What the Heck Happened to AT&T?

The Genius of Electricity ("Golden Boy") Trademark of Western Electric Company (manufacturing division of AT&T for many years), sarcastically shown on his side.

  • On the last day of 1983, AT&T was the world's largest corporation, with over ONE MILLION employees and $125 BILLION in assets.

  • By late 2005, there won't be anyone or anything left, as AT&T ceases to exist as an independent company.

  • AT&T took just 22 years to go from dominance, to irrelevance, to nonexistence.

  • The company and its successors employed some of the world's best scientists, and world's worst managers.

  • Enron and WorldCom came apart because of criminal activity. AT&T died because of stupid decisions.

Telephones

For many years, most phones in the U.S. carried the Western Electric name, and a stern warning: "Bell System Property. Not For Sale." People paid to rent phones, month after month; and a phone could earn back hundreds of times its cost.

When phones became consumer products in the late 70s, most people bought the phones they had been renting, or bought newer models from retail stores or catalogs.

Things got confusing during the breakup of the Bell System in January, 1984. Lots of bewildered people turned in phones they had been renting, because they thought they now had to buy.

It was easy to become bewildered.

AT&T wanted to sell phone gear to companies like MCI and Sprint, who competed with AT&T. These companies were reluctant to spend money that would enrich their enemy, so AT&T split apart again in 1996.

The phone equipment manufacturing and sales operation was named "Lucent Technologies." Lucent was granted the right to use the AT&T brand name for several years until the Lucent name could be established in the minds of America's shoppers. The plan was hopeless -- Lucent never became a consumer brand, so Lucent phones carried both Lucent and AT&T labels.

In the fall of 1997, Lucent sold its payphone business to a competitor, Elcotel; and joined Dutch electronics giant Philips (parent of Norelco, Magnavox, Sylvania and others) in a joint venture to make and market consumer phones and cellphones.   

 

The partnered companies had planned to use the Philips brand name. That was another DUMB decision,  because neither "Philips" nor "Lucent" means much on the shelves at Circuit City and Sears. After a few months, Lucent got permission to keep using the AT&T name.

Regardless of the brand name, the joint venture was a very bad idea, and was killed after less than one year.

Motorola bought part of Lucent's cellular phone facility in Piscataway, N.J., to operate as a design center.

AT&T had been the premier telecom label, and commanded a premium price that was not always justified by what was inside the carton. Identical or nearly-identical products were often available at lower prices with different brand names.

AT&T once ran an expensive ad campaign -- possibly the only TV commercials ever broadcast for consumer phones -- promoting the virtues of "Genuine Bell." The campaign was a sham because many Bell (and, later, AT&T) phones were made by others. Sometimes an AT&T-made plastic shell contained non-AT&T innards. Sometimes a phone was AT&T inside, and the shell came from someone else. Often, it was all from someone else, but the quality was usually quite good.

Lucent was in an ironic situation, as it tried to sell its consumer phone business in 1999. There's nothing very special about its factories and product designs. Its biggest asset was the AT&T label, which it twice planned to give up, but could not live without.

In January 2000, the Lucent/AT&T package was sold  for $113.3 million to VTech, an Asian  company that seems to be unable to make two properly-functioning phones in the same week. VTech has previously made cordless phones that carried AT&T labels (and lots of other labels), and many were just plain awful. 

Hong Kong-based VTech has a place in telecom history for introducing the first 900MHz cordless in 1991. They are capable of producing excellent products, but the company has been plagued with terrible quality control. Recent concentration has been in cheapo translucent fruit-colored phones. VTech set up a new division called Advanced American Telephones to handle the AT&T-branded products, and the company seems too confused to answer basic product questions.  For a while, VTech made AT&T phones in Mexico, and then moved all production to China to cut costs.

VTech originally said it would use the AT&T label on its premium phones, and use the VTech label on phones of lesser quality and sophistication, but those plans quickly changed. Many AT&T and VTech phones were identical under the skin. One phone model was actually labeled as AT&T, VTech, Panasonic and Sony!

In the deal, VTech got intellectual property, physical facilities, 4800 people, and the right to use the great AT&T brand name for ten years. If the name appeared on second-rate phones, the "AT&T" brand may come to mean as little as "Bell," and could have become a big problem for the real AT&T...but the real AT&T is disappearing, anyway, so who cares?  

Lucent's consumer phone rental business was sold to North Street Consumer Phone Services, a subsidiary of UBS Principal Finance, in New York City.  The rental service is now called "QLT Consumer Lease Services" and offers really bad deals for old and paranoid people who don't mind wasting money for perceived service.

QLT boasts that "We are proud of the fact that QLT

services are100 percent US-based. We serve you from facilities located in the USA and we employ Americans who have the same standards for quality as we do." HOWEVER, many of the products it provides are imports.

In the mid-1980s, more than 30 million people were renting phones. Prior to the sale to North Street, Lucent spokesman Bill Price told me that 2.6 million people were renting 3.5 million telephones. By mid-2004, only about 970,000 households rented a phone, according to the Associated Press. Most phones now rent for $5-$10 per month, and some of them have been generating rental revenue for 40 years or more. Some people pay over $20 per month to rent an old-technology refurbished cordless phone!

Local phone companies have largely left the phone rental business. AP reported that SBC Communications inherited a small number of rental customers in Connecticut when it bought SNET in 1998. The three other remaining Bells (Quest, BellSouth and Verizon) don't have rental programs. GTE stopped renting phones in 2001, shortly after its merger with Bell Atlantic to form Verizon.

A lawsuit filed on behalf of Verizon's California customers in 2000 over the rental program was still pending as of mid-2004, said Sharon Shaffer, a Verizon spokeswoman.

In 2002, AT&T and Lucent settled a nationwide class-action lawsuit alleging that they charged unreasonably high rental payments for decades-old telephones.  The lawsuit required the defendants to set aside up to $300 million to pay damages, but they wound up paying only $8.4 million to 92,000 customers who filed claims.

 

Who makes what?

Phones bearing the AT&T have been made by several companies, including Panasonic, TT Systems, Comdial, Northern Telecom, NEC and VTech. It's not unusual for famous brand names to be printed on products made and sold by other companies, in food, clothing, cars, cosmetics, tools, electronics, anything.

General Electric gets complaints from folks who have trouble with "GE" brand electronics that GE never made or sold. They come from Thompson, a French company whose name means nothing in the US, so they bought the GE and RCA labels.

The AT&T name appeared on computer accessories distributed by Gemini Electronics. The Staples office supply chain sold "AT&T" calculators and floppy disks; and computer newbies who have trouble copying a file to a floppy, might logically decide to call AT&T instead of Gateway or Microsoft.

 

GHOST NAMES from AT&T's past

TOUCH-TONE was an AT&T trademark for "dual-tone multi-frequency" push-button dialing.

AT&T surrendered the trademark so it could be used by the local phone companies in the 1980's. In the mid-90s it was grabbed and briefly used by a maker of inexpensive phones sold in discount stores.

WESTERN ELECTRIC, a name on AT&T factories and phones for many years, is now used by a maker of vacuum tubes, audio components and accessories.

Needs to be updated

Other Disasters

The First Breakup: from one company to eight

On January 1, 1984 the Bell System ceased to exist. Twenty-two Bell Operating Companies  were combined to form seven Regional Bell Operating Companies (which later merged to leave just four); and a new AT&T that retained its long distance, manufacturing, and research operations.

The "Bell" Name

Under the divestiture agreement that took effect on 1/1/84, AT&T kept Bell Labs, and expected to keep the Bell name. Their overseas operation became American Bell International. In January, 1983, the dull Western Electric label -- often confused with Westinghouse -- was replaced with "American Bell," a name that had been used a century earlier.

It didn’t last long. AT&T was allowed to keep calling Bell Labs, "Bell Labs;" but the phone companies (such as Bell South) got the rights to use the Bell label and logo.

  • Don't confuse Bell Labs with Bell Laboratories, Inc., which makes rat poison.

Other companies use the "BEL" and "Bell" brands.

"Bell" was the name of a maker of small electrical hardware used by some of the Bell companies. "Bell" is also the name of an electrical equipment distributor in Australia. Suttle Apparatus is a major supplier of phone jacks to the Bell companies. They sold the same products in consumer packaging with the "Tel" brand, and the slogan "Genuine Non-Bell." BEL is a radar detector brand. It's supposed to be pronounced "bee-ee-el," but everybody calls it "bell."

 

The RBOCs were forbidden to manufacture phones. Some of them quickly licensed the Bell name and symbol to phone makers with varying talent and standards, and there was great confusion in retail stores with a multitude of competing Bell brands on the shelves (such as Bell Sonecor -- from SNET, Northwestern Bell -- now gone, and Southwestern Bell -- sold to hair drier maker Conair). The Bell name lost much of its value as a symbol of quality, even to companies that licensed the name.

Jasco, a maker of phone accessories, gave up the Bell label in favor of "GE."  Phone vendor TT Systems replaced their licensed Bell name with the IBM name on its top products.

 

After just seven months, American Bell, formerly Western Electric, was reborn again; this time as "AT&T Information Systems." One of the most widely known corporate names, became a brand name used on everything from megadollar central office "switches" and advanced semiconductors, to personal computers made by Olivetti, cordless phones made by Panasonic, and $1.69 phone cords.

The Second Breakup: from one company to three

On September 20, 1995, AT&T announced that it was restructuring into three separate companies: a services company (retaining the AT&T name), a products and systems company (later named Lucent Technologies) and a computer company (which took back the NCR name).

The Third Breakup: Bell Labs begat BellCore

Lucent kept the precious Bell Labs when Lucent was spun off from AT&T. Lucent even uses the phrase "Bell Labs Technology" in its logo. Bell Labs was divided and generated a new spin-off called BellCore (Bell Communications Research). BellCore was to be the research center for the Bell operating companies, performing the kind of work that had been done by Bell Labs. BellCore was purchased by Science Applications International Corporation (SAIC) in 1997, and its name was changed to Telcordia Technologies in 1999. In late 2004, SAIC agreed to sell Telcordia to private investment firms Providence Equity Partners and Warburg Pincus for $1.35 billion in cash.

AT&T Wireless

AT&T started the cellphone business in the US, beginning with experiments in Chicago in the 1970s. When AT&T operated its PhoneCenter stores, they sold cellphones with the AT&T label (made by AT&T, NEC, and others).

The cellular franchises passed to the divested local companies on 1/1/84, and AT&T started building a new national wireless network by buying up non-Bell cellular carriers. They made a major expansion in 1993, buying the McCaw Cellular business, which operated as Cellular One in many communities. They established a new chain of "AT&T Wireless" storefronts that sold cellphones with Motorola, Nokia and Ericsson labels, but not AT&T. Did AT&T fear that its name would no longer help sell a phone?

The operation attracted a lot of customers (and a lot of them were unhappy customers), and had trouble making money.

AT&T Wireless was spun off from AT&T in 2001, and in February 2004, AT&T Wireless was sold to competitor Cingular (owned by former AT&T offspring SBC and BellSouth).

Strangely, AT&T later announced that they might get back into the cellphone business FOR THE THIRD TIME; but that plan ended when the remains of AT&T (long distance, mostly) were sold to SBC in January, 2005 -- 21 years after the breakup of AT&T.

The Fourth Breakup: Lucent begat Avaya

The successor to AT&T Information Services was Lucent, incorporating the Western Electric equipment manufacturing behemoth. Over five years, its stock price dropped from over $50 to about 50 cents a share, and usually sells for less than $5. It doesn't pay dividends. It's come  a long way from when Ma Bell was the stock that widows and orphans could depend on, and has ruined retirement plans for lots of people.

In 2000, Avaya established a research operation, Avaya Labs, with many scientists who had worked for Bell Labs -- and now competes with them.

And...to eliminate additional distractions from its new concentration on building equipment for telecom "service providers,"  Lucent announced on 3/1/2000 that it would spin-off its Enterprise Networks Group, headquartered in Basking Ridge, NJ, as an independent company to be called Avaya, to offer voice, converged voice and data, customer relationship management, messaging, multi-service networking and structured cabling products and services.

The Fifth Breakup: another three companies

In 2000, AT&T announced that it would reorganize into a family of companies – AT&T (including AT&T Business and AT&T Consumer), AT&T Wireless, and AT&T Broadband. AT&T Wireless was spun off in July 2001, and AT&T Broadband completed a merger with the Comcast Corporation in November 2002.

The Three-Time Loser

"Systimax," the AT&T division that made phone jacks and other installation hardware, was transferred from AT&T to Lucent, then from Lucent to Avaya, and then was sold to wire maker CommScope in 2004. Next it will probably be part of Disney, Verizon or Wal-Mart.

Computers

In 1983 AT&T bought 25% of Italian office machine maker Olivetti for $260 million, and did a poor job selling poor quality AT&T-branded personal computers. AT&T later tried to buy the rest of Olivetti, but Olivetti preferred independence.

In 1991, AT&T acquired big computer maker NCR Corporation for $7.3 billion, in an ineffective attempt to reap the synergies it anticipated in the future integration of computing and telecommunications.

NCR was renamed AT&T Global Information Solutions (AT&T-GIS) in 1994, and some of the top NCR management was purged. Two years later, NCR got its old name back, and became independent again.

Cable TV

In 1999, AT&T acquired TCI, the second largest cable company in the United States, for $48 billion. TCI was renamed AT&T Broadband & Internet Services (BIS). In 2000, AT&T BIS outbid Comcast, AOL and Time Warner, spending $54 billion to add cable company MediaOne, and then became the nation's largest cable company. AT&T also ended up with 25 percent of Time Warner Entertainment and a stake in its Road Runner cable and Internet access service, a joint venture of Time Warner and MediaOne. Microsoft contributed $5 billion to the purchase.

AT&T planned to use the Broadband operation to compete with the local phone companies, but it became apparent that it would be a lengthy, expensive and dubious process. In 2002, AT&T sold AT&T Broadband to competitor Comcast for $47.5 billion. Apparently $54.5 billion in value disappeared in two years, and Comcast got an amazing deal!

Local Telephone Service

AT&T exited the local residential phone service business at the end of 1983 as part of the first breakup. In 1999, the company got back into the business with a bundled local/long distance service plan called "AT&T Local One Rate New York."  The service expanded to a few other cities, but never achieved significant market share and seemed unlikely to make money. In 2004 AT&T announces that it was no longer seeking residential customers, even for long distance service.

by AbleComm boss Michael N. Marcus

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