Reorganizing AT&T: From Vertically Integrated to Customer-Centric Organization (B)
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Case Code: BSTR078 Case Length: 15 Pages Period: 1876 - 2003 Pub Date: 2003 Teaching Note: Not Available |
Price: Rs.400 Organization: AT&T, Department of Justice (US) Industry: Telecom, Countries : USA Themes: Corporate Restructuring |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
AT&T - After The Break-Up
The Telecommunications Act 1996 (Refer Exhibit III) led to the deregulation of local telephone business.
The act allowed the local telecom providers offer video services and sell long distance communication services out of their region if the providers allowed other local/long distance exchange carriers to operate in their region. The act also allowed long-distance phone companies and cable companies to sell local phone services. The deregulation of local phone business meant that AT&T was free to enter any of these markets. In spite of the act, however, the local telephone market continued to be largely controlled by the RBOCs, and GTE. Competitors like AT&T found it tough to enter, mainly because the local companies refused to provide interconnections to their networks. On the other hand, the RBOCs and GTE were well positioned to move into long-distance services...
AT&T's Restructuring Plan
According to the plan, AT&T would be reorganized into four independent publicly-held companies - AT&T Wireless, AT&T Broadband, AT&T Consumer and AT&T Business. Each company would function under the "AT&T" brand name.
AT&T Wireless would be among the rapidly growing wireless companies in the US; AT&T Broadband would be the largest cable TV and broadband services company;
AT&T Consumer would function as a leading consumer communications company; and AT&T Business would be a major enterprise communications and networking company. According to Armstrong, the new companies would be more responsive to customer needs, while still providing the benefits of one-stop shopping and bundled services through inter-company agreements. Justifying the restructuring move, Armstrong commented, "We believe that we have announced the foundation and the path for creating long-term shareholder value and will enable these companies to be even more performance, market and customer-focused, faster in their response and more competitive in their offerings...
Dorman's Dilemma
Occupying the top position at AT&T, Dorman faced several challenges. The major one was to stop the company's declining revenues and bring AT&T back onto the growth path. AT&T's revenues had fallen by 10.4% to $37.8 billion in the fiscal ending December 2002.
The company's operating income had nosedived 44% to $4.36 billion for the same period (Refer Exhibit V). By early 2003, AT&T faced fierce competition from local exchange carriers - the RBOCs that were quickly entering into the long distance communication business. The RBOCs provided 'all-distance' services in 35 states in early 2003, and planned to offer the same service in all the 50 states in the US by 2003-end. In the voice services that constituted 80% of AT&T's operating income, the company faced aggressive price competition from RBOCs, resulting in loss of market share. According to industry analysts estimates, the RBOCs were expected to capture 28 million residential long-distance customers constituting 40% of the market by the end of 2003...
Reorganization in 2003
Against the backdrop of all these concerns, in April 2003, Dorman announced the reorganization of AT&T. The reorganization aimed at serving the company's customers quickly by expediting decision-making process (Refer Table I).
After the spin-off of AT&T Wireless and AT&T Broadband, the company had only two divisions left - AT&T Business and AT&T Consumer. The reorganization would reduce the layers of management between the CEO and the line workers from 14 to 7. Dorman felt that several layers of management had made AT&T lethargic and unresponsive to the needs of customers. Dorman described the reorganization as a long-term exercise, and said it was not just prompted by AT&T's poor financial condition. He said that it was a part of the holistic organizational strategy of AT&T to transform its culture by laying less emphasis on business functions and designing a unique horizontal leadership structure. Dorman said, "We've benchmarked ourselves against the best companies in the world and aligned our resources squarely against our top priorities...
Exhibits
Exhibit I: AT&T Corporation - Stock Price Chart (1994-2003)
Exhibit II: AT&T's Breakup (1995)
Exhibit III: The Telecommunications Act (1996)
Exhibit IV: Organization Structure of AT&T (2001)
Exhibit V: Financial Performance of AT&T (1996-2003)
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