at&t: twenty years of change case analysis

AT&T: TWENTY YEARS OF CHANGE

CASE ANALYSISSTRATEGIC MANAGEMENT OF

TECHNOLOGYNILE UNIVERSITY, MSC. MOT

MAY 2012

By: Al-Motaz Bellah Al-AgamawiMay 2012

AT&T: 135 Years of Operations187

5

1894

1984

1997

2000

AT&T: 135 Years of Operations187

5

1894

1984

1997

2000

For each Milestone we will conduct:• Porter 5 Forces Model Analysis• Technology Environment Analysis• Regulator Effect Analysis

• SWOT Analysis • Strategy Direction• Implementation and Control

AT&T: The Begging (1875-1893)

1875

Establishment

Rivalry•No

Competition Exist

•Monopoly

•Most telephone exchanges are under license from Bell Telephone.

Substitute• AT&T was incorporated in 1885 as

a wholly owned subsidiary of Bell with objective to build and operate long distance networks.

New Entrance• High Barrier to entry during the

patent life time.• Most of the licenses across US are

granted to Bell Telephoney

Supplier Power, •Bell

acquire Western Electric company as the first manufacturing firmBuyer Power, Low

Bargaining Power

AT&T: The Begging (1875-1893)

AT&T: Start of Competition (1894-1984)

1875

1894Patent Expiry

Rivalry•In 1904,

6000 new telephone company we established.

•License to operate telephones have been opened to all companies

Substitute• No interconnection between

different companies

New Entrance• Patent expired in 1894, eliminating

the barrier of entry.

Supplier Power,

Buyer PowerIncreased from

285K to 3,317,000


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 network.


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.

The restriction did not influence the rapid development of systems and its steady progress towards its global universal services.


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


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.


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


AT&T: Baby Bells (1984-1997)

1875

1894

1984First Divesture

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.


Strength• Advanced Technological Assets• Enormous positive cash flow• $34 Billion of Assets• Going out of Mature Competition segments• More Focus

Weaknesses• AT&T lost its ability to reach almost every consumer in the

US by its wires and bills• Significant change in corporate culture from Monopoly to

competitive based company• Manufacturing Operation challenges from monopoly to

competition

Opportunities• Emerging technologies as Fiber optic technologies• Based on the divestiture, AT&T business activities

were no longer restricted to regular business of national telephone system and government work.

Threats• Long distance telephone services become competitive

(market share fall from 90% to 50% from 84 to 96)• Telecommunication act of 1996, allowing baby bells and

other competitors to compete in long distance • Lose of market share

SWOT at the time of Divestiture


Change in the Strategic Direction Diversification strategy Acquisition of other companies through

horizontal integration approach


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.


2nd Divestiture (Voluntary) into 3 Companies

System and Equipment,… Named Lucent Technologies

Telecom network, switching and transmission equipment and Bell labs

Computer Company,… Named NCR Communication and Services Company,… Named

AT&T


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


AT&T: Armstrong (1997-2000)

1875

1894

1984

1997Armstrong

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.


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.


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


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.


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.


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 service competition.


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.


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


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


AT&T: 135 Years of Operations

1875

1894

1984

1997

2000Corrective

Actions

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

AT&T: Corrective Actions (2000)

Objectives of the Split Individual companies 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

AT&T: Corrective Actions (2000)

THANK YOUFor More Information and Further DiscussionsAl-Motaz Bellah Alaa Al-AgamawiEmail: [email protected] ID: magamawiLinkedin Profile: http://www.linkedin.com/in/motazalagamawiSlideShare Profile: http://www.slideshare.net/magamawi

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