FREE ESSAY ON AT&T BREAK-UP

AT&T BREAK-UP

AT&T Breakup
Our book talks about managing strategy and strategic planning. I chose to write my paper
on AT&T's recent breakup into four satellite companies. I intend to show how their past
planning was not well-suited for their rapidly changing industry, and how they are now
adjusting strategies and preparing for the uncertainties that the future holds. AT&T's
voluntary breakup marks the end of the bigger-is-better era. For much of the 20th
century, business strategy was relatively simple - scale up operations and expand market
share. The greatest opportunities lay in providing standardized products, with
incremental improvements, to a middle-class market. But the simple pursuit of scale and
market share lost its effectiveness as the 20th century ended. Another prime example of
this is what is happening to Microsoft. Even though they have different legal problems,
their days of gobbling up any and all businesses that got in their way is over. Smaller
firms - particularly those with innovative, customer-centric business designs became the
most profitable. This is evident with the popularity of the dot.com's and how well they
are doing in the market. AT&T had not predicted that their stranglehold on the market
would be sacrificed because of new start-up companies. Scale no longer provides the same
benefits, even in telecom. But the large number of telecom providers competing for
business globally and locally shows that many firms have sufficient scale, and that the
key to success lies elsewhere. Perhaps the new solutions lay in new management and
management strategies. But more important is creating new forms of value for customers,
leading to sustained growth. AT&T's breakup reflects the new logic. It now sees
broadband, wireless, consumer and business telecom, like equipment manufacturing, as
distinct, fast-moving businesses. Each has significantly different customers,
relationships, and production systems, and each requires a distinct business design; AT&T
has decided that each also needs the full attention of its own chief executive officer.
AT&T had no choice but to break up in order to break out of the pack.
Shortly after announcing on October 25th that AT&T was going to split into four units,
Michael Armstrong, the company's chairman, was asked in an interview if anything good
would be lost as a result of the overhaul. He considered the question for at least 10
seconds, then responded, "I can't think of anything." But in fact, AT&T may be losing
something that if not necessarily good, has been a powerful force in its favor for more
than 100 years: the fear that its size and power has inspired in competitors. This will
hopefully weaken the level of competition that AT&T has faced in the past. The AT&T-brand
companies that remain after the breakup plan is completed by 2002 will be smaller than
the AT&T the communications the world has known. And the competitive landscape will
change accordingly. The local phone companies, already formidable in wireless and eager
to expand into long distance while continuing to roll out high-speed Internet services,
will be countering AT&T region-by-region and business-by-business. Even the merged AOL
and Time Warner could end up as an AT&T antagonist under certain circumstances, if AT&T
plans to dive into their market.
A couple years ago Armstrong laid out a comprehensive, long-term plan for transforming
the company from a long distance giant to an even larger, full service wireless and
broadband company. It was expensive, but AT&T's board bought into the vision - at the
time. It would take several years to execute, but Wall Street and investors bought into
the vision - at the time. They were going to give Armstrong the time and money he needed
to turn the company around. With everyone's blessing AT&T embarked on a multi-year
makeover. Then suddenly and without warning, in the middle of the game, the investment
community changed the rules. Sometime during the last year or two - thanks in no small
part to dot.com mania I think - Wall Street and investors changed. Their tolerance and
patience for long-term strategies was gone. Analysts and the media started pointing
fingers as if AT&T had failed, and they demanded a new strategy because the market was in
a state of quick buying and selling with start-up companies, so a long term plan would
not do as well with investors. To please investors, AT&T did what they were demanding.
Even when AT&T did what investors wanted, they were still being burned at the stake. Now
we'll never know if Mike Armstrong's long-term plan would have been a success or failure.
These recent struggles that AT&T and Lucent (who is having problems of their own) have
proven that no matter how good of a plan you think you have, you never know what the
market and future has in store, sometimes the best planning is having more than one
plan.