STRATEGIC MANAGEMENT OF TECHNOLOGY                           AT&T: TWENTY YEARS OF CHANGE                        FINAL PRE...
be considered as a major inflection point within AT&T strategy and overall businesses. Byconducting the analysis for each ...
Establishment Phase Analysis (1875 to 1893)  • No Competition Exist                                • AT&T was incorporated...
Substitute: At this period, there was no real of a substitute for Bell Telephone services but       also Bell Telephone co...
At this phase it was clear that the external environment have changed. Competition appears witha moderate bargaining power...
Based on the divest the company strategy have been changed following an acquisition strategy toreach a horizontal diversif...
useful to you– voice, data and video. From a primarily domestic company to a truly globalcompany”.New strategy have been f...
Corrective Actions Phase Analysis (Year 2000)In the year 2000, only two areas of Growth were expected including; AT&T wire...
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AT&T: Twenty Years of Change Case Analysis


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AT&T: Twenty Years of Change Case Analysis

  1. 1. STRATEGIC MANAGEMENT OF TECHNOLOGY AT&T: TWENTY YEARS OF CHANGE FINAL PRESENTATION ANALYSIS REPORT MAY 2012 AL-MOTAZ BELLAH AL-AGAMAWI1 Nile University, 6th of October City, Cairo, Egypt AbstractIn this paper we are conducting a analysis for the AT&T case study from the strategicmanagement of technology perspective.Based on our case classification, we can classify the AT&T as Competitive Dynamics, CorporateLevel Issues, Merger & Acquisition, Regulatory issues and Financials. In our analysis we willfocus on the Merger & Acquisition, regulatory, general organization aspect, and knowledge andlearning.Keywords: Strategy Analysis, Merger and Acquisition, Competitive Dynamics, AT&T, StrategyDirections, Environment Analysis, SWOT Analysis, Diversification, Horizontal Integration Introduction 1875 1984 2000 1894 1997In this report we are going to cover the main important milestones within the 135 years of AT&Toperation. We have divided the 135 years of AT&T operation to five main milestones. For eachof those five milestones we are going to conduct an external environment analysis using porterfive forces analysis model, technology analysis, regulator affect analysis, SWOT analysis,strategy direction analysis and the applied implementation controls. Each of those milestones can1 Al-Motaz Bellah Al-Agamawi is the Vice President for Business Development in ISIS, and a M.Sc. Candidate inManagement of Technology in Nile University, Cairo, Egypt. 1
  2. 2. be considered as a major inflection point within AT&T strategy and overall businesses. Byconducting the analysis for each of the milestones separately we can the effect of the differentelements of the external and internal environment on the top management decisions and theimplication affecting the strategy. SummaryAT&T started in 1875 when Alexander Graham Bell received funding from two financialbankers. In 1876, Graham succeeded in his invention of the telephone and patent it. In the nextyear the first telephone exchange opened in New Haven under the license from Bell. Then thecompany started the implementation of its monopoly strategy. Within three years the telephoneexchanges with license from the company were set up in most major cities and towns in theUnited States. It acquired majority interest in the western Electric Company which became thefirm’s manufacturing unit, in addition the American Bell acquired most of its licensee in theUnited States (part of its monopoly strategy) which resulted that the company became known asMa Bell or Bell system. With new areas getting wired and with the increasing competition, thenumber of telephones increased from 285,000 to 3,317,000 during ten years from 1894 to 1904.AT&T had to agree in 1913 in an agreement known as the Kingsbury commitment, where AT&Thas agreed to connect competitors to its long distance network and sell its shares in Westernunion stock (AT&T manufacturing arm). In 1974, the US government filed an antitrust lawsuitagainst AT&T believing that a monopoly is still valid for local exchanges but no longer for longdistance, manufacturing and R&D. The lawsuit was settled in 1982 and AT&T agreed to divestitself of the wholly owned Bell operating companies that provided the local exchange service(creating the seven baby bells) and the government in return agreed to remove the 1956constraints. AT&T divestiture took place in 1984, where the bell system was replaced by a newAT&T and seven operating companies known as the RBOCs (Regional Bell Operatingcompanies/Baby bells), which means that the last mile would be controlled by the baby bells.As 1990s progresses telecom and manufacturing business became obstacles to each other as bothbusiness were becoming complex and more global, in addition to the problems at NCR computeracted as a catalyst for the second divestiture dividing AT&T into three companies (Lucenttechnologies(systems and equipment company) , NCR (computer company) , communicationservices company (AT&T). In 1994, AT&T acquired the US leader in the wireless businessMcCaw cellular communication for 115$ billion, AT&T deal made it one of the fast leadingforces in the growing wireless telecommunications industry and gave the company a directaccess to consumers.The spinoff of lucent technologies included its telecom network, switching and transmissionequipment business as well as the famous bell labs, this spin off was necessary because of theabsence of synergies across AT&T business and because of the emergence of new competitors.The spinoff of NCR was more difficult to digest because it showed that the strategy of thecompany has failed, NCR management was left to operate for two years but as the lossesmounted AT&T stepped in causing the performance to decrease more, also the corporate cultureclash resulted in confusion and loss of direction, as NCR lost 5.9 Billion $ forcing AT&T toinject around 2.8 billion$, hence AT&T lost 10 billion in NCR deal in general. 2
  3. 3. Establishment Phase Analysis (1875 to 1893) • No Competition Exist • AT&T was incorporated in 1885 • Monopoly as a wholly owned subsidiary of • Most telephone exchanges are Bell with objective to build and under license from Bell operate long distance networks. Telephone. Buyer Power, Low Bargaining Power • High Barrier to entry during the • Bell acquire Western Electric patent life time. company as the first • Most of the licenses across US manufacturing firm are granted to Bell TelephoneyIt is clear than in this milestone from 1875 to 1893 AT&T was enjoying both the patentprotection and the leadership advantage as the first mover within the telephone industry. Almostfor a period of 18 years AT&T it is clear that AT&T was operating and enjoying a monopolyover the industry and especially in the United States of America. This is clearly resulted in theabove porter five forces analysis diagram for this phase, which can be summarized as follows; Competition: very low competition bargaining power or in other words almost no competition within the US markets. A Monopoly characteristics was existing and this can be supported by the fact that most of the exchange license within the US was hold by Bell Telephone company “AT&T”. New Entrance: High barrier to entry due to the patent and the control of licenses adapted by Bell Telephone “AT&T” allover different US cities. Supplier Power: very low supplier bargaining power or almost no existence for suppliers power. Even Bell Telephone “AT&T” acquired Western Electric company as the first manufacturing firm. 3
  4. 4. Substitute: At this period, there was no real of a substitute for Bell Telephone services but also Bell Telephone company was investing in R&D for long distance through establishing a subsidiary “AT&T” with an objective to operate long distance calls. Buyer: low bargaining power of buyers due to the minimum available competitors. Such analysis indicates that Bell Telephone “AT&T” was controlling the different external and internal environment elements for a period of 18 years from its establishment. Patent Expiry Phase Analysis (1894 to 1984)Just after the expiry of the second patent in 1893 the market dynamics have been changed.AT&T lost the patent protection luxury and competition starts to appear. Within a period of tenyears from 1894 to 1904 more than 6000 telephone operator companies have been established.This phase is the longest phase within our analysis it is about 90 years of AT&T operation butwe claim that the nature of those 90 years were very close and that the most important inflectionpoint was in 1984. • In 1904, 6000 new telephone • No interconnection between company we established. different companies • License to operate telephones have been opened to all companies Buyer Power Increased from 285K to 3,317,000 • Patent expired in 1894, eliminating the barrier of entry. 4
  5. 5. At this phase it was clear that the external environment have changed. Competition appears witha moderate bargaining power, new entrance have become easier and barrier to entry have startedto be eliminated due to the patent expiry and availability of exchange license to othercompetitors and also buyer bargaining power have became higher due to the market expansionwhich is clear in the customer base growth from almost 300K to 3M.In 1907, the company CEO had announced a new strategy “Telephone and its technology wouldoperate most efficiently as a monopoly providing universal services”. In addition to this newstrategy and FCC- Federal Communication Commission showed interest in providingcompetitors the ability to communicate between different network operators. Based on this anagreement known as Kingsbury commitment have took place. In which AT&T providecompetitors connection to its network.First Regulatory act have took place within this phase. Through a lawsuit filed in 1949 and theSettlement reached in 1956 in which AT&T agreed to restrict its activities to the regulatedbusiness of the national telephone system and government work. The restriction did not influencethe rapid development of systems and its steady progress towards its global universal services.Followed by secondary regulatory acts in which FCC signaled its interest in more competition.Resulted in allowing competitors to use some of Bell Labs technologies and thereforecompetition established in the general long distance services.As for the technology environment, AT&T was taking the lead and this is clear from the BellTelephone laboratories technology production within this period including: Microwave RelaySystem which provide alternative to copper wires for long distance, in late 1949. FirstCommunication, Satellite in 1962 which provide additional alternative for internationalcommunication. Transition to electronic components which allowed more powerful and lessexpensive customer and network equipment.The monopoly behavior and the regulator influence have affected the corporate culture.Management sow profits as a way to support and extend monopoly. They followed a cost controlstrategy. Customers taken for granted and this is clear when it comes to sales team management,Sales representative, received straight salaries and were warned not to oversell. All this resultedin managers who were averse to risk. Baby Bells Phase Analysis (1984 to 1997)Federal Communication Commission- FCC have filed in 1974 an Anti-trust lawsuit based on theMonopoly for the local exchanges by AT&T. The lawsuit were settled in 1982 by which AT&Tagreed to divest itself from the wholly owned Bell Operating Companies by creating Baby Bells.The divest took place in 1984. Based on this divest, AT&T retained $34 Billion of the $149Billion in assets and 373,000 of the 1,009,000 employees. In the following diagram we areprovide a SWOT analysis for AT&T just after the divest occurs: 5
  6. 6. Based on the divest the company strategy have been changed following an acquisition strategy toreach a horizontal diversified product and services portfolio. The first acquisition wave started inthe early 90’s through: 1991- Hostile Acquisition of the Computer maker NCR. NCR deal wasfor $7.4 Billion. The deal objectives was targeting the convergence between communication andcomputers. In 1992- Acquisition of the US wireless business, McCaw. McCaw deal was for$11.5 Billion. The deal position AT&T as a leading force in the fast growing wirelesscommunication and gave the company direct access to consumer for the first time in decade.A few years after the early 90’s wave of acquisitions, AT&T gone through the second divesturebut this time voluntarily. AT&T have been divided into 3 Companies; System and Equipmentcompany, Named Lucent Technologies. Computer Company, named NCR and Communicationand Services Company, named AT&T. The rationale behind the second divest was as follows:NCR lost from 1993 to 1996, $5.9 billion, in additional to forcing AT&T to inject $2.8 billion tocover losses. The spin-off valued NCR at $3.96 Billion which means that AT&T had lost $10Billion. Lucent Technologies have been established due to the change in market dynamics in thewireless communication sector. Attachment of Lucent to AT&T was affecting Lucentperformance as competitors was seeing that by placing orders to AT&T, AT&T is having insightinto competitors plans and could use the profits from equipment contracts against them. So thenew company Lucent Technologies had of $20 Billion and 125,000 Employees. Also LucentTechnologies has a higher market potential after separating from AT&T. Armstrong Phase Analysis (1997 to 2000)Armstrong the newly appointed CEO in 1997, join AT&T with a new vision, “TransformingAT&T from a long distance company to an “any distance” company. From a company thathandles mostly voice call to a company that connect you to information in any form that is 6
  7. 7. useful to you– voice, data and video. From a primarily domestic company to a truly globalcompany”.New strategy have been formulated to meet the CEO vision including; Implementing a vision ofa Global Company through integrating cables, wireless and long distance. Implement refocusedstrategy through, cost-cutting measure to make AT&T the low-cost provider, cutting theworkforce in its long distance business by 15000 to 18000 over two years and initiating series ofJoint ventures and acquisition to broaden the companies scope to areas including datanetworking, digital voice encryption, broadband cable and video telephone.Based on this vision and strategy the second wave of acquisitions have took place. In 1998-Acquisition of Teleport Communication Group for $11.5 Billion, such deal was attractivebecause it provide network that is an alternative to regional bells., in which AT&T will save tensof millions of dollars. In 1999- Acquisition of Telecommunication Inc. the second largest cablecompany in the US for $55 Billion. In 2000- Acquisition of MediaOne the large cable companyfor $56 Billion.After MediaOne Acquisition, FCC gave AT&T 3 choices; either to divest 25% stake ofMediaOne in Time Warner or sell Liberty Media Group, a minority stake in Rainbow MediaHolding and MediaOne’s Programming Networks or sell 9.7 million cable subscribers, whichwas more than half of the company’s current subscribers. The three options was by fare affectingthe Armstrong strategy and diluting the value of the acquisitions.The Armstrong strategy can be assessed from different angles including; Investment of $115Billion in cable systems was not successful. By the year 2001 AT&T was only able to upgrade65% of the cable lines, which matched only 1/5 of AT&T 60 million customer base. AT&T wasspending $1200 to add a phone subscriber although new technologies lowered the cost to $700 in2001. AT&T did not succeed in striking a deal with other cable providers to lease their lines,which was necessary to broaden AT&T cable telephone customer base. When it comes to AT&Tcore long Distance Business it was another failure. Long Distance business, was shrinking andmany analysts expects the price to drop nearly to zero. Long distance business made up 80% ofthe revenues in 1997 was projected to decrease to 35% by 2002. The Company had notsucceeded with the competition with Baby Bell in the local phone service competition. When itcomes to the acquisitions we can clearly find another big failure. Acquisition of TCI and Mediaone, left the company with $64 Billion in debt, making AT&T as the most indebted companies.For WorldNet it was another failure. Internet Service provider WorldNet in few month attract 1Million Customer and it was growing faster than AOL, when sales began to slow AT&T chosenot to make investment. By 2000 WorldNet subscriber base was 2 Million compared to 21million for AOL. All this lead to a huge drop of AT&T performance, the company revenuetotaling $16.97 Billion, with an increase of 3.7% only. In the 3rd Quarter of the year 2000,earning of 38 cents per share were down 24% compared to same period a year ago. 7
  8. 8. Corrective Actions Phase Analysis (Year 2000)In the year 2000, only two areas of Growth were expected including; AT&T wireless whichexpected to Grow by 30% in 2000 and AT&T high speed services which was sold under thebrand Excite@Home, and it was gaining customers. As a result the third divesture of AT&T tookplace resulting in splitting the company into four parts including AT&T Broadband, AT&TWireless, AT&T Business Services and AT&T Consumer Services. Two main reasons werebehind the strategic decision of splitting the company. The First was, individual companies willhave more flexibility in raising money for repaying debt. The second, boost company’s stockprice by separating various divisions into more easily understood stand-alone businesses. Summary of AT&T Merger and AcquisitionOver ten years, AT&T had wasted about $50 billion and destroyed even more in shareholdervalue, all in the hope of creating shareholder value through growth. The first AT&T attemptarose from a widely shared view that computer systems and telephone networks were going toconverge. In 1991, AT&T acquires NCR, at the time the world’s fifth-largest computer maker,for $7.4 billion. AT&T lost another $2 billion trying to make the acquisition work. AT&T finallyabandoned this growth vision in 1996, selling NCR for $3.4 billion. In 1994, the companybought McCaw Cellular, at the time the largest national wireless carrier in the United States, for$11.6 billion, eventually spending $15 billion in total on its own wireless business. When WallStreet analysts subsequently complained that they were unable to properly value the combinedhigher-growth wireless business within the lower-growth wireline company, AT&T decided tocreate a separately traded stock for the wireless business in 2000. This valued the business at$10.6 billion, about two-thirds of the investment AT&T had made in the venture. In 1998, itembarked upon a strategy to enter and reinvent the local telephony business with broadbandtechnology. Acquiring TCI and MediaOne for a combined price of $112 billion made AT&TBroadband the largest cable operator in the United States. Then, more quickly than anyone couldhave foreseen, the difficulties in implementation and integration proved insurmountable. In 2000,AT&T agreed to sell its cable assets to Comcast for $72 billion. M&A Acquisition Conclusion SummaryWe could cite many cases of companies’ similar attempts to create new-growth platforms afterthe core business had matured. They follow an all-too-similar pattern. When the core businessapproaches maturity and investors demand new growth, executives develop seemingly sensiblestrategies to generate it (Raynor, 2003). Merger and acquisition has many benefits but the mostimportant is wise evaluation for the decision and the clear strategy and motive behind suchattempt. Going through the process just and only for the sake of growth cause failure in manycases, other parameters as increasing competency, fostering innovation capabilities, capitalizingon market share and increasing efficiency and decreasing costs must be included among other toincrease the success probability of mergers and acquisitions. 8