by James T. Berger, 11 March 2005

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It’s hard to imagine a more perfect marketing machine than was AT&T before the 1984 divestiture. This company virtually owned local telephone service in the United States with approximately a 90 percent market share. Its Long Lines division dominated long distance service. Its manufacturing arm — Western Electric — was an industrial giant that produced all the telephone and central office switching equipment the operating divisions needed, and its research and development arm, Bell Labs, was world renowned.

Perhaps it was the immense concentration of business power that led the U.S. Justice Department to initiate anti-monopoly action against AT&T. The case dragged on for a decade and ended with a consent decree that broke up AT&T. Essentially the local telephone companies were spun off and became independent corporations. There were seven of them and they became known as the “seven sisters.” AT&T kept the lucrative Long Lines division while Western Electric and Bell Labs later were spun off to become Lucent Technologies.

The “smart money” on Wall Street at first thought AT&T had great potential in an unregulated environment, but problems immediately started to appear. As Ted Levitt pointed out in his famous “Marketing Myopia” article, the reason why growth slows or stopped is usually from a failure in management. These fissures in AT&T were a function of in-grown management and technological innovation. AT&T never had to do business as an unregulated monopoly. It was a totally new business environment for the company’s “Ma Bell” management.

As the years went on, massive changes started taking place in AT&T’s marketing and business model. Competition entered the long distance business and prices fell to the point this AT&T jewel became essentially a commodity. Then, the cellular business took off and AT&T was essentially a day and a dollar short before it finally got into it.. Computer-related ventures such as the acquisitions of Olivetti and National Cash Register werte busts and resulted in large write-offs.

Throughout this process, the only AT&T profit center that remained was its business telephone service and networking, and this, too, dissolved when SBC dealt the death knell to the once magnificent AT&T.

Realizing AT&T’s death was imminent unless a visionary could come up with a Big Idea, AT&T brought in C. Michael Armstrong to run the company. An outsider, Armstrong formerly was CEO of Hughes Electronics Corporation and spent 31 years with IBM rising to senior vice president and chairman of the board of IBM World Trade Corporation.

Armstrong saw AT&T’s future back in local telephone service. He envisioned a system where customers would use AT&T as a single source supplier of local, long distance, cable, wireless and broad band services. The key to the strategy was to use Cable TV as the point of entry into the home. So, AT&T, at premium prices, acquired a number of leading cable companies. The technology involved installing a “box” in the homes of cable subscribers that would enable them to access local and long-distance telephone service as well as high-speed Internet services.

Unfortunately, the financial markets and the AT&T’s lenders gave AT&T and Armstrong a short leash. The conversion from cable to local telephone took longer than expected and the costs were higher than expected. Because AT&T paid such a premium for the cable networks, it became squeezed financially and had to spin off assets like AT&T Wireless and finally, they threw in the towel and sold off the cable operations principally to Comcast.

The only thing left was the business telephone profit center and long distance, which SBC purchased in early February.

If Theodore Levitt were to update “Marketing Myopia,” the late AT&T would deserve a prominent place.

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Author
James T. Berger, Managing Editor of The Wiglaf Journal. Early in his career, Berger worked for Illinois Bell Telephone Co., which was part of the old Bell System. He also teaches courses in strategic marketing at Northwestern University and Roosevelt University. Feel free to call him at (847) 328-9633 or e-mail him at j-berger@northwestern.edu

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