AT & T
The AT&T Corp., formerly known as the American Telephone and
Telegraph Corporation, is as old as the telephone itself.
The company that became AT&T began in 1875, in an
arrangement among inventor Alexander Graham Bell and the two men, Gardiner
Hubbard and Thomas Sanders, who agreed to finance his work. Bell was trying
to invent a talking telegraph -- a telephone. He succeeded, earning patents
in 1876 and 1877. In 1877, the three men formed the Bell Telephone Company
to exploit the invention. The first telephone exchange, operating under
license from Bell Telephone, opened in New Haven, CT in 1878. Within three
years, telephone exchanges existed in most major cities and towns in the
United States, operating under licenses from what was now the American Bell
Telephone Company. In 1882, American Bell acquired a controlling interest in
the Western Electric Company, which became its manufacturing unit.
Gradually, American Bell came to own most of its licensees. Collectively the
enterprise became known as the Bell System.
The American Telephone and Telegraph Company was
incorporated on March 3, 1885 as a wholly owned subsidiary of American Bell,
chartered to build and operate the original long distance telephone network.
Building out from New York, AT&T reached its initial goal of Chicago in
1892, and then San Francisco in 1915. On December 30, 1899, AT&T acquired
the assets of American Bell, and became the parent company of the Bell
System. Because signals weaken as they travel down telephone wires, building
a national network required several inventions. Loading coils, invented
independently at AT&T and elsewhere (1899), allowed the network to be built
out to Denver. The first practical electrical amplifiers, devised at AT&T
(1913) made transcontinental telephony possible.
Until Bell's second patent expired in 1894, only Bell
Telephone and its licensees could legally operate telephone systems in the
United States. Between 1894 and 1904, over six thousand independent
telephone companies went into business in the United States, and the number
of telephones boomed from 285,000 to 3,317,000. Many previously unwired
areas got their first telephone service, and many others got competing
companies. But the multiplicity of telephone companies produced a new set of
problems -- there was no interconnection, subscribers to different telephone
companies could not call each other. This situation only began to be
resolved after 1913.
In the early 1900s, AT&T engaged in businesses that ranged
well beyond the national telephone system. Through the Western Electric
Company, its manufacturing subsidiary, AT&T affiliated and allied companies
around the world manufactured equipment to meet the needs of the world's
telephone companies. These firms also sold equipment imported from the
United States. By 1914, International Western Electric Company locations
included Antwerp, London, Berlin, Milan, Paris, Vienna, St. Petersburg,
Budapest, Tokyo, Montreal, Buenos Aires, and Sydney.
In 1925, Walter Gifford, newly elevated to the presidency
of AT&T, decided that AT&T and the Bell System should concentrate on its
stated goal of universal telephone service in the United States. He
therefore sold the International Western Electric Company to the newly
formed International Telephone and Telegraph Company (ITT) for $33 million
in 1925, retaining only AT&T's interests in Canada. Although AT&T retreated
from international manufacture, it retained an international presence
through its drive to provide global telephone service to customers in the
In 1927, AT&T inaugurated commercial transatlantic
telephone service to London using two-way radio. Initially, these calls cost
seventy-five dollars (U.S.) each (for three minutes.) Service spread to
other countries, both via London and through direct radio links.
Radio-telephone service to Hawaii began in 1931, and to Tokyo in 1934.
Telephone service via available radio technology was far from ideal: it was
subject to fading and interference, and had strictly limited capacity. In
1956, service to Europe moved to the first transatlantic submarine telephone
cable, TAT-1. Transpacific cable service began in 1964.
For much of its history, AT&T and its Bell System
functioned as a legally sanctioned, regulated monopoly. The fundamental
principle, formulated by AT&T president Theodore Vail in 1907, was that the
telephone by the nature of its technology would operate most efficiently as
a monopoly providing universal service. Vail wrote in that year's AT&T
Annual Report that government regulation, "provided it is independent,
intelligent, considerate, thorough and just," was an appropriate and
acceptable substitute for the competitive marketplace.
The United States government accepted this principle,
initially in a 1913 agreement known as the Kingsbury Commitment. As part of
this agreement, AT&T agreed to connect non-competing independent telephone
companies to its network and divest its controlling interest in Western
Union telegraph. At several later points, as political philosophy evolved,
federal administrations investigated the telephone monopoly in light of
general antitrust law and alleged company abuses. One notable result was an
anti-trust suit filed in 1949, which led in 1956 to a consent decree signed
by AT&T and Department of Justice, and filed in court, whereby AT&T agreed
to restrict its activities to the regulated business of the national
telephone system and government work.
Over the years AT&T's Bell System provided what was by all
accounts the best telephone system in the world. The system made steady
progress towards its goal of universal service, which came in the twenties
and thirties to mean everyone should have a telephone. The percentage of
American households with telephone service reached fifty percent in 1945,
seventy percent in 1955, and ninety percent in 1969. Much of the leadership
came by application of science and technology developed at AT&T's Bell
Telephone Laboratories subsidiary.
In the late 1940s, new technologies appeared that provided
alternatives to copper wires for long-distance telephone transmission. AT&T
opened its first microwave relay system between the cities of New York and
Boston in 1948, and over the succeeding three decades added considerable
microwave capacity to its nationwide long-distance network. In 1962, AT&T
placed the first commercial communications satellite, Telstar I, in orbit,
offering an additional alternative especially suited to international
communications. Technological changes elsewhere in the system offered
parallel alternatives. The transition from electromechanical to electronic
components permitted new, more powerful, and eventually less expensive
customer premises and network equipment. Another result of these new
technologies was to lower the technological barriers to entry by would-be
competitors to the Bell System. Slowly, over several decades, the Federal
Communications Commission (FCC), the regulatory agency which oversees
telecommunications in the United States, allowed some competition using
these technologies at the edges of the network. By the mid-1970s,
competition had advanced to general long-distance service.
The changes in telecommunications during these years
eventually led to an antitrust suit by the U.S. government against AT&T. The
suit began in 1974 and was settled in January 1982 when AT&T agreed to
divest itself of the wholly owned Bell operating companies that provided
local exchange service. This would, the government believed, separate those
parts of AT&T (the local exchanges) where the natural monopoly argument was
still seen as valid from those parts (long distance, manufacturing, research
and development), where competition was appropriate. In return, the U.S.
Department of Justice agreed to lift the constraints of the 1956 decree.
Divestiture took place on January 1, 1984, and the Bell System was dead. In
its place was a new AT&T and seven regional Bell operating companies
(collectively, the RBOCs.)
The United States woke up on January 1, 1984 to discover
that its telephones worked just as they had the day before. But AT&T started
the day a new company. Of the $149.5 billion in assets it had the day
before, it retained $34 billion. Of its 1,009,000 employees it retained
373,000. Gone even was the famous Bell logo and name, given under the
agreement to the regional telephone companies, excepting only the name's use
in Bell Labs. In its place was a stylized globe and the monogram "AT&T."
Success would require no less than the most drastic change
in corporate culture ever undertaken by a major American corporation. The
old AT&T -- the Bell System -- as a regulated monopoly had been largely
insulated from market pressures for most of its history. Its culture
venerated service, technological excellence, reliability, and innovation
within a non-competitive internally-driven framework of taking however much
time and money it took to get things done right. The new AT&T had to learn
how to find out and deliver what its customers wanted, when its customers
wanted it, in competition with others who sought to fill the same customers'
needs. Although AT&T had great technological and personnel strengths upon
which to build, the transition proved far more complex than anyone imagined
Long distance telephone service became an intensely
competitive business. Having started from a monopoly business, it was
perhaps inevitable that AT&T's market share would fall. And it did-from over
ninety percent in 1984 to around fifty per cent a dozen years later. Between
competitive pressure, new technologies (primarily fiber optic transmission)
and the shift of some fixed costs to elsewhere, prices plummeted, dropping
by an average of forty percent by the end of the 1980s. Volume exploded. In
1984, AT&T carried an average of 37.5 million calls per average business
day; in 1989, the equivalent volume was 105.9 million, and in 1999 270
million. In the 1990s, the growth of computers, and then the internet led to
an increasing percentage of what customers sent over the network taking the
form of data rather than conversation.
AT&T's continued financial strength helped underwrite
growth and improvement, from the multi-billion-dollar digitalization of its
entire network, through a sustained move into the international market and
nearly 200 countries, to major mergers and acquisitions. One such merger
came in 1991 when AT&T acquired computer maker NCR in a $7.3 billion deal
designed to give the company's customers an edge as communications and
computing converged. Another, the agreement to acquire McCaw Cellular in
1994 for $11.5 billion, gave AT&T direct access to consumers for the first
time in a decade. The unit, renamed AT&T Wireless, and established AT&T as a
leading force in the fast growing wireless telecommunications industry.
The manufacturing operations too faced a transition from
monopoly to competition. The largest manufacturing business, recast as AT&T
Network Systems, had as its major customers the now independent local
telephone companies (RBOCs). Other manufacturers competed for their business
and the RBOCs cast an increasingly wary eye on AT&T Network Systems, at
times seeing AT&T more as a real and potential competitor than a partner.
Network Systems continued as the US market leader, selling both to its
traditional customers and to new ones. Network Systems also led the way as
AT&T returned to the global arena for the first time in seventy years,
establishing plants, subsidiaries, and joint ventures in countries as varied
as the Netherlands, Japan, and China.
The corporate strategies and organizations that made sense
in the early 1980s, became increasingly problematical as the 1990s
progressed. Not only were there few synergies between the communications and
manufacturing businesses, but as the US moved toward rewriting its
communications laws, the two businesses increasingly became obstacles to
each others growth. Still, CEO Robert Allen's announcement on September 20,
1995 that AT&T would be restructuring took nearly everyone by surprise.
On September 20, 1995, AT&T announced that it was
restructuring into three separate publicly traded companies: a systems and
equipment company (which became Lucent Technologies,) a computer company
(NCR) and a communications services company (which would remain AT&T.) It
was the largest voluntary break-up in the history of American business.
Lucent became independent on September 30, 1996. NCR followed on January 1,
1997. Employees generally followed their work. While the Bell Laboratories
name went to Lucent Technologies, those researchers who supported the
communications services business stayed with AT&T as the staff of the new
The new AT&T began evolving from a long distance company
to an integrated voice and data communications company. AT&T worked to
reenter the local telephone service business, as envisioned by the
Telecommunications Act of 1996. The company successfully launched an
Internet service, AT&T WorldNet® Service , while selling operations, such as
AT&T Submarine Systems and Skynet Satellite Services, that no longer were a
C. Michael Armstrong became Chairman and CEO in November
1997. He saw that the stand-alone long distance voice business was likely to
decline. He quickly installed a new sense of mission, direction, and urgency
to secure the future for the company and its shareowners. As he wrote in the
1998 Annual Report "We're transforming AT&T from a long distance company to
an "any-distance" company. From a company that handles mostly voice calls to
a company that connects you to information in any form that is useful to you
- voice, data and video. From a primarily domestic company to a truly global
Over the next three years, Armstrong took many actions to
make his vision real. He cut AT&T's costs, while increasing capital
expenditures. The company invested over $35 billion in acquisitions and
upgrades to its infrastructure both to manage ever-increasing volumes of
internet protocol and other data traffic, and to establish direct local
connections to business customers. AT&T acquired a leading provider of local
telephone service to business customers (TCG.) It acquired a leading
provider of global data networking services (IBM Global Network.) It merged
with two large cable companies, (TCI and MediaOne.) Operating as AT&T
Broadband, the unit became the largest cable company in the United States.
By mid-2000, AT&T had three rapidly evolving networks-
data, broadband, and wireless, and four separate businesses-cable, wireless,
business, and consumer. And in 2000, the volume of data traffic for the
first time exceeded the volume of voice traffic on the AT&T network.
In October 2000, AT&T announced that it would restructure
over the next two years into a family of separate publicly held companies:
AT&T Wireless, AT&T Broadband, and AT&T. In this way, each business could
best obtain the capital structure needed to fund its growth. AT&T Wireless
became an independent company on July 9, 2001. On December 9, 2001, AT&T and
the cable-operator Comcast reached a definitive agreement to merge AT&T
Broadband with Comcast. The businesses completed their merger on November
18, 2002, and began combined operations as the Comcast Corporation.
With the completion of the restructuring, David W. Dorman
succeeded Armstrong as Chairman and Chief Executive Officer of AT&T in
As Dorman assumed leadership of AT&T, the global
telecommunications industry entered an era of unprecedented chaos and
instability – marked by oversupply, fraud, a complicated regulatory
environment and nonstop pricing pressures. Combined, these forces led to an
industry meltdown in which numerous bankruptcies, defaults and business
failures occurred; investors lost billions and countless workers in the
communications sector lost their jobs.
To address the dynamic environment, Dorman led an
aggressive strategic transformation to fundamentally reshape AT&T – to
evolve from a consumer-oriented voice company to an enterprise-focused
networking company. The redesigned AT&T became a global IP networking
provider dedicated to delivering powerful networks, applications and
capabilities to business and government customers. Concurrently, AT&T
introduced a breakthrough alternative to traditional services – VoIP, or
Voice over Internet Protocol – for consumers and small businesses.
In January 2005, the most profound aspect of AT&T's
ongoing transformation was announced: the pending $16 billion merger with
SBC Communications to create the industry’s premier communications and
networking company. Through this deal, the people of AT&T have the
opportunity to build the defining entity in global communications for the
21st century – a company capable of delivering advanced networking
technologies and a full suite of integrated communications services
throughout America and around the world.