At&T Case Analysis

Introduction

AT&T was started over 130 years ago in 1875. It started out when Alexander Graham Bell began work on the telephone. Initially it just made telephones and licensed to companies to

* Many changes in the company structure

* 6,000 patents

* 7 Nobel prizes

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Analysis

I. General Environment

A. Technology -Alexander Graham Bell invented the telephone and earned the patent in 1875. AT & T was incorporated in 1885 with objective of building and operating long distance network. AT & T was the telecommunication leader until the late 90s. Here is the list of AT & T technological movement: 1925 virtually monopoly on local telephone service, 1926 begins telephone service via two-way radio, 1947 transistor invented at Bell Labs, the first microwave relay system, 1962 launches its first satellite, 1977 installs the first fiber optic cable, 1992 starts AT & T Wireless after acquires McCaw Cellular Communications, 1996 launches AT & T Internet service, 1999 forms AT & T broadband after acquires cable company TCI. Technology is the driver of the telecommunication industry. Without highly advanced technology and services, there would be no product to sell.

B. Demographic trends - For a long time, AT & T was virtually monopoly on local and long distance service. After the antitrust threats in 1913, AT & T allows competitors to interconnect with the Bell System. It does not stop AT & T's rapid growth. The penetration of telephone service into American household increased from 50% in 1945 to 90% in 1969. Competition became established in the general long distance service by the mid-1970s when FCC signaled its interest in more competition and allowed competitors to use some of the Bell Lab's technology. AT & T's long distance market share fell from over 90% in 1984 to 50% in 1996. By the late 90s, AT & T realized its technology and service areas are lagging, it starts series of acquisitions. Despite all the acquisitions, AT & T is constantly losing its market shares in all areas but Wireless sector. This leads AT & T to split the company into four parts and refocus their businesses on their service areas, which are AT & T Broadband, AT&T Wireless, AT&T Business Services, and AT&T Consumer Services.

C. Economic trends - With the new technologies and more competitors entering the markets, AT&T has to drop their service pricing to be competitive. AT&T's long distance service is as profitable as it used to be. Two areas of the business that were growing were AT&T Wireless, expected to grow about 30% in 2000, and AT&T high-speed services, sold under the brand Excite@Home, which was gaining customers rapidly. AT&T's third quarter revenues, totaling $16.97 billion, increase only slightly by 3.7%. However, the earning 38 cents per share were down 24% compared to the same period a year ago. The breakup was to give the individual companies more flexibility in raising money for repaying debt or for acquisitions as well to boost the company's stock price by separating the various divisions into more easily understood stand-alone business. Given the disappointing performance of the AT&T, few analysts expected that valuations would be higher just because they were managed as separated business.

D. Political/Legal -In 1907 AT&T's President Theodore Vail formulated the principle that the telephone and its technology would operate most efficiently as a monopoly providing universal service. Initially, the U.S. government accepted this principle, which led to an agreement in 1913 known as the Kingsbury Commitment. AT&T agreed to connect competitors to its network and divest its controlling interest in the Western Union Telegraph. Several times over the next few decades, federal administrations investigated the U.S. telephone monopoly. The only notable result, however, was an antitrust lawsuit filed in 1949, alleging company abuses. This led to a settlement in 1956, whereby AT&T agreed to restrict its activities to the regulated business of national telephone system and government work. In 1974 the U.S. government filed an antitrust lawsuit against AT&T, believing that a monopoly was still valid for local exchanges, but no longer for long distance, manufacturing, and research and development. The lawsuit was settled in 1982 when AT&T agreed to divest itself of the wholly owned Bell operating companies that provided local exchange service, creating "Baby Bells". The government, in return, agreed to lift the constraints of the 1956 agreement.

E. Sociocultural -The sociocutural issue is related to the legal issue in this case. The battle AT&T faced had been up against the U.S. government on the antitrust. Another problem AT&T faces is on innovation. AT&T focused only on the telephone services for over a century until the late 90s. That was when AT&T started a series of joint adventures and acquisitions to broaden the company's competitiveness in broadband, cable TV, high speed Internet, and wireless services.

F. Global - Following Michael Armstrong, Chairman and CEO of AT&T, appointed in November1997, AT&T began to implement the vision of a global company by integrating the cable, wireless, and long distance business. AT&T initiated a series of joint ventures and acquisitions. One goal was to broaden the company's scope to areas such as data networking services, digital voice encryption, broadband cable telephony, and video telephony. The other goal was to increase AT&T's global reach. In total, Armstrong's vision of transforming AT&T into a global company offering TV, local and long distance telephone services, and Internet services resulted in investment of 115 billion in cable system. Unfortunately, the reality of creating the vision was much more difficult than Armstrong anticipated. The failure led AT&T to announce a split plan in October 2000 for more efficiency operation.

II. Industry Environment

A. Industry definition-Telecommunication industry is a large and high-tech industry. It includes local, long distance and wireless network service, broadband for computer and cable for television. This industry is complex and diversified; rapid technology development and upgrades are crucial to survival in this industry.

B. Dominant economic characteristics

1. Market