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AT&T; Corp. to divide into three Telecommunications to be separated from manufacturing; 8,500 jobs to be cut; Stock shoots up 10%; all shareholders to get shares in new firms


In a move that could aid its re-entry into the local phone business, AT&T; Corp. said yesterday that it would split itself into three parts, reshaping the telecommunications giant nearly as profoundly as the 1982 divestiture agreement that broke up the old Bell system.

The nation's No. 1 long-distance company said that, by early 1997, it would break itself into separate companies focusing on communications services, on manufacturing of communications equipment and on manufacturing of large computers, with shareholders receiving a stake in each new company.

It also announced that it would discontinue its production of personal computers and abolish some 8,500 jobs worldwide.

"This is a stunning corporate restructuring," said Richard Wiley, who served as chairman of the Federal Communications Commission during the 1970s.

The stock market roared its approval, driving AT&T; stock up more than 10 percent in yesterday's frantic trading. It closed yesterday at $63.75, up $6.125 from Tuesday's close.

What will be left with the AT&T; name will be a narrowly focused, enormously powerful communications company that did about $49 billion worth of long-distance, wireless and AT&T; Universal Card business last year.

The Western Electric business, which AT&T; once fought so hard to keep, will become a $20 billion-a-year telecommunications equipment company.

Also leaving the corporate umbrella will be AT&T;'s ailing $9 billion-a-year Global Information Solutions business, much of which consists of the remnants of AT&T;'s disastrous acquisition of NCR Corp. four years ago.

67 jobs to be cut in Rockville

The GIS division announced yesterday that it will discontinue its production of personal computers and abolish some 8,500 jobs worldwide -- including 67 at its 450-employee AT&T; GIS Federal Systems unit in Rockville.

The spinoff will prepare the core long-distance company for its expected invasion of the local telephone market. But it is also a tacit admission that not even AT&T; can be all things to all people.

The action, announced by AT&T; Chairman Robert E. Allen, will relieve AT&T; of any obligation to treat the seven regional Bell companies as anything but mortal foes in the coming telecommunications wars.

Previously, the former Ma Bell's competitive ferocity had to be tempered by its curiously conflicted relationship with the "Baby Bells." While AT&T; has been serving the regional Bells as their largest equipment vendor, it has been complaining about them as a captive customer of their monopolies and coveting their business just as much as they covet AT&T;'s.

AT&T; spokesman Jim McGann continued the company's policy of understating its interest in the local telephone market, noting that it has announced plans to enter only a few markets.

But Eric Rabe, a spokesman for Bell Atlantic Corp., said the move "makes it crystal clear that AT&T; is going to be a big-time competitor here." He noted AT&T;'s announcement yesterday that it will sell off its AT&T; Capital Corp., which is valued at more than $1 billion, money that he expects to see invested in local telephone-exchange infrastructure.

Nevertheless, Bell Atlantic welcomed the announcement, expressing relief that AT&T; is separating its communications and manufacturing businesses. "While this does not completely solve the problem, it is a move in the right direction," Bell Atlantic Chairman Raymond Smith said in a statement.

The new equipment company will be a Fortune 100 giant from its birth -- free to compete without the AT&T; name in the only business where it has been a liability to its parent. At a news conference yesterday, Mr. Allen even dared to express the hope that archrival MCI Communications Corp. would do business with the yet unnamed equipment company.

Mr. Allen said the manufacturing company will include AT&T;'s network systems, global business communications, consumer products and microelectronics lines of business -- as well as the largest share of the world-renowned Bell Laboratories in New Jersey.

He said that the GIS business will continue to compete in the computer market but that it will specialize in computer platforms for the financial, retail and communications industries.

"This change will make today's AT&T; into three even stronger companies," Mr. Allen told employees.

Ending vertical integration

But letting go of AT&T;'s 100-year tradition of vertical integration was clearly difficult for Mr. Allen. "There's no question that the integrated structure contributed to our success," he said yesterday, but he added that "it's an idea whose time has passed in this industry.

"We reached the point where the advantages of integration are being offset by the complexity," Mr. Allen said, acknowledging the regional Bells' increasing discomfort with doing business with AT&T;'s manufacturing arm at a time when they are battling with the long-distance companies over telecommunications legislation.

"They've become less and less interested in having AT&T; equipment -- not because it isn't the best equipment in the market but because of the other complaints," he said.

Ian Volner, a telecommunications attorney with Venable Baetjer & Howard in Washington, said AT&T; could realize some political side-benefits from the spinoff as the House and Senate try to reconcile their two versions of a telecommunications bill.

"Part of the reason AT&T; has done it is to put the burden on the regional Bell operating companies," he said, adding that AT&T;'s split-up will let it raise questions about whether the Bell companies should be broken up, too.

While the spinoff of the manufacturing group could be seen as a bold strategic advance, the divestiture of the former NCR Corp. is more of a retreat. The telephone giant acquired the computer maker for $7.9 billion in 1991 amid hopes that it would harness great synergies between the telecommunications and computer industries. But the company soon realized that there was little synergy to be found.

"Certainly their computer business has been very poor. It was not a good move strategically," said Michael Balhoff, telecommunications analyst at Legg Mason in Baltimore.

"The value of the company was being dragged down by the poor performance of a couple divisions . . . overlooking the very good performance in the communications services division," Mr. Balhoff said.

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