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Tolmes News Service 20
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# <Tolmes News Service> #
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# > Written by Dr. Hugo P. Tolmes < #
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Issue Number: 20
Release Date: January 20, 1988
Welcome to Tolmes News Service Issue #20. 20 Issues and still going strong!!!
This issue will be mostly about AT&T's attempts at a comeback.
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1-900s:
I've seen too many advertisements for 1-900 services. When will these people
stop?? Every day there is a new service at a 1-900 number. I've also seen many
news reports on kids who run up $800 phone bills by using these services all
day long. They MUST be making big bucks.
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TITLE: AT&T: The Making of a Comeback
FROM: Business Week
DATE: January 18, 1988
The time was Labor Day, 1986, and the situation was grim. In the 33
months since a federal antitrust suit had forced American Telephone and
Telegraph Co. to divest itself of three-quarters of its $150 billion in
assets, the company that arguably had been the most consistently profitable,
the most self-assured, and one of the best-managed corporations in the 20th
century had performed one belly-flop after another. Although AT&T's leaders
were trying to cut costs, expenses were still out of control The company's
computer business, one of the new ventures that was supposed to take up the
slack after AT&T spun off its profitable local phone companies, was losing
nearly $1 billion a year. Thousands of employees were being laid off or
shunted about like pawns, destroying AT&T's fabled esprit.
It was in this strained atmosphere that the company's new chairman, James
E. Olson, gathered his 27 top executives at a Cape Cod golf resort called
New Seabury. Olson brought with him a broad plan: He wanted to protect and
improve AT&T's core businesses of long-distance service and phone equipment,
get its computer business into the black, and increase the 9% share of AT&T's
$34 billion in revenues that came from oberseas. But each strategy involved
cooperation- and tradeoffs - of a sort these executives seldom had to make
while running fiefdoms in the old Bell System.
For five days, AT&T's leaders fought turf like congressmen arguing over
budget cuts. How should they cut costs? What businesses should be in? Should it
always rely on AT&T Bell Laboratories to design new products, or buy some from
outside? Breaking only once for golf- considerable self-restraint for a
15-handicapper like Olson - they finally settled their differences,
forging compromises for the common good. "Sure, some guys were trying to
protect their businesses," recalls oneas a bigger
feeling- that we had to do this now becuase we weren't going to get another
chance."
To secure the commitments he'd won, Olson asked for an expression of
loyalty. As chief operating officer, he had failed two years earlier to
impliment a more modest plan, because "I hadn't gotten my managers to buy
into it." This time, as chairman, "I wanted buy-in." One by one, Olson
invited each man to stand. "Are you with me?" he asked. "Yes, Jim, I'm
with you," came the inevitable reply. "It was pretty dramatic," recalls
Frank Blout, president of AT&T's Network Operations Group. "A powerful
moment...a catharsis."
From the perspective of 16 months later, New Seabury was AT&T's Normandy.
It's still far from the organization it aspires to be: Last November, seeking
lessons in management they soon plan to apply, Olson and seven key AT&T
executives went to Dearborn, Mich., where a team of Ford Motor Co. executives
described the approach they'd used to develop Ford's popular new Taurus
automobile. But the battle at New Seabury was the breakthrough AT&T needed.
RESILENT. Already, the company has made big gains. It is now spending $6
billion on new equipment to beef up its $18 billion long-distance business. It
has consolidated numerous back-office operations, cutting overall costs by
$1 billion, or 3% a year. It has restructured its computer operations,
slashing losses by 70%. And it is trying to become a global player again in
phone equipment, a role it gave up in the early 1920s.
In 1987 these belated improvements pushed net income up nearly 50%, to $2
billion or $1.90 a share, well above analysts' estimates of a year ago. If
AT&T can cut costs more, raise its nonphone revenues, and persuade the Federal
Communications Commission to follow up on a proposal for less stringent
regulation of long-distance rates, earnings could exceed $2 a share in 1988.
AT&T's stock is trading closer to the low 30s than los 20s of a year ago.
During October's market crash, in fact, AT&T proved to be among the most
resilient of blue-chip stocks, losing about 14% of its value vs. 24% for all
Big Board issues.
If the tale stopped there, it would be just one among countless
comeback stories of the past decade. But it's more than that. Just as in the
early 1980s the No. 1 issue for U.S. business was restructuring to be more
competitive, a primary issue of the late 80s is whether the huge companies
that once symbolized American industry's worldwide preeminence will recover
from recent setbacks. Can $100 billion General Motors, $55 billion IBM, and
$34 billion AT&T solve their yawning product development and marketing
problems? Or are they simply too unwieldly to be managed well in an
industrial economy in which markets and technologies change by the month? The
insights that Olson's efforts afford on these issues are the real story, as he
tries to complete AT&T's turnaround.
STAGNATING. When the 62-year-old chairman convened the meeting at New
Seabury, his company was in shock. Until the breakup, AT&T had been the
largest privatn the U.S. It had run the best phone system in the
world. It was a place where loyalty was rewarded as well as demanded, where a
former supervisor of operations could rise to the top job if he was willing
to transfer often- and stick around for 43 years.
Though AT&T was still invincible in its core businesses, by September,
1986, much was going wrong. The breakup had required AT&T to hand over its
Bell-shaped logo to the regional phone companies. Now, adding injury to insult,
the Baby Bells' earnings and stock prices were rising much faster than AT&T's.
It had planned to challenge International Business Machines Corp.: What
were its electronic phone switches, after all, but computers? But AT&T was
barely showing up in computer market-share statistics- and only because it
had purchased 25% of Italy's Olivettti. In the previous two years the company
had lost over $750 million on sales of electronic components and PBX switches
used in corporate phone systems.
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Well you get the picture. This issue will end right here.
Next Issue:
- AT&T and Sun MicroSystems
- AT&T CC Fraud
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