- The Washington Times - Tuesday, August 3, 2004

NEW YORK - AT&T; Corp. bused 3,000 employees to Washington, D.C., in July 1995 to beg lawmakers to kill new telecommunications legislation designed to make their industry more competitive. Before they trooped into Congressional offices, Chief Executive Officer Robert Allen addressed them by video and declared: “Like it or not, our future is at stake inside that building.” The theme song from “Rocky” blared.

Today, the thought of AT&T; — once a telecommunications giant — as underdog is no stretch.

Its stock and profits have been sliding for years. Once the largest company in the world, AT&T; has shrunk from 1 million employees in 1984 to 61,000 — and dropping — today.

AT&T;’s plush headquarters, where the executive offices were known as “Carpetland,” have been sold. Its revenues have shrunk from $69.4 billion in 1983, then about 2 percent of the gross national product, to half that in 2003. On Thursday, Moody’s downgraded the company’s debt to junk and said the outlook is negative.

There is no agreement on what eroded AT&T;, but the mistakes were plenty.

Former employees say the company passed up technology that ultimately became profitable for others, testing cell phones in the 1980s and a Wi-Fi predecessor in the early 1990s, but passing on both.

It was at one time the No. 1 wireless carrier, but quickly lost ground to competitors and spun off the business.

AT&T; overpaid for cable companies it eventually shed, saddling the company with billions of dollars in debt.

Many outsiders and former employees agree that the company’s almost century-long dance with government regulation and protection defined it, guaranteed its dominance for a long time — then sped its decline.

According to that argument, AT&T;’s trajectory was predetermined from the moment it struck its first mutually beneficial deal with the government in 1913.

“You can follow an arrow of events from 1913 to the present,” said Thomas Eisenmann, a Harvard Business School professor who studies the industry.

The deal AT&T; President Theodore Vail made that year turned his company into a government-sanctioned monopoly. In exchange for higher long-distance rates, AT&T; would provide “universal service,” a phone connection to the farthest farms in the nation.

With that deal, the underpinnings of the Bell monopoly were set: AT&T; had to give its rivals access to its network and accept government oversight, but it got almost everything else it wanted. Higher prices for long-distance calls subsidized local calls. Urban service subsidized rural, business service subsidized residential.

AT&T; was safe from competition, but there were times when government oversight pushed technology it invented into the hands of others.

By 1984, the trust was broken.

AT&T; settled a Justice Department lawsuit by agreeing to spin off the regional Bells, companies we know today as SBC Communications Inc., BellSouth Corp., Verizon Communications Inc. and Qwest Communications International Inc.

Long-distance rates, which had been falling for decades, dropped faster.

After the breakup, the company increasingly acted with its eye on regulators, not technology or customers, critics say.

John Zeglis, now chairman and chief executive of AT&T; Wireless, was the company’s Washington-based senior vice president for government relations at the time of the Telecom Act of 1996, the next big government change the company faced.

The act let the regional Bells compete in long distance, but required them to rent access to their networks — and the all-important wires into homes — to competitors. The 1996 law was the subject of a court battle almost immediately.

The litigation continued until March, when a federal court overturned the rules. Last month, AT&T; said it would stop competing for residential customers, abandoning what once was its core market, and focus on selling to businesses.

It had long since spun off its computer business and equipment manufacturing arm, which is now two separate companies, Lucent Technologies Inc. and Avaya Inc. In the process, it lost its storied Bell Labs, which had produced 11 Nobel Prize-winning scientists.

Analysts now question whether the company can survive on its own. AT&T; was widely reported to be in merger talks with BellSouth last year, and Newsweek reported last week that leveraged buyout firm Kohlberg Kravis Roberts & Co. was going to make a run for the company. KKR denied the report.

AT&T; spokesman Jim Byrnes says the company is confident of long-term success and is pinning its hopes on selling to businesses.

“As technology continues to transform the way people communicate, we will be innovating, investing in the migration to voice over Internet and, where it makes sense, marketing emerging technologies to businesses and consumers alike.”

But even some who spent most of their careers with AT&T; are skeptical.

“Big companies look like they’ll last forever,” Sandy Teger says.

She can’t pinpoint the moment “when AT&T; looked like it would get smaller and smaller, piece by piece and swallowed up. But that’s what happened.”

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