Breaking Up Is Hard to Do

Ma Bell is gone and big problems face the eight baby companies she spawned

At the stroke of midnight, at his vacation home in Florida, American Telephone & Telegraph Chairman Charles Brown and his wife Ann Lee raised glasses. Said Brown: ‘To the men and women of the Bell System.” A thousand miles away, at a party near New York City, a longtime Bell manager lamented, “The world’s best phone system is being broken up. What’s there to be cheerful about?”

While much of the U.S. was offering champagne toasts or blowing noisemakers to welcome the new year, the world’s biggest company, the Bell System, died quietly. It broke up into eight giant pieces—a new and smaller AT&T plus seven regional holding companies—in line with an out-of-court settlement of an antitrust suit reached on Jan. 8, 1982, between the Justice Department and Bell.

Seldom has anything so big ended so unceremoniously or uneventfully. Ma Bell simply walked offstage after 107 years, to no applause and no disruption in service. Millions of Americans picked up their telephones on New Year’s Day and still got dial tones, as if nothing had happened.

Some 800 million calls a day went through as before. Nearly a million employees reported to work on Tuesday to more or less the same places they had gone the previous Friday.

Once they got to work, though, plenty was going on, including celebratory breakfasts, pizza parties and balloon poppings. In San Francisco, a giant banner showing the company’s globelike logo was unfurled at AT&T’s regional headquarters. At its Manhattan offices, the new, slimmed-down AT&T got quickly down to work and showed that things would be changing in American business. On Monday, the company signed an agreement under which Convergent Technologies, a computer manufacturer, will build new products for AT&T. Before the breakup, such a move would have been barred by the Government.

Institutional investors like pension-fund managers showed interest again in the eight new companies. Those stocks had not changed in value much since trading started in November, but they rose smartly last week. The biggest gainer was U S West, which climbed more than 7 points, to 63⅞. The other operating companies also showed handsome increases.

Although more than 10,000 telephone people spent the past two years working out details of the divestiture, Americans last week still had millions of questions about their new phone company—or companies. Unfortunately, at every level of what used to be the Bell System and in the regulatory commissions of all 50 states, there were many more questions than answers. Confesses William McKeever, telecommunications analyst at Dean Witter Reynolds: “Everybody is confused. The customers are thoroughly confused. The employees are confused. The companies are confused. So are the regulatory commissions, the unions and the stockholders. And so am I.”

Uncertainty prevails, too, over long-distance charges. Last week AT&T announced it would cut those tolls by more than 10.5%. But the company linked the reduction to congressional acceptance of a special charge for access to long-distance lines that the Federal Communications Commission has mandated.

Nothing much is likely to be resolved in the next few weeks or even months. In the Northeast, customers will be getting bills this week that will average nine pages and include statements for local service, various kinds of long-distance tolls, and equipment charges. Countless users have convinced themselves that they have to do something with their phones now that divestiture has taken place. Not true, as AT&T is pointing out in an expensive TV advertising campaign featuring Andy Griffith. Customers can continue to rent their phones as they did before the split-up, they can buy the Bell phones they have been using, or they can turn them in and buy new ones, either from AT&T Information Systems or from any of several new suppliers.

Not many consumers seemed to realize that. In Chicago, a few days before divestiture, long lines formed at the Illinois Bell Telephone service center in the Loop as customers rushed to turn in telephones and exchange them for others before Illinois Bell went out of the telephone-supply business. “What a mess!” declared Margaret Jackson, one of five harried clerks wearing a T shirt imprinted with BREAKING UP IS HARD TO DO. She tossed a pink Princess phone onto a growing, brightly colored pile of discarded equipment behind the service desk. Said she of the long line of short-tempered customers glowering at her: “I really feel for them. So many of them don’t know what is going on.” The scene was the same in Atlanta, where Service Representative Muffin Morrison said, “People are panicking.”

Inside the operating companies, bizarre developments were taking place. Phone-company officials in some old Bell System facilities set up barriers to separate operating-company employees from those working for the new AT&T. In West Chicago, AT&T must now share a third of its space in a sprawling plant with Ameritech, the regional holding company for five Midwestern states. A partition is being installed between double doors at the building’s main entrance, and the plan is to have employees enter on either the Ameritech or the AT&T side. Inside, about 450 people have been separated by walls, including one in the cafeteria. No one is forbidden to cross over to fraternize, but the implicit message is “Keep to your own turf.” Said James Quinlan, Ameritech’s plant manager: “If the lawyers had their way, this place would be divided up with six-foot concrete-block walls and rolls of barbed wire on the top.” New Jersey Bell is more direct: it has canceled its annual softball game with AT&T.

The segregation was in line with both the letter and the spirit of the divestiture terms agreed to by AT&T and the Government. U.S. Judge Harold H. Greene during the past two years has overseen all details of the split-up, issuing numerous rulings affecting everything from Yellow Pages advertising to who could use the Bell logo and name.

Of course, rough edges are expected in any corporate realignment involving $155 billion in assets. Most of the minor troubles will be worked out in time, but some of the problems run deeper. Executives in the regional holding companies, as well as those in the local operating companies, are wrestling with the crucial and politically delicate issue of deciding how much to charge the public for what kinds of service. Said Paul F. Levy, chairman of the Massachusetts department of public utilities: “January 1 was the operation. After that we go into intensive care.”

It is a subtly sophisticated job made all the more so by the fact that rates will begin reflecting the true costs of telephone service for the first time in half a century. Until now, long-distance rates were artificially high and helped subsidize local service. Documenting the need for rate increases is a laborious, painstaking procedure requiring the talents of scores of people. But officials at the New York public service commission complain that it has been extraordinarily difficult to communicate with rate people at New York Telephone and that this has hampered the company’s proposed $775 million rate increase. The commission may challenge almost all of the rate request, in part because of questions about claimed divestiture costs. William Burns, vice chairman of the regional holding company NYNEX, admits to some disorder in New York Telephone’s regulatory staff, but claims that it is the commission and not the company that is confused.

If rates are not set speedily, or if they turn out to be fixed too high, large corporate phone users will be encouraged to set up their own communications systems, bypassing local phone companies and depriving them of revenues. That poses a severe threat to the typical user’s phone bill. If too much revenue is lost because of defecting Big Business customers, the operating companies will be forced to raise bills to consumers. Says Levy: “Our job is to make sure that the rates we have in effect are economic, so as to minimize uneconomic bypass.”

Industry analysts fear that if the operating companies cannot move deftly in some of the newer regulatory areas, they will have even more trouble when they try to adjust to direct competition, a relatively new experience. Admits Richard Santagati, who heads NYNEX’s business-information-systems sales staff: “There’s a steep learning curve to overcome.”

The telephone companies are rying to solve their problems in part by elevating good managers and encouraging poor ones to leave. They are also quietly pressuring some executives into early retirement. But only a small number of managers have so far opted for it. Of the 110,000 people who would become part of AT&T Information Systems alone because of divestiture, only 4% have accepted retirement deals. Tradition-bound Bell will have to move fast to keep up with the increasingly competitive telecommunications industry. Says Analyst McKeever: “AT&T has to realize that they are in the real world.”

In the long run, AT&T, the regional phone companies and the American public will probably adjust to the new world of phone service more easily than they thought last week. H. Trevor Jones, president of PacTel Communications Systems, which is part of the new Pacific Telesis company, which covers California and Nevada, sees a parallel with the 1940s, when utilities stopped supplying light bulbs and people had to buy their own.

Said Jones: “Customers will adapt. They historically have.” — By John S. DeMott. Reported by Thomas McCarroll/New York and Conan Putnam/Chicago