AT&T Corporation

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AT&T Corporation

also known as: american telephone and telegraph founded: 1899

Contact Information:

headquarters: 32 avenue of the americas
new york, ny 10013-2412 phone: (212)387-5400 fax: (212)841-4715 toll free: (800)348-8288 email: [email protected] url: http://www.att.com

OVERVIEW

AT&T is a communications company offering long-distance telephone service, among other services. In 1996 the company divided itself into three separate operations: AT&T Corp. (telecommunications), NCR Corporation (computers), and Lucent Technologies Inc. (network products). The two latter divisions were then sold. With increased long-distance competition during the 1990s, AT&T was forced to focus on retaining its market share in that core business area.

Other services offered by AT&T Corporation include WorldNet, an Internet-access service; local phone services; and the AT&T Universal Card, a credit card. The company also provides cable television and wireless phone service in more than 100 cities in the United States. DIRECTTV, a television satellite system, is among the newest of AT&T's innovations.

COMPANY FINANCES

As reported by the company, AT&T's total 1997 revenues were $50.9 billion, a decrease of 2 percent from 1996 revenues of $52.2 billion. Of 1997 revenues, $22.03 billion was generated by the company's business markets division (BMD); $23.52 billion was generated by its consumer markets division (CMD); and $4.43 billion was generated by AT&T wireless services. First quarter revenues for 1998 were $12.63 billion, up slightly from $12.54 billion in the first quarter of 1997.

Net income for 1997 was $4.6 billion, compared to $5.9 billion in 1996. Again, AT&T showed improvement during the first quarter of 1998—net income for the quarter was $1.32 billion, up from $1.12 billion in the first quarter of 1997.

AT&T stock was valued at around $60.00 per share in mid-1998. The company's 52-week high was $68.50, and its 52-week low was $34.00 per share. The company's earnings per share (EPS) in 1997 were $2.79, compared to $3.60 in 1996. As of mid-1998, earnings per share were $2.96.

ANALYSTS' OPINIONS

Analysts tend to view long-distance service as a mature market in the United States, as well as a market characterized by increasing competition due to more cost-focused consumers. Some experts say AT&T's lack of swift reaction to this change accounted for some of the company's problems. For example, while companies such as Sprint offered flat rates for long-distance service early on, AT&T remained at the high end of the price scale. Eventually, the company offered a $.15-per-minute flat rate to compete with the lower prices of smaller companies. AT&T was also struck hard in 1996 by companies that purchased long-distance service in bulk and then resold to consumers and businesses at less expensive rates.

AT&T admitted to being caught off-guard by smaller companies offering fierce competition. This oversight caused AT&T's long-distance services to not perform as expected. As reported by Catherine Arnst in Business Week, Jeffrey A. Kagan, president of a consulting firm, commented in late 1996 that "AT&T's ability to move into other areas depends on a healthy core business, and their core business is not healthy right now."

The most recent threat to AT&T was the rise of the Internet, offering faxing, phone calls, live radio programs, and video conferencing—areas in which AT&T hoped to provide services. Many analysts view AT&T's launch of WorldNet as a successful embrace of the competition offered by the Internet in these areas. In fact, analysts say fewer than 50,000 people currently make phone calls using the Internet, giving telecommunications companies like AT&T an edge in the market.

A technological advantage that some analysts believe may be beneficial to the company was AT&T's plan to implement "Project Angel." The project would give customers the option to choose their local telephone provider, which may be enough, some say, to successfully launch such a program. Once in place, this technology could also offer consumers the capability to hook computers up at high speeds for minimal costs. Some analysts believed this technology was AT&T's competitive edge, although many kinks have not yet been ironed out.

From 1988 to 1996, analysts criticized CEO Robert Allen's strategies. During his years of service, the company spent $20 billion on purchases of businesses and $19.0 billion in redesign efforts. Since January of 1996, AT&T's stock has dropped 20 percent. Despite all of this, many analysts agreed that AT&T remained financially strong. AT&T was the number one performing stock on the Dow-Jones index for the third quarter of the 1997 fiscal year. The company brought in over $8.0 billion in annual cash flow. Its assets totaled $56.0 billion and outstanding debt totaled $8.5 billion. Many view AT&T's financial standing, coupled with its strong name-recognition, as its strongest asset for competitive survival.

HISTORY

Alexander Graham Bell's invention of the telephone in 1876 led to the developments of Bell Telephone (1877) and England Telephone (1878), which were later combined to create National Bell Telephone in 1879. After fighting off competitor patents like those of Western Union, in 1882 National Bell acquired Western Electric, the leading electrical equipment manufacturer in the United States at the time. After Bell's patent expired in the 1890s, competing phone companies emerged. The company changed its name to American Telephone & Telegraph (AT&T) and moved from Boston to New York in 1899.

As a result of the company's acquisition of Western Union in 1909, AT&T had control over two markets: communications and electrical equipment manufacturing. Under President Woodrow Wilson, AT&T was forced to sell Western Union and refrain from purchasing other independent phone companies without approval. AT&T was also forced to provide access to its networks to other companies. In other words, the government was forcing AT&T to give up its standing as a monopoly (a situation where one-third of a local or national market is controlled by one supplier). This allowed competitors, such as MCI, to obtain access to AT&T's networks, which created instant long-distance competition.

A lawsuit initiated by the government caused AT&T to sell seven Bell companies in 1984. AT&T was allowed to keep its long-distance services and Western Electric. Many jobs were cut in order for AT&T Corp. to remain competitive in such a rapidly growing industry. AT&T bought the electronic mail service division of Western Union in 1990. AT&T Corp. ranked seventh in the world's computer makers after it bought Teradata and NCR in 1991 (sold along with Lucent in 1996); the company also bought McCaw Cellular in 1995.

STRATEGY

AT&T was organized into divisions and businesses addressing its specific markets. These divisions were: the Consumer Markets Division (CMD), Business Markets Division (BMD), AT&T Solutions (professional services), AT&T Wireless Service, AT&T Local Services Division, and AT&T Universal Card Services (UCS). These are bolstered by two other organizations—Network and Computing Services and AT&T Labs—that provide the company's divisions and businesses with a competitive advantage in serving their customers.

As a result of AT&T's slipping core business—long-distance service—the company revised its corporate strategy for the 1990s. AT&T's new focus was geared toward communications solutions for large and small customers. Included among these solutions were long-distance, wireless, satellite TV, and credit card services. Local calling services emerged as well, along with a push to expand digital wireless networks.

An emphasis on international growth and outsourcing arose during the late 1990s as well. Refining their strategy in 1997, the AT&T Board of Directors announced its intent to sell two of the company's profitable but non-strategic businesses: AT&T Universal Card Services and the Customer Care unit (formerly known as American Transtech) of AT&T Solutions. Another part of the company's new strategy was its plan to cut costs by eliminating up to 17,000 positions by the year 1999.

INFLUENCES

AT&T's primary source of revenue was from its long-distance service. An industry leader, the company ventured into other business areas including computers, wireless services, credit cards, and satellite TV. However, an unfortunate combination of increased competition and AT&T's underestimation of smaller telephone companies caused AT&T's long-distance service to suffer.

AT&T's venture into the computer industry in the 1980s failed. Purchasing NCR Corporation, AT&T hoped to breathe life back into its computer operations. After the company suffered losses totaling $10.1 billion, including several startups in handheld computers and software that were stifled shortly after their unveiling, AT&T decided to sell NCR. Even the company's Universal Card began to suffer due to enormous default rates. AT&T was forced to sell NCR and Lucent Technologies in order to focus on long-distance service and its increasing competition; therefore, AT&T Corp. was the only remaining segment of the previous three AT&T divisions.

Due to increasing cost-consciousness on the part of long-distance customers, new strategies were essential for AT&T's competitiveness. Staying at the high end of the price scale in this market was no longer a practical move for AT&T, a company struggling to maintain its position as the long-distance leader of the nation. AT&T's latest challenge was to maintain market share while growing new services like WorldNet, the Internet access service launched in the late 1990s.

CURRENT TRENDS

WorldNet was one service among many in AT&T's latest strategy called "bundling," according to Catherine Arnst in Business Week. The company placed high expectations in its recognizable name to sell "bundles" or packages of products including local and long-distance calling, wireless service, and Internet access. AT&T's goal was to become a convenient one-stop communications services company. Since 1994, the company has been implementing this strategy by acquiring companies like McCaw Cellular. AT&T also seized opportunities in video with its 2.5 percent interest in Hughes Electronics Corp.'s DirectTV, a satellite service being marketed to AT&T customers. AT&T's WorldNet service also ranked as the second largest Internet-access server.

PRODUCTS

AT&T runs the world's largest communications network and is the leading provider of long-distance and wireless services. The company also offers online services and cable television and, in the late 1990s, it began to deliver local telephone service.

FAST FACTS: About AT&T Corporation

Ownership: AT&T is a publicly owned company traded on the New York Stock Exchange as well as the Boston, Midwest, Pacific, and Philadelphia exchanges in the United States. AT&T stock is also traded on stock exchanges in Brussels, Geneva, London, and Paris.

Ticker symbol: T

Officers: C. Michael Armstrong, Chmn. & CEO, 59, $291,667; John D. Zeglis, Pres., 50, $1,609,000; Daniel E. Somers, Sr. Exec. VP & CFO, 50; R.C. Mark Baker, Exec. VP International, 51

Employees: 128,000 (1997)

Principal Subsidiary Companies: AT&T's chief subsidiaries include WorldNet, AT&T Digital PCS, AT&T Submarine Systems, Inc., and McCaw Cellular.

Chief Competitors: As a major telecommunications provider, AT&T's chief competitors include: Ameritech; Bell Atlantic; BellSouth; Cable & Wireless; GTE; MCI; Northern Telecom; Pacific Telesis; and US WEST Communications. Competitors in related industries in which AT&T also participates include: AirTouch; America Online; CompuServe; Frontier Corporation; IBM; NETCOM; PSINet; and WorldCom.

"Project Angel" was among AT&T's newer developments in the late 1990s. More a "technology" than a product, the company introduced its plans for this new service in the mid-1990s. AT&T planned to use radio technology to deliver local telephone service and high-velocity Internet access without requiring a new wire to be connected to the customer's house. An 18-inch square box was designed to attach to the side of a house or small business, then the box would be connected to the existing. When a call is made, a signal inside the box triggers an antenna nearby, which connects to AT&T's network. The intended result was wireless communication for local calling, an increasingly popular market as local telephone markets have been allowing customers choices in local service providers.

The "Renaissance Network" was another technological trend at AT&T. Plans for this new technology were to allow customers to reach anyone anywhere using any means of communication. This technology involved a high-tech digital system able to provide a foundation for these services.

CORPORATE CITIZENSHIP

Through the AT&T Foundation, AT&T awards grants to benefit programs in Education, Arts and Culture, and Civic and Community Service. In the area of education, AT&T has traditionally invested in pre-college and higher education programs with emphasis on math and science, both of which are important to the company's business. They place increasing importance on the use of technology and its role in the enhancement of teaching and learning. In late 1995, AT&T announced a five-year commitment totaling $150 million for its new program, the AT&T Learning Network. Designed to get the nation's schools onto the "Information Superhighway," the program represents AT&T's largest commitment to education thus far.

AT&T also promotes arts and culture around the world by supporting arts programs. The company supports such initiatives by bringing artists and innovative work together with wide audiences. The Arts & Culture program awards between 150 and 200 grants every year. AT&T's efforts in the area of community service are directed toward enhancing life in the communities in which AT&T employees and customers live and work. The company does this by developing programs that address the needs of specific communities through communications and information technology and by encouraging employees to participate in public service.

GLOBAL PRESENCE

AT&T provides long-distance service to every country and territory in the world and direct-dial service is available to more than 270 countries. International growth is of increasing importance to AT&T. Current growth areas include China, where a China-United States cable network was planned by 1998. China Telecom and AT&T Submarine Systems Inc. are among the 10 carriers who signed agreements to construct this first fiber optic undersea telecommunications cable linking the two countries. With technology able to transmit voice, data, and images at eight times today's established capability, more than 1 million calls could be placed at the same time.

A similar undersea cable was planned to connect the United States and the United Kingdom, providing complete service by 1998. And yet another was developed to connect the United States, Germany, and the United Kingdom by 1998 as well.

CHRONOLOGY: Key Dates for AT&T Corporation

1899:: Founded as American Telephone & Telegraph
1909:: Acquires Western Union
1913:: AT&T agrees to the Kingsbury Commitment in which it will 1) buy no more independent phone companies without government approval; 2) sell Western Union; and 3) allow independent phone companies to use its networks
1925:: Bell Labs is formed
1949:: The Justice Department sues AT&T to try to force them to sell Western Electric
1956:: A settlement in the Justice Dept. case allows AT&T to keep Western Electric but forbids them to enter any other unregulated markets
1968:: FCC takes away AT&T's telephone equipment monopoly
1969:: Allows other companies such as MCI to connect to their phone network
1984:: The U.S. government forces AT&T to sell seven Bell companies
1990:: Buys the electronic mail service division of Western Union
1991:: Acquires Teradata and NCR Corp.
1995:: Purchases McCaw Cellular
1996:: Company is divided into three separate operations: AT&T Corp., NCR Corporation, and Lucent Technologies
1997:: Forms a partnership with Bell Atlantic Corp. and Nynex Corp. to provide customers with lower rates

AT&T Corporation also provides products and services worldwide. However, most of the company's sales are generated in the United States—90 percent of AT&T's total sales. International sales accounted for the remaining 10 percent. In 1997, however, AT&T announced developments to invest up to $9 billion in order to expand its network to new markets, including local phone and Internet services.

EMPLOYMENT

AT&T bills itself as a "demanding and dynamic organization that requires a commitment to our community, environment, people, and most importantly, Our Common Bond." The company seeks people who thrive on challenges, are self-confident, and seek immediate responsibility. It also values previous exposure to international or multicultural environments.

AT&T offers competitive benefits that can be tailored to the needs of individual employees. The company also has a comprehensive corporate education program, providing in-house training courses to help employees improve technical and managerial skills. It also offers tuition reimbursement for those wishing to pursue advanced degrees. AT&T adheres to its policy of equal opportunity for employees, placing value on diversity.

SOURCES OF INFORMATION

Bibliography

arnst, catherine, and amy barrett. "at&t?" business week, 10 march 1997.

arnst, catherine, and peter coy. "at&t: will the bad news ever end?" business week, 7 october 1996.

"at&t building the network of the future today." prnewswire, 17 march 1997.

"at&t corp." hoover's online. 30 june 1998. available at http://www.hoovers.com.

"at&t to build first china-u.s. undersea cable." business wire, 30 march 1997.

"at&t to build world's most powerful undersea network." business wire, 24 march 1997.

coy, peter. "can at&t keep learning to love the net?" business week, 7 october 1996.

fillgion, roger. "at&t, baby bells offer plan to cut phone rates." reuters, 4 april 1997.

ziegler, bart. "at&t cut allen's bonus in '96 due to company's performance." the wall street journal, 2 april 1997.

For an annual report:

on the internet at: http://www.att.com/ir/investorinfo.htmlor write: at&t investor relations, rm. 3349a2, 295 n. maple ave., basking ridge, nj 07920 or call (800)972-0784