Monday, February 07, 2005

The Fall of AT&T

Economist Feb 3 2005

This week, SBC, one of the “baby bells” that was spun out of the company as part of a court-ordered break-up in 1984, acquired “Ma Bell”, as AT&T is known, for around $16 billion, ending its reign as an independent firm.

The deal may prompt further consolidation (MCI is fingered as the next target by three other Bell companies, Qwest, Verizon and BellSouth), now that the period of internal rebuilding by telecoms firms after the bubble burst in 2000 is over.

First, AT&T underestimated how important wireless communications would become. At the time of the break-up in 1984, AT&T relied on a report by McKinsey, a consultancy, that claimed there would be fewer than 1m wireless phone users by 2000. In fact, there were 740m.

The second stumble was in computing. After the break-up, AT&T expected to become a powerhouse in computers. Shedding the slow-moving local operators and retaining the Western Electric equipment business seemed a brilliant result from the antitrust process. AT&T even bought a computer maker, NCR, in 1991.

The third big mistake was to buy cable operators in the late 1990s. This was the right strategy at the wrong time and for too much money. At the height of the tech boom, AT&T's then boss, Michael Armstrong, paid over $100 billion for two cable firms, TCI and MediaOne.

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