination fees and other expenses.

BellSouth’s local phone earnings, along with those of the other regional holding companies, were regulated by state commissions that allowed only a certain rate of return, about 12% to 15% by 1989. When earnings exceeded those rates, BellSouth had to give refunds. BellSouth pushed for incentivebased rate plans that would allow the company to keep a percentage of profits it earned above the allowed rate of return. It argued that the incentives would make the company more efficient and lead to better service. Three BellSouth states, Alabama, Florida, and Kentucky, passed such laws, but regulatory commissions then cut the rates BellSouth could earn. The rate cuts were expected to cost BellSouth $690 million in the early 1990s.

Continuing its interest in advancing technology, in 1990 Bell-South won FCC permission to test a wireless telephone system at the University of Georgia in Athens with the Sony Corporation. As part of a cost-cutting program, the company offered an early retirement incentive to nearly 3,000 executives.

By 1990 BellSouth had invested $550 million in overseas operations and was the only regional offering mobile communications on four continents. Telephone services that had been nationalized in many countries were being privatized, presenting huge business opportunities. BellSouth pushed its services in the Caribbean and Latin America. It had cellular telephone interests in Argentina, Uruguay, France, Britain, Switzerland, and Mexico; paging interests in Australia, Britain, and Switzerland; and it started a joint venture in India to create telecommunications software products and services. The Australian company, Link Telecommunications, boasted that country’s largest independent paging and telephone-answering services. In August 1990 BellSouth announced plans to develop a digital cellular phone system in New Zealand by mid-1992. BellSouth executives scrambled to learn foreign business practices. In Argentina they billed customers every ten days to keep pace with that country’s steep inflation.