1. AT&T: TWENTY YEARS OF
CHANGE
CASE ANALYSIS
STRATEGIC MANAGEMENT OF
TECHNOLOGY
NILE UNIVERSITY, MSC. MOT
MAY 2012
May 2012 By: Al-Motaz Bellah Al-Agamawi

2. AT&T: 135 Years of Operations
1875 1984 2000
1894 1997

3. AT&T: 135 Years of Operations
1875 1984 2000
1894 1997
For each Milestone we will
conduct: • SWOT Analysis
• Porter 5 Forces Model Analysis • Strategy Direction
• Technology Environment • Implementation and Control
Analysis
• Regulator Effect Analysis

4. AT&T: The Begging (1875-1893)
1875
Establishment

5. AT&T: The Begging (1875-1893)
• No Competition Exist • AT&T was incorporated in 1885 as a
• Monopoly wholly owned subsidiary of Bell with
• Most telephone exchanges are under objective to build and operate long
license from Bell Telephone. distance networks.
Buyer Power, Low
Bargaining Power
• High Barrier to entry during the patent life • Bell acquire Western Electric company as
time. the first manufacturing firm
• Most of the licenses across US are
granted to Bell Telephoney

6. AT&T: Start of Competition (1894-
1984)
1875
1894
Patent Expiry

7. AT&T: Start of Competition (1894-
1984)
• In 1904, 6000 new telephone company we • No interconnection between different
established. companies
• License to operate telephones have been
opened to all companies
Buyer Power
Increased from 285K
to 3,317,000
• Patent expired in 1894, eliminating the
barrier of entry.

8. AT&T: Start of Competition (1894-
1984)
 New Strategic Direction in 1907
 Formulation of the principal that
Telephone and its technology would operate most
efficiently as a monopoly providing universal
services.
 Lead to an agreement known as Kingsbury
commitment.
 In which AT&T provide competitors connection to its

9. AT&T: Start of Competition (1894-
1984)
 First Regulatory Act
 Through a lawsuit filed in 1949
 Settlement reached in 1956
 AT&T agreed to restrict its activities to the regulated
business of the national telephone system and
government work.
 Therestriction did not influence the rapid
development of systems and its steady progress
towards its global universal services.

10. AT&T: Start of Competition (1894-
1984)
 Second Regulatory Act
 FCC signaled its interest in more competition
allowed competitors to use
 some of Bell Labs technologies
 Therefore competition established in the general long
distance services

11. AT&T: Start of Competition (1894-
1984)
 Technology Environment
 AT&T Bell Telephone Laboratories
 Microwave Relay System
 Provide alternative to copper wires for long distance, in late
1949
 First Comm. Satellite in 1962
 Additional Alternative for international comm.
 Transition to electronic components
 Allowed more powerful and less expensive customer and
network equipment.

12. AT&T: Start of Competition (1894-
1984)
 Corporate Culture
 Profits as a way to support and extend monopoly
 Cost Control
 Customers taken for granted
 Sales reps, received straight salaries
 Sales reps, were warned not to oversell
 Managers were averse to risk

13. AT&T: Baby Bells (1984-1997)
First Divesture
1875
1984
1894

14. AT&T: Baby Bells (1984-1997)
 Federal Communications Commission- FCC
 1974 Anti-trust lawsuit
 Monopoly for the local exchanges
 Lawsuit were settled in 1982
 AT&T agreed to divest itself from the wholly owned
 Bell Operating Companies
 Creating Baby Bells
 The divest took place in 1984
 AT&T retained $34 Billion of the $149 Billion in assets
 AT&T retained 373,000 of the 1,009,000 employees.

15. AT&T: Baby Bells (1984-1997)
SWOT at the time of Divestiture
Strength Weaknesses
• Advanced Technological Assets • AT&T lost its ability to reach almost every consumer in the US
by its wires and bills
• Enormous positive cash flow
• Significant change in corporate culture from Monopoly to
• $34 Billion of Assets
competitive based company
• Going out of Mature Competition segments
• Manufacturing Operation challenges from monopoly to
• More Focus competition
Opportunities Threats
• Emerging technologies as Fiber optic technologies • Long distance telephone services become competitive
• Based on the divestiture, AT&T business activities were (market share fall from 90% to 50% from 84 to 96)
no longer restricted to regular business of national • Telecommunication act of 1996, allowing baby bells and other
telephone system and government work. competitors to compete in long distance
• Lose of market share

16. AT&T: Baby Bells (1984-1997)
 Change in the Strategic Direction
 Diversificationstrategy
 Acquisition of other companies through horizontal
integration approach

17. AT&T: Baby Bells (1984-1997)
 Early 90s Acquisition Wave
 1991- Hostile Acquisition of the Computer maker NCR
 For $7.4 Billion
 Targeting the convergence between communication and
computers
 1992- Acquisition of the US wireless
business, McCaw
 For $11.5 Billion
 The deal position AT&T as a leading force in the fast
growing wireless communication
 Giving the company direct access to consumer for the first
time in decade.

18. AT&T: Baby Bells (1984-1997)
 2nd Divestiture (Voluntary) into
3 Companies
 System and Equipment,… Named Lucent
Technologies
 Telecom network, switching and transmission equipment
and Bell labs
 ComputerCompany,… Named NCR
 Communication and Services Company,… Named
AT&T

19. AT&T: Baby Bells (1984-1997)
 Strategy Directions Behind 2nd Divestiture
 Lucent Technologies
 New company had revenue of $20 Billion and 125,000 Employees
 Emergence of New Competitors (cable, RBOCs, mobile firms)
 Had many options from where to buy equipments, by placing orders to AT&T, AT&T
is
 Having insight into competitors plans
 Could use profits from the equipment contract against them
 NCR
 From 1993 to 1996, the computer unit lost $5.9 billion
 Forcing AT&T to inject $2.8 billion
 The spin-off valued NCR at $3.96 Billion which means that AT&T had lost $10
Billion

20. AT&T: Armstrong (1997-2000)
1875 1984
1894
199
Armstrong
7

21. AT&T: Armstrong (1997-2000)
 Armstrong New Vision
 Transforming AT&T from a long distance company
to an “any distance” company. From a company
that handles mostly voice call to a company that
connect you to information in any form that is
useful to you– voice, data and video. From a
primarily domestic company to a truly global
company.

22. AT&T: Armstrong (1997-2000)
 New Strategy to Meet the New Vision
 Implementing a vision of a Global Company
 Integrating cables, wireless and long distance
 Implement refocused strategy
 Cost-cutting measure to make AT&T the low-cost provider
 Cutting the workforce in its long distance business by 15000 to
18000 over two years
 Initiating series of Joint ventures and acquisition to broaden
the companies scope to areas
 data networking, digital voice encryption, broadband cable, video
telephone and increase AT&T global reach.

23. AT&T: Armstrong (1997-2000)
 Late 90s Acquisition Wave
 1998- Acquisition of Teleport Communication Group
 For $11.5 Billion
 Leading local Teleco. Service provider for Business Customers
 It is was attractive because it provide network that is an alternative to regional
bells., in which AT&T will save tens of millions of dollars
 1999- Acquisition of Telecommunication Inc.
 Second largest cable company in the US
 For $55 Billion
 2000- Acquisition of MediaOne
 Large Cable company
 For $56 Billion

24. AT&T: Armstrong (1997-2000)
 Federal Communications Commission- FCC
 After
MediaOne Acquisition, FCC gave AT&T 3
choices
 Divest 25% stake of MediaOne in Time Warner
 Sell Liberty Media Group, a minority stake in Rainbow
Media Holding and MediaOne’s Programming
Networks
 Sell 9.7 million cable subscribers, which was more
than half of the company’s current subscribers.

25. AT&T: Armstrong (1997-2000)
 Assessment of the Armstrong Strategy
 Investment of $115 Billion in cable systems
 By 2001 AT&T was only able to upgrade 65% of the cable
lines, which matched only 1/5 of AT&T 60 million customer
base
 AT&T was spending $1200 to add a phone subscriber
although new technologies lowered the cost to $700 in
2001.
 AT&T did not succeed in striking a deal with other cable
providers to lease their lines, which was necessary to
broaden AT&T cable telephone customer base.

26. AT&T: Armstrong (1997-2000)
 Assessment of the Armstrong Strategy
 AT&T core long Distance Business
 Was shrinking many analysts expects ten price to
drop nearly zero
 Long distance business made up 80% of the
revenues in 1997 was projected to decrease to
35% by 2002
 The Company had not succeeded with the
competition with Baby Bell in the local phone

27. AT&T: Armstrong (1997-2000)
 Assessment of the Armstrong Strategy
 Acquisition of TCI and Media one
 Left the company with $64 Billion in debt, making
AT&T as the most indebted companies
 WorldNet Failure
 Internet Service provider WorldNet in few month
attract 1 Million Customer and it was growing faster
than AOL, when sales began to slow AT&T chose not
to make investment. By 2000 WorldNet subscriber
base was 2 Million compared to 21 million for AOL.

28. AT&T: Armstrong (1997-2000)
 Assessment of the Armstrong Strategy
 2000 Revenue
 Totaling$16.97 Billion, increase of 3.7%
 3rd Quarter earning of 38 cents per share were down
24% compared to same period a year ago

29. AT&T: Armstrong (1997-2000)
 Assessment of the Armstrong Strategy
 Two areas of Growth were
 AT&T wireless
 Expected to Grow by 30% in 2000
 AT&T high speed services
 Sold under the brand Excite@Home, was gaining
customers

30. AT&T: 135 Years of Operations
Corrective Actions
1875 1984 2000
1894 1997

31. AT&T: Corrective Actions (2000)
 3rd Split in AT&T Life Time
 Plan to split the company in 4 parts
 AT&T Broadband
 AT&T Wireless
 AT&T Business Services
 AT&T Consumer Services

32. AT&T: Corrective Actions (2000)
 Objectives of the Split
 Individualcompanies have more flexibility in
raising money for repaying debt
 Boost company’s stock price by separating
various divisions into more easily understood
stand-alone businesses

33. THANK YOU
For More Information and Further Discussions
Al-Motaz Bellah Alaa Al-Agamawi
Email: magamawi@gmail.com
Skype ID: magamawi
Linkedin Profile: http://www.linkedin.com/in/motazalagamawi
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