Bad calls sped AT&T’s decline

NEW YORK — AT&T Corp. bused 3,000 employees to Washington, D.C., in July 1995 to beg lawmakers to kill new telecom legislation designed to make their industry more competitive. Before they trooped into Congressional offices, CEO Robert Allen addressed them by video and declared: “Like it or not, our future is at stake inside that building.” The theme song from “Rocky” blared.

At the time, it was hard to think of the fat telecommunications giant as having anything in common with the underdog movie boxer. Sure, its 1984 breakup meant it was no longer Ma Bell, the nation’s primary phone company. But it had dominated its industry for the better part of a century and its stock was still in nearly every investor’s portfolio.

Today, the thought of AT&T as underdog is no stretch at all.

Its stock and profits have been sliding for years. Once the largest company in the world, job cuts and spinoffs have shrunk AT&T from 1 million employees in 1984 to 61,000 — and dropping — today.

AT&T’s plush, fine art-decorated headquarters, where the executive offices were known as “Carpetland,” have been sold. Its revenues have shrunk from $69.4 billion in 1983, then about 2 percent of the gross national product, to half that in 2003. Just Thursday, Moody’s downgraded the company’s debt to junk and said the outlook is negative.

There’s no agreement on what eroded AT&T, but the mistakes were plenty.

Former employees say the company passed up technology that ultimately became profitable for others, testing cell phones in the 1980s and a Wi-Fi predecessor in the early 1990s, but passing on both. It was at one time the No. 1 wireless carrier, but quickly lost ground to competitors and spun the business off. AT&T overpaid for cable companies it eventually shed, saddling the company with billions in debt.

What many outsiders and former employees agree on is that the company’s almost centurylong dance with government regulation and protection defined it, guaranteed its dominance for a long time — then sped its decline.

According to that argument, AT&T’s trajectory was predetermined from the moment it struck its first mutually beneficial deal with the government in 1913.

“You can follow an arrow of events from 1913 to the present,” said Thomas Eisenmann, a Harvard Business School professor who studies the industry.

The deal AT&T president Theodore Vail made that year turned his company into a government-sanctioned monopoly. In exchange for higher long-distance rates, AT&T would provide “universal service,” a phone connection to the farthest farms in the nation.

With that deal, the underpinnings of the Bell monopoly were set: AT&T had to give its rivals access to its network and accept government oversight, but it got almost everything else it wanted. Higher prices for long-distance calls subsidized local calls. Urban service subsidized rural, business service subsidized residential.

AT&T was safe from competition, but there were times when government oversight pushed technology it invented into the hands of others.

The Nixon administration FCC changed rules so customers could connect phones from other manufacturers to AT&T’s network, a change from previous policy, under which customers could only rent or buy phones and equipment from AT&T.

“That was the crack in the dike,” said Sandy Teger, who worked at the company for 19 years and was strategy director for multimedia before leaving in 1996. “It started what inevitably happened, breaking the system.”

By 1984, the trust was busted.

AT&T settled a Justice Department lawsuit by agreeing to spin off the regional Bells, companies we know today as SBC Communications Inc., BellSouth Corp., Verizon Communications Inc. and Qwest Communications International Inc.

Analysts now question whether the company can survive on its own. AT&T was widely reported to be in merger talks with BellSouth last year, and Newsweek reported last week that leveraged buyout firm Kohlberg Kravis Roberts & Co. was going to make a run for the company. KKR denied the report.

AT&T spokesman Jim Byrnes says the company is confident of long-term success and is pinning its hopes on selling to businesses.

“As technology continues to transform the way people communicate, we will be innovating, investing in the migration to Voice over Internet and, where it makes sense, marketing emerging technologies to businesses and consumers alike.”

But even some who spent most of their career with AT&T are skeptical.

Notes Sandy Teger, “Big companies look like they’ll last forever.” She can’t pinpoint the moment “when AT&T looked like it would get smaller and smaller, piece by piece and swallowed up. But that’s what happened.

“There were lots of times AT&T understood the problem, but, for whatever reason, wasn’t able to solve it. Maybe it wasn’t solvable. You look at a natural life cycle and, just like a person has a life cycle and a tree has a life cycle, companies have a life cycle. AT&T had a long one.”