Bell Telephone spinoff: the long and short of it
- Ma Bell's 141 million customers will feel as if they've gotten a crossed line. Local telephone costs will rise, perhaps doubling or tripling, over the next five years.Skip to next paragraph
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- Long distance telephone callers, however, will get a better signal as rates drop over the same time period.
- Some 3 million American Telephone & Telegraph shareholders, the largest group of shareholders in the world, will take part in the largest financial transaction ever undertaken. AT&T's 22 operating companies, with assets of $83 billion, will be spun off. Wall Street analysts consider the decision highly favorable to AT&T and its shareholders.
- AT&T, which has built up its image as a ''family'' type of company, will suddenly find itself in the competitive world of high technology, competing against computer giants like International Business Machines and free spirits in the telecommunications business like MCI Communications. Securities analysts say they would not be surprised to see AT&T enter the cable TV business, computer time sharing, or data processing industry, for example.
These are but a few of the implications of the American Telephone & Telegraph-Justice Department consent decree, breaking up Ma Bell's empire. The antitrust decision was announced by William F. Baxter, assistant attorney general in charge of the antitrust division of the Justice Department, on Jan. 8 in Washington. Although it divests the shares of those 22 companies, it will allow AT&T to keep its long distance network. It will also permit the company to keep Western Electric Company, its manufacturing arm, and Bell Telephone Laboratories, its research facility, which invented the transistor and the laser. Bell can retain ownership of customer equipment, such as phones and switchboards.
The settlement concludes a lawsuit that has cost AT&T $360 million in legal fees over a seven-year period. If the consent decree had not been reached, the Justice Department was willing to go to trial later this month to press its case. Judge Harold Greene, district court judge, would have been the trial judge , and he must still approve the consent decree.
There is little doubt the decision will touch every consumer's pocketbook. At a hastily called press conference, William Ellinghaus, AT&T's president, told reporters that local phone rates could possibly double or triple as the phone company spun off its local operating companies. Profits from the long distance operations, he pointed out, have provided a cushion to the local phone user. This cushion would no longer be available and state public utility commissions would have little choice but to increase local rates.
A key factor in how much those rates would rise, says William McGowan, chairman of MCI Communications, a Bell competitor in the long distance market, would be how AT&T allocates its corporate overhead costs between its local and long distance operations. ''What Bell will attempt to do,'' Mr. McGowan says, ''is to leave more costs than they should in the local systems and make their long distance operations look lean.'' McGowan said it's important that the Justice Department preside over the dismantling of the system to ensure proper distribution of the costs.
For its part, AT&T says, the Federal Communications Commission will still regulate the long-lines operation and the states will oversee local operations. ''Both parties have a vested interest in ensuring any cost allocation is made equitably,'' an AT&T spokesman says.
There is little doubt some areas will see their rates go up more than others. For example, customers of Pacific Telephone & Telegraph may experience a large increase, since local rates have traditionally been held down by the California Public Utility Commission. Customers in the state, however, grumble that their service is terrible and the company doesn't deserve any rate increases. (In August, however, Pac Tel received a $610 million rate increase, which officials say should help it.)