[NYT] AT&T Split-up Rumors Are True. Bonus: Lucent Ousts Its Chairman.

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From: Adam Rifkin (adam@KnowNow.com)
Date: Tue Oct 24 2000 - 13:08:11 PDT

Remember waaaay back when the government had to intervene to breakup
companies like AT&T?


Gee, I wonder if sometime in 2010 Microsoft will voluntarily create a
half dozen Baby Bills to "unlock shareholder value". Can you believe
AT&T stole more than $10 billion bucks from the equity markets in its
AT&T Wireless IPO earlier this year? Looks like they were just getting

Rohit, you should definitely steal this rhetoric: In AT&T's 1907 annual
report, Theodore N. Vail, the company's president, wrote: "To the
public, this `Bell System' furnishes facilities, in its `universality'
of service and connection, of infinite value to the business world, a
service which could not be furnished by dissociated companies. The
strength of the Bell System lies in this `universality.' "

Universality, baby. Yeah, *that's* the ticket.

> AT&T Plans to Split Up Again
> http://www.nytimes.com/2000/10/24/business/24TELE.html

> October 24, 2000


> The board of AT&T, the nation's largest communications company,
> approved a plan late yesterday to split up the company in what
> would be AT&T's most significant overhaul since the
> court-supervised breakup of the company's Bell System in 1984.

> Under the plan approved yesterday, people close to the company
> said, AT&T intends to spin off the company's cable television
> business and wireless units as separate companies over the next 12
> to 24 months.

> The company also plans to create a new stock to track AT&T's
> consumer long-distance division, which would operate as a separate
> retail unit. The remaining core of AT&T would control most of the
> company's network and oversee the unit that serves business
> customers.

> Executives of the company declined to comment, but people close to
> the company said the decision would probably be announced tomorrow.

> By now AT&T is familiar with spinoffs. Besides the 1984 breakup,
> which created seven Bell local phone companies while leaving AT&T
> with the long-distance business, the company voluntarily broke
> itself up again in 1996.

> In that move, AT&T shed its troubled NCR computer business and
> spun off its equipment unit as Lucent Technologies. Coincidently,
> Lucent announced yesterday that it had fired its chairman, Richard
> A. McGinn.

> As a corporate pater familias, AT&T has been more virile than any
> company in the nation's history, with the possible exception of the
> original Standard Oil. Over the last two decades alone, AT&T has
> spun off units that themselves now have a combined market value of
> at least $450 billion, rivaling that of the General Electric
> Company.

> So now may be the right time to ask: what is AT&T's legacy to its
> children? What do AT&T's offspring take from their parent and how
> does it affect their ability to thrive on their own?

> In many ways, AT&T endows its offspring with the benefits of
> wealth, a good upbringing and the right connections. But at times,
> a sense of regal entitlement can create a corporate culture that is
> slow to recognize its own shortcomings and respond to market
> changes.

> Make no mistake; Lucent's recent stumbles notwithstanding, the
> children tend to thrive. The valuation numbers speak for
> themselves. With the exception of WorldCom and the Sprint
> Corporation, all of the nation's top-tier communications services
> players have roots at AT&T.

> Of course, top-tier largely means the Bell companies, which have
> now consolidated into four: BellSouth, Qwest, SBC Communications
> and Verizon.

> It is true that much of the telecommunications sector is in the
> dumps these days; the stocks of many long- distance carriers,
> wireless providers and new local phone companies are languishing as
> investors worry that too many companies are chasing too few
> customers. But the incumbent local phone companies are generally
> riding high above the carnage, and that speaks to the most visible
> thing that AT&T gives its children: capital and customers.

> In the case of the Bells, that meant wires into the lion's share
> of the nation's homes and businesses; those wires are what keep the
> Bells out of the morass that much of the sector has fallen into.

> In the case of Lucent, the AT&T legacy meant unparalleled research
> capacity in Bell Labs and credible relationships with big customers
> including the Bell companies.

> In keeping with this family tradition, an AT&T cable spinoff would
> set out as the nation's biggest cable carrier. And the new wireless
> company would be among the biggest in the nation.

> "What the spinoffs take is a direct relationship with the
> customer," said Scott Cleland, chief executive of the Precursor
> Group, a communications research firm in Washington. "The Bells got
> the copper wire into 80 percent of America's homes and Lucent, the
> equipment supplier, took relationships to almost every telephone
> company in the United States and many around the world."

> AT&T's spinoffs also rarely have to look hard to find good
> executives, Mr. McGinn's travails notwithstanding. AT&T has lost
> more top-flight executives than many big corporations have ever had
> in part because a top lieutenant at AT&T strikes many other
> companies as commanding-officer material. All of the remaining
> Bells have chairmen or a chairman-in-waiting, in the case of
> Verizon who originally worked at AT&T.

> That does not mean, of course, that such management depth
> necessarily lasts. It is a sign of the weakness of Lucent's bench
> that that company has brought back Henry B. Schacht as its new
> chairman; Mr. Schacht ceded that job to Mr. McGinn two years ago.
> And yet, were John D. Zeglis to stay at the wireless unit and
> Daniel E. Somers at the cable business, AT&T would have two capable
> executives already in place to run those businesses.

> "AT&T hires, attracts and tries to develop very good people, and I
> think they have a very good focus on customers," said Alex J.
> Mandl, the former AT&T president who is now chairman of Teligent
> Inc., a new local communications carrier.

> But all of the resources, customers and talent that AT&T bestows
> sometimes come with a price: a sclerotic internal structure and a
> mentality that can prevent the spinoffs from realizing their full
> potential.

> "You can argue whether or not the sort of competitive aspects of
> personalities have been honed as aggressively at AT&T as they might
> be in Microsoft or Cisco or a company like that," Mr. Mandl said.

> No one in the communications business would question the
> competitive fire of, say, Edward E. Whitacre Jr., chairman of SBC,
> and Joseph P. Nacchio, chairman of Qwest, two former AT&T
> executives who now run Bell companies. But communications experts
> would also tend to agree that AT&T's spinoffs often take some
> baggage with them.

> Lucent provides a good example. The immediate problem that led to
> Mr. McGinn's ouster was that the company missed a critical product
> cycle in a critical sector, optical transmission gear. The deeper
> problem was that Mr. McGinn did not move fast enough to change some
> of the tendencies that his company inherited from AT&T's Bell Labs.

> Traditionally, Bell Labs had focused on primary research rather
> than product development and in some ways, that trend continued
> after Lucent became independent. Lucent may have had the technology
> to stay on top of the optical networking market but too much of
> that technology has stayed in a laboratory rather than moving into
> the market.

> Ultimately, however, AT&T's main legacy may be a regal notion that
> is passed down within the company from one generation of leader to
> the next, the concept that the company can and should be all things
> to all people.

> In AT&T's 1907 annual report, Theodore N. Vail, the company's
> president, wrote: "To the public, this `Bell System' furnishes
> facilities, in its `universality' of service and connection, of
> infinite value to the business world, a service which could not be
> furnished by dissociated companies. The strength of the Bell System
> lies in this `universality.' "

> AT&T has shed its aversion to "dissociated companies," as
> demonstrated by its voluntary spinoffs. But the notion of
> universality is one that still lingers deep in the company's ethos.
> In important ways, it drove C. Michael Armstrong, the current
> chairman, to make AT&T the nation's biggest cable operator, seeking
> to make cable lines the replacement for the links to millions of
> homes that the company lost in the 1984 breakup.

> In the end, Mr. Vail's Bell System was undone by antitrust
> pressure from the Justice Department. In the end, Mr. Armstrong's
> vision may be undone by pressure from financial markets.

> Always, though, the concept of universality to be the first
> choice for communications across the nation has persisted at
> AT&T. And as always, how the company and its progeny cope with that
> legacy will determine their fate.

And Lucent is finally taking some steps to get itself out of the


> Chairman of Lucent Is Ousted
> http://www.nytimes.com/2000/10/24/business/24LUCE.html

> October 24, 2000


> The board of Lucent Technologies has ousted its chairman and chief
> executive, Richard A. McGinn, in a move to curb the earnings
> erosion that threatens to undermine Lucent, the world's largest
> manufacturer of telecommunications equipment.

> Lucent's board replaced Mr. McGinn, who only two weeks ago
> insisted that he had no plans to leave the company, with Henry
> Schacht, who served as Lucent's first chairman and chief executive
> for 18 months after it was spun off from AT&T in 1996. The board
> took action Sunday night, and the company announced the change
> yesterday morning.

> To take the post, Mr. Schacht, 66, resigned as chairman of Avaya
> Inc., a manufacturer of office communications equipment that itself
> was spun off from Lucent earlier this year. He plans to remain on
> the Avaya board as he serves as Lucent's interim head while it
> conducts a search for another chief executive.

> Mr. McGinn was Lucent's president under Mr. Schacht. But during
> Mr. McGinn's three-year tenure as chief executive, Lucent went from
> a fast-growing Wall Street darling to a source of concern among
> many investors after it did not meet optimistic growth promises.

> Each financial quarter this year, the company has had to warn that
> earnings would be lower than analysts had expected a string that
> was extended yesterday, when Lucent warned that not only earnings,
> but revenue, would decline in the quarter that ends in December.

> After the stock market's close yesterday, Lucent said revenue for
> the first quarter of fiscal 2001, which ends in December, would
> decline by about 7 percent from $7.9 billion in the period a year
> earlier, while earnings from operations would break even at about
> $1.08 billion.

> The company said the revised expectations reflected difficulties
> it had had in rolling out a new generation of optical networking
> equipment that allowed large amounts of digital information to be
> transmitted using a single wavelength of light.

> Lucent's stock has declined by 72 percent from a high of $79.58
> only 10 months ago. The company's shares fell 56 cents, to $22.06
> yesterday. With 5.3 million shareholders, Lucent is among the most
> widely held stocks in the United States.

> "It's been a frustrating, rocky road," said John Waterman,
> managing director of Rittenhouse Financial Services, a Philadelphia
> investment manager with more than seven million Lucent shares in
> its portfolio. "The need for fresh blood is essential."

> Lucent also reported financial results yesterday for its fiscal
> fourth quarter, which ended Sept. 30. In keeping with a previous
> warning, Lucent reported a loss of $225 million, or 13 cents a
> share, including a loss for discontinued operations.

> Excluding costs for acquisitions, earnings from continuing
> operations were $600 million, or 18 cents a share, down from $768
> million, or 24 cents a share, while revenue increased 14.6 percent,
> to $9.4 billion in the quarter.

> Earnings declined after the company set aside funds to cover
> potentially questionable debts from clients that borrowed money to
> acquire Lucent's products. In addition, sales of voice switches and
> fiber optic equipment were not as robust the company had hoped.

> In a conference call with investors, Lucent also attributed the
> earnings decline to an unexpected shortfall of approximately $2
> billion in revenue from contracts with two clients, one in the
> United States and the other abroad. The company did not provide the
> names of the clients.

> "We are clearly disappointed in our results," said Mr. Schacht,
> Lucent's new chief executive.

> If anything, Lucent's woes highlight an old-economy technology
> company focused previously on voice telephone calls and PC-centric
> practices that has struggled to make the transition to the new
> economy's emphasis on data exchanges and Internet-centric
> activities.

> Part of Lucent's problems may derive from a failure to deliver
> products developed by the company's Bell Labs research division to
> customers in a nimble and efficient way, analysts said.

> "Smaller competitors are nibbling away at Lucent's chair," said
> Greg Geiling, an analyst at J. P. Morgan. "Psychologically, it's
> had a devastating effect, so some catalyst is needed to stem
> defections."

> At Lucent, which is based in Murray Hill, N.J. and has 126,000
> employees, staff turnover has reached 20 percent this year. It has
> becoming increasingly clear that Lucent has languished while
> companies in the fiber optics arena, like Nortel Networks of Canada
> and the Ciena Corporation, and makers of the router boxes that
> handle Internet traffic, most notably Cisco Systems and Juniper
> Networks, have raced ahead.

> It was uncertain late yesterday from which industry or company
> Lucent might seek to recruit a new chief executive. But analysts
> said candidates would most likely come from competitors that are
> familiar with Lucent's business.

> In the meantime, the company's management did not rule out layoffs
> for some of the company's work force as part of a company overhaul,
> said Deborah Hopkins, the company's chief financial officer.

> "I am personally grateful for Rich McGinn's contributions to the
> business," Mr. Schacht wrote in a letter to Lucent employees.
> "However, the board felt a different set of skills was required at
> this point in the company's life."

> Mr. McGinn was not available for comment.


Ga ga, crazy, foolish for wanting you. -- Melanie C, "Ga Ga"

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