Breaking The Connection

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The history of telephone communications in the United States is also, in large measure, the history of an extraordinary business organization. On January 8, 1982, that organization announced that within two years it would tear itself apart, and on January 1, 1984, it made good on its promise.

Before its dismemberment, the American Telephone and Telegraph Company, also known as “Ma Bell,” had been by many standards the largest company on earth. In the range of its influence, in assets, and in its impact on the daily lives of ordinary people, it dwarfed not only other companies but also nations. More than half a billion conversations sped daily over its equipment. On it depended the flow of messages that smoothed the lives of husbands and wives, parents and children, businesses and customers, lovers, friends, strangers—anyone here who wanted to talk with anyone there, or vice versa.

The legal term for what occurred on January 1, 1984, is divestiture , but that word seems inadequate as a description of the corporate equivalent of a many-limbed giant ripping off limb after limb, flinging the pieces in all directions, and leaving the landscape littered with big, bleeding hunks of its former self. The new AT&T, often called “Baby Bell,” consisted of two parts with assets worth a piddling thirty-four billion dollars: AT&T Communications, responsible for longdistance services, and AT&T Technologies, an umbrella organization whose subsidiary divisions included AT&T Bell Laboratories, AT&T Network Systems, AT&T Technology Systems, AT&T Information Systems, AT&T Consumer Products, and AT&T International.

Gone were twenty-two local operating companies with combined assets worth approximately $115 billion—three-quarters of the total assets of the Bell System. In the reorganization that accompanied divestiture, the twenty-two local companies were combined into seven regional operating companies. Each of the seven immediately ranked among the largest business enterprises in the United States.

AT&T was bigger than GM, Ford, GE, IBM, Xerox, and Coca-Cola combined.

Divestiture was the result of the largest antitrust suit in history—a suit filed by the United States Justice Department in 1974. The outcome was not wholly to AT&T’s disadvantage: The Justice Department dropped its case, and the company was freed from constraints under which it had operated since 1956, under terms of the consent decree that ended an earlier antitrust suit.

The lifting of those constraints in 1984 set the stage for a corporate battle that promises to be as exciting as any since Cornelius Vanderbilt took on Daniel Drew and Jay Gould in the Erie War more than a century ago—the battle of AT&T and IBM in the market for computer-based data processing services, systems, and equipment. In the world of big business, Baby Bell versus Big Blue is the equivalent of Muhammad AIi versus Joe Frazier. Several years before divestiture, the chairman of AT&T, Charles L. Brown, perhaps trying to prepare the ground for events that he foresaw, shocked some of his own employees when he announced, “There is a new telephone company in town … a high-technology business applying advanced marketing strategies to the satisfaction of highly sophisticated customer requirements.” Brown suggested that the comforting image of Ma Bell might not fit this new company: “Mother,” he concluded, “doesn’t live here anymore.”

Brown was premature; Ma Bell did not pass away until New Year’s Day, 1984. Now that she is gone, we might take a moment to remember her remarkable life. What did she mean to us? How did she get so big and strong? What is her legacy? How will we manage without her?

The size of AT&T before divestiture is the first fact that needs to be grasped. We get a sense of that size, the bigness of the biggest company on earth, if we consider that on the last day of 1983 the company’s assets of $150 billion accounted for 3.5 percent of the total assets of the five hundred companies that Forbes magazine listed as the largest in the country, and exceeded the combined assets of General Motors, Ford, General Electric, IBM, Xerox, and Coca-Cola.

AT&T’s assets included approximately 182,000,000 telephones and more than a billion miles of wire—enough to stretch to the sun and back six times, or around the world some 46,000 times. The company employed nearly a million people and met an annual payroll of nearly $30 billion. In its final year before divestiture it earned $5.75 billion—more than $15,000,000 per day, about $11,000 per minute—on gross revenues of $69.8 billion.

Thanks to its reputation as a preeminently safe stock, the biggest company on earth was also the most popular with small investors. At the time of divestiture more than three million people owned shares of AT&T common stock. An investment in bonds backed by Ma Bell was generally regarded as only slightly more risky than an investment in bonds backed by the United States government.