American Telephone and Telegraph, Inc

American Telephone & Telegraph

For other companies with similar names, see AT&T (disambiguation).

AT&T Corporation, originally the American Telephone & Telegraph Company, is an American telecommunications company that provided voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies. During its long history, AT&T was at times the world's largest telephone company, the world's largest cable television operator, and a regulated monopoly. Today, the company is a subsidiary of AT&T Inc. and its subsidiary AT&T Communications still provides long distance service across the country.

In 2005, AT&T was purchased by Baby Bell SBC Communications for more than $16 billion, who then changed its name from SBC to AT&T, Inc. At its peak, it employed one million people and its revenue was roughly $300 billion annually in today's dollars (for comparison, ExxonMobil's 2006 annual revenue was $377.6 billion).

AT&T Corporation continues to exist as a subsidiary of AT&T Inc. and its name occasionally shows up in AT&T press releases.

Company formation and expansion

The formation of the Bell Telephone Company superseded an agreement between Alexander Graham Bell and his financiers, principal among them Gardiner Greene Hubbard and Thomas Sanders. Renamed the National Bell Telephone Company in March 1879, it became the American Bell Telephone Company in March 1880. By 1881, it had bought a controlling interest in the Western Electric Company from Western Union. Only three years earlier, Western Union had turned down Gardiner Hubbard's offer to sell it all rights to the telephone for $100,000.

In 1880, the management of American Bell created what would become AT&T Long Lines. The project was the first of its kind to create a nationwide long-distance network with a commercially viable cost-structure. This project was formally incorporated into a separate company christened American Telephone and Telegraph Company on March 3, 1885. Starting from New York, the network reached Chicago, Illinois in 1892.

Bell's patent on the telephone expired in 1894, but the company's much larger customer base made its service much more valuable than alternatives and substantial growth continued.

On December 30, 1899, the American Telephone and Telegraph Company bought the assets of American Bell; this was because Massachusetts corporate laws were very restrictive, and limited capitalization to ten million dollars, forestalling the growth of American Bell itself.

National long distance service reached San Francisco in 1915. Transatlantic services started in 1927 using two-way radio, but the first trans-Atlantic telephone cable did not arrive until 1956, with TAT-1.

A national monopoly

As a result of a combination of regulatory actions by government and actions by AT&T, the firm eventually gained what most regard as monopoly status. In 1907, AT&T president Theodore Vail made it known that he was pursuing a goal of "One Policy, One System, Universal Service." AT&T began purchasing competitors, which attracted the attention of antitrust regulators. To avoid antitrust action, in a deal with the government, Vail agreed to the Kingsbury Commitment of 1913. The terms of the agreement allowed AT&T to purchase independent phone companies as long as it sold an equal amount of telephone devices. G.W. Brock says in Telephone:The First Hundred Years, "This provision allowed Bell and the independents to exchange telephones in order to give each other geographical monopolies. So long as only one company served a given geographical area there was little reason to expect price competition to take place." AT&T focused on purchasing companies within specific geographic areas that increased its effective control of the telephone system market, while selling its less-desirable and previously acquired companies to independent buyers. Also included in the Kingsbury Commitment was the requirement that AT&T allow competitors to connect through its phone lines. Economists point out that this reduced the incentive of these companies to build competing long-distance lines.

Around 1917, the idea that everyone in the country should have phone service and that the government should promote that began being discussed in government. AT&T agreed, saying in a 1917 annual report: "A combination of like activities under proper control and regulation, the service to the public would be better, more progressive, efficient, and economical than competitive systems." In 1918 the federal government nationalized the entire telecommunications industry, with national security as the stated intent. Rates were regulated so that customers in large cities would pay higher rates to subsidize those in more remote areas. Vail was appointed to manage the telephone system with AT&T being paid a percentage of the telephone revenues. AT&T profited well from the nationalization arrangement which ended a year later. States then began regulating rates so that those in rural areas would not have to pay high prices, and competition was highly regulated or prohibited in local markets. Also, potential competitors were forbidden from installing new lines to compete, with state governments wishing to avoid "duplication." The claim was that telephone service was a "natural monopoly," meaning that one firm could better serve the public than two or more. Eventually, AT&T's market share amounted to what most would regard as a monopolistic share.

In 1913, after vacuum-tube inventor Lee De Forest began to suffer financial difficulties, AT&T bought De Forest's vacuum-tube patents for the bargain price of $50,000. In particular, AT&T acquired ownership of the 'Audion', the first triode (three-element) vacuum tube, which greatly amplified telephone signals. The patent increased AT&T's control over the manufacture and distribution of long-distance telephone services, and allowed the Bell System to build the United States's first coast-to coast telephone line. Thanks to the pressures of World War I, AT&T and RCA owned all useful patents on vacuum tubes. RCA staked a position in wireless communication; AT&T pursued the use of tubes in telephone amplifiers. Some patent allies and partners in RCA were angered when the two companies' research on tubes began to overlap, and there were many patent disputes.

AT&T, RCA, and their patent allies and partners finally settled their disputes in 1926 by compromise. AT&T decided to focus on the telephone business as a communications common carrier, and sold its broadcasting subsidiary Broadcasting Corporation of America to RCA. The assets included station WEAF, which for some time had broadcast from AT&T headquarters in New York City. In return, RCA signed a service agreement with AT&T, ensuring any radio network RCA started would have transmission connections provided by AT&T. Both companies agreed to cross-license patents, ending that aspect of the dispute. RCA, GE, and Westinghouse were now free to combine their assets to form the National Broadcasting Company, or NBC network.

In 1925, AT&T created a new unit called Bell Telephone Laboratories, commonly known as Bell Labs. This research and development unit proved highly successful, pioneering, among other things, radio astronomy, the transistor, the photovoltaic cell, the Unix operating system, and the C programming language. However, its parent company did not always capitalize on these achievements. In 1949, the Justice Department filed an antitrust suit aimed at forcing the divestiture of Western Electric, which was settled seven years later by AT&T's agreement to confine its products and services to common carrier telecommunications and license its patents to "all interested parties". A key effect of this was to ban AT&T from selling computers despite its key role in electronics research and development.

Public utility commissions in all state and local jurisdictions regulated the Bell System and all the other telephone companies. The Federal Communications Commission (FCC) regulated all service across state lines. These commissions controlled the rates that companies could charge, and the specific services and equipment they could offer. Nonetheless, technological innovation continued. For example, AT&T commissioned the first experimental communications satellite, Telstar I in 1962.

AT&T increased its control of the telephone system through its leasing arrangements for telephones and telephone equipment made by its subsidiary, Western Electric. Like most telephones of the time in the United States, Western Electric-made phones were owned not by individual customers, but by local Bell System telephone companies — all of which were in turn owned by AT&T, which also owned Western Electric itself. Each phone was leased from AT&T on a monthly basis by customers, who generally paid for their phone and its connection many times over in cumulative lease fees. This monopoly made millions of extra dollars for AT&T, which had the secondary effect of greatly limiting phone choices and styles. AT&T strictly enforced policies against buying and using phones by other manufacturers that had not first been transferred to and re-rented from the local Bell monopoly. Many phones made by Western Electric thus carried the following disclaimer permanently molded into their housings: "BELL SYSTEM PROPERTY — NOT FOR SALE." Telephones were also labeled with a sticker marking the Bell Operating Company that owned the telephone.

In 1968, the Federal Communications Commission allowed the Carterfone and other devices to be connected directly to the AT&T network, as long as they did not cause damage to the system. This ruling (13 F.C.C.2d 420) created the possibility of selling devices that could connect to the phone system and opened up the market to numerous products, including answering machines, fax machines, cordless phones, computer modems and the early, dialup Internet.

In the 1980s, after some consumers began buying phones from other manufacturers anyway, AT&T changed its policy by selling customers the phone's housing, retaining ownership of the mechanical components — which still required paying AT&T a monthly leasing fee.

For most of the 20th century, AT&T subsidiary AT&T Long Lines thus enjoyed a near-total monopoly on long distance telephone service in the United States. AT&T also controlled 22 Bell Operating Companies which provided local telephone service to most of the United States. While there were many "independent telephone companies", General Telephone being the most significant, the Bell System was far larger than all the others, and widely considered a monopoly itself.

Erosion of "a natural monopoly"

For many years, AT&T had been permitted to retain its monopoly status under the assumption that it was a natural monopoly. The first erosion to this monopoly occurred in 1956 where the Hush-a-Phone v. FCC ruling allowed a third-party device to be attached to rented telephones owned by AT&T. This was followed by the 1968 Carterphone decision that allowed third-party equipment to be connected to the AT&T telephone network. The rise of cheap microwave communications equipment in the 1960s and 1970s opened a window of opportunity for competitors — no longer was the acquisition of expensive rights-of-way necessary for the construction of a long-distance telephone network. In light of this, the FCC permitted MCI (Microwave Communications, Inc) to sell communication services to large businesses. This technical-economic argument against the necessity of AT&T's monopoly position would hold for a mere fifteen years until the beginning of the fiber-optics revolution sounded the end of microwave-based long distance.

Break up, spinoffs and restructuring

The rest of the telephone monopoly lasted until final settlement of a 1974 United States Department of Justice antitrust suit against AT&T on January 8, 1982, under which AT&T ("Ma Bell") agreed to divest its local exchange service operating companies, in return for a chance to go into the computer business (see AT&T Computer Systems). AT&T's local operations were split into seven independent Regional Bell Operating Companies known as "Baby Bells".

With the American consumer's new ability to purchase phones outright, AT&T and the Bell System lost the considerable revenues earned from phone leasing by local Bell companies. Forced to compete with other manufacturers for new phone sales, the aging Western Electric phone designs still marketed through AT&T failed to sell, and Western Electric eventually closed all of its U.S. phone manufacturing plants. AT&T, reduced in value by about 70%, continued to run all its long distance services through AT&T Communications (the new name of AT&T Long Lines), although it lost some market share in the ensuing years to competitors MCI and Sprint Corporation.

A sign that hung in many Bell facilities in 1983 read:

Western Electric was fully absorbed into AT&T as AT&T Technologies, and was divided into several units focused on specific customer groups, such as AT&T Network Systems and AT&T Consumer Products.

After its own attempt to penetrate the computer marketplace failed, in 1991, AT&T absorbed NCR Corporation (National Cash Register), hoping to capitalize on the burgeoning personal computer and UNIX networked server markets, but was unable to extract lasting financial or technological gains from the merger. After deregulation of the U.S. telecom industry via the Telecommunications Act of 1996, NCR was divested again. At the same time, the majority of AT&T Technologies and the renowned Bell Laboratories was spun off as Lucent Technologies. The industry as a whole had many other reorganizations since the 1990s, both due to deregulation and because of technological advances reducing demand and pricing power in telecommunications.

In 1994, AT&T purchased the largest cellular carrier, McCaw Communications, for $11.5 billion and kick-started its cellular division with 2 million subscribers.

In 1995, AT&T purchased long-distance provider Alaska Communications System (Alascom). FCC approval required the company be run as an AT&T subsidiary rather than a more likely absorption into AT&T Communications, giving the company the AT&T Alascom name. The buyout marked the first time that any company with Bell roots would hold operations in the non-contiguous United States.

In 1997, AT&T hired former IBM executive C Michael Armstrong as its chief executive officer. Armstrong's vision was to change AT&T from a long-distance carrier into a global "telecommunications supermarket", eyeing Internet services for the booming dot-com industry.

Armstrong's most prominent strategy was buying significant cable television assets. After acquiring John Malone's TCI and Media One (gaining through the latter a 25% share of Time Warner Cable), AT&T was the largest provider of cable television in the United States. It intended to use these assets to bridge the so-called "last mile" and break the Regional Bell Companies' access-monopoly of the consumer household for data and telephony services, but the wager was costly, substantially increasing the company's debt. AT&T acquired TCI in a $48 billion all-stock transaction including the assumption of $16 billion of debt. AT&T acquired MediaOne for $54 billion in cash and stock, after a bidding war with Comcast.

In 1998, AT&T announced a US$1 billion alliance with BT to offer global voice over IP (VoIP) services, called Concert, sparking rumors of a potential merger. But the parties fought for control of the project and could not even agree on the alliance's name. By mid-2001, customers were being directed to sign contracts with the parent companies, and Concert Communications Services, as the venture was eventually known, was scrapped in October that year.

In 1999, AT&T acquired the Olivetti & Oracle Research Lab, from Olivetti and Oracle Corporation. In 2002, it closed down the research part of the lab.

Also in 1999, AT&T paid US$5 billion to purchase IBM's Global Network business, which became AT&T Global Network Services, LLC. As part of the purchase agreement, IBM granted AT&T a five-year, US$5-billion contract to handle much of IBM's networking needs, and AT&T outsourced some of its applications processing and data management work to IBM. IBM also committed to billing and installation for AT&T's long-distance customers in a 10-year deal valued at US$4 billion; and assumed management of AT&T's data processing centers.

With long-distance rates falling and the market for telecommunications services overall weakening, AT&T could not sustain the debt it had incurred in these ventures. Moreover, the cost of upgrading TCI's equipment to handle two-way communications proved far higher than pre-merger estimates. AT&T undertook a major reorganization in October 2000, moving its mobile phone and broadband units into separate companies, to allow each unit to raise capital independently.

On July 9, 2001 it spun off AT&T Wireless Corp. in what was then the world's largest initial public offering (IPO). Later that year it spun off AT&T Broadband and Liberty Media, which comprised its cable TV assets. AT&T Broadband was subsequently acquired by Comcast in 2002, and AT&T Wireless merged with Cingular Wireless LLC in 2004.

In 2004, the U.S. government eliminated equal access regulations that allowed long-distance phone companies to access the networks owned by the regional Bell carriers at fixed rates. This ultimately caused AT&T to move away from the residential telephone business — declaring in the process that it would no longer market residential telephone service. Instead, its residential focus shifted to offering a voice service over a broadband Internet connection called AT&T CallVantage.

Acquisition by SBC

On January 31, 2005, Baby Bell SBC Communications announced its plans to acquire "Ma Bell" AT&T Corp. for $16 billion. SBC announced in October 2005 that it would shed the "SBC" brand and take the AT&T brand along with the "T" NYSE ticker symbol.

Merger approval concluded on November 18, 2005; SBC Communications began rebranding the following Monday, November 21 as "AT&T Inc." and began trading as AT&T on December 1 under the "T" symbol.

The AT&T headquarters buildings

From 1885 to 1910, AT&T was headquartered at 125 Milk St in Boston. With its expansion it moved to New York City, to a headquarters on 195 Broadway (close to what is now the World Trade Center site). The property originally belonged to Western Union, of which AT&T held a controlling interest until 1913 when AT&T divested its interest as part of the Kingsbury Commitment. Construction of the current building began in 1912. Designed by William Welles Bosworth, who played a significant role in designing Kykuit, the Rockefeller mansion north of Tarrytown, New York, it was a modern steel structure clad top to bottom in a Greek-styled exterior, the three-story-high Ionic columns of Vermont granite forming eight registers over a Doric base. The lobby of the AT&T Building was one of the most unusual ones of the era. Instead of a large double-high space, similar to the nearby Woolworth Building, Bosworth designed what is called a "hypostyle hall," with full-bodied Doric columns modeled on the Parthenon, marking out a grid. Bosworth was seeking to coordinate the classical tradition with the requirements of a modern building. Columns were not merely the decorative elements they had become in the hands of other architects but created all the illusion of being real supports. Bosworth also designed the campus of MIT as well as Theodore N. Vail's mansion in Morristown, New Jersey.

In 1978, AT&T commissioned a new building at 550 Madison Ave. This new AT&T Building was designed by Philip Johnson and quickly became an icon of the new Postmodern architectural style. The building was completed in 1984, the very year of the divestiture of the Bell System. The building proved to be too large for the post-divestiture corporation and in 1993, AT&T leased the building to Sony, who now owns it.

Divisions

AT&T, prior to its merger with SBC Communications, had three core companies:

AT&T Alascom continues to sell service in Alaska, while AT&T Communications continues to sell long distance telephone service and operate as a CLEC outside of the borders of the Bell Operating Companies that AT&T owns. AT&T Laboratories has been integrated into AT&T Labs, formerly named SBC Laboratories.

Nicknames

AT&T was also known as "Ma Bell" and affectionately called "Mother" by phone phreaks. During some strikes by its employees, picketers would wear t-shirts reading, "Ma Bell is a real mother." It is worth noting too that, before the break-up, there was greater consumer recognition of the "Bell System" name, in comparison to the name AT&T. This prompted the company to launch an advertising campaign after the break-up to increase its name recognition. Spinoffs like the Regional Bell Operating Companies or RBOCs were often called "Baby Bells". Ironically, "Ma Bell" was acquired by one of its "Baby Bells", SBC Communications, in 2005.

The AT&T Globe Symbol, the corporate logo designed by Saul Bass in 1983, has been nicknamed the Death Star in reference to Star Wars. This name was also given to the titanic Bell Labs facility in Holmdel, New Jersey, now owned by Alcatel-Lucent.

References

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