AT&T: Smaller is better Ma Bell's breakup: Telephone giant sheds diversions to concentrate on core market

September 22, 1995

DEFYING ITS own culture and the current business trend to ever-larger mergers and conglomerates, American Telephone and Telegraph Co. has announced the largest corporate break-up in history. The $101 billion behemoth, on its own volition, is to be split into three separate stand-alone companies that will be important players in the telecommunications

revolution.

On strictly financial grounds, this tough-minded turnaround allows AT&T to spin off its distressed computer division, which is losing an estimated $500 million a year, and its potent equipment manufacturing unit, including the famous but money-losing ($1 billion a year) Bell Laboratories. As a result Ma Bell will be able to concentrate its vast resources on communications services -- the jungle-like battlefield of telephone and cable companies which accounts for the bulk of AT&T revenues.

Industry observers, though stunned by the move, see this as a means to break out of a prison of AT&T's own making. Its manufacturing unit, for example, found itself stymied in trying to sell switches and other equipment to Baby Bells and such long-distance carriers as MCI and Sprint because these companies did not wish to help AT&T's telephone operations. Now, at least theoretically, spun-off units will have wider access to the overall market.

While consumers are unlikely to be impacted by the spin-off, AT&T's ability to concentrate on its historic core mission should add to the already fierce competition in offering telephone service and, just down the road, interactive TV services. Under legislation now before Congress, it will be able to vie with its Baby Bell progeny for local telephone service just as these companies get the go-ahead to compete with AT&T, MCI and Sprint for long-distance and global services.

It is far too early to determine if the AT&T restructuring will be a winner. The company has made some bad mistakes. But it is refreshing to observe a corporate giant that has concluded smaller may be better when bigger-and-biggest seems to be the compelling goal, regardless of pay-off, in too many boardrooms.

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