Reorganizing AT&T: From Vertically Integrated to Customer-Centric Organization (A)

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"To the public, the 'Bell System'furnishes facilities, in its 'universality' of service and connection, of infinite value to the business world, a service which could not be furnished by dissociated companies. The strength of the Bell System lies in this 'universality.'" ¹

- Theodore N. Vail, former President, AT&T..

"I fear that the breakup of AT&T is potentially the worst thing to happen to our national interests in telecommunications that will ever occur." ²

- Barry Goldwater, US Senator from Arizona.

Introduction

In 1982, after a long-drawn court battle between AT&T3 and the Department of Justice (US), which had filed antitrust suits against the company, it was decided to break up the 'Bell System.'

This decision led to the separation of regional Bell operating companies (RBOCs) from the Bell System. The RBOCs were later termed as 'Baby Bells.'

By early 1984, the break-up process was completed, and AT&T was permitted only to operate in the long-distance telecom business. The US-based AT&T had been in the telecom business for more than a century. During this period, the company had undergone many major organizational changes.

Every time, AT&T had successfully reorganized its structure and had reinvented its business by setting new strategic courses.

The 1984 break-up, however, was the biggest reorganization in AT&T's history with several implications for the company. The Bell System allowed AT&T a monopoly status and kept it largely insulated from market pressures and competition.

The company took its own time to deliver what customers wanted After the break-up, analysts commented that AT&T would be facing the harsh realities of market competition. The company would need to change its conventional, laid-back attitude and understand customers' needs and preferences, and deliver exactly what they wanted on time. The break-up of AT&T was an issue of heated debate. A few analysts felt that it was necessary for the growth of the telecom industry in the US. Jeffrey Kagan, an Atlanta-based telecom analyst commented later, "When the break up of AT&T was being debated, it was very scary. But it turned out to be the best thing in the world for AT&T, the industry, and the economy. It created an unprecedented growth engine in telecom."⁴

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1] As quoted in the article titled "AT&T Split-up Rumors Are True: Lucent Ousts Its Chairman," by Seth Schiesel and Andrew Ross Sorkin, posted on www.xent.com, October 24, 2000.

2] From the book The Rape of Ma Bell, by Constantine Raymond Kraus and Alfred W. Duerig, Lyle Stuart Inc., page numbers 69-109, 1988.

3] With revenues of $37.83 billion in fiscal 2002, AT&T is the leading global voice and data communication company. It has nearly 40 million household customers and four million corporate customers.

4] As quoted in the article titled "Government Plan for Microsoft Sparks Reaction," by Mary Mosquera, TechWeb News, April 28, 2000.