What are the environmental changes faced by AT&T as described in the case at the beginning of this chapter, and how have these changes affected basic AT&T strategy?

Case: Has Ma Bell Learned the Competition Game?! holders of the communication giant at the company's annual meeting in Atlanta in "AT&T is no sunset company!" former chairman Robert E. Allen boasted to share worth $1 trillion by 2000 and that he fully anticipated that American Telephone & April 1994. Allen then remarked that the worldwide information industry should Telegraph Company (AT&T) would lead the way toward that impressive mark. In fact, at the time, analysts predicted that AT&T was on the verge of good perform Since that meeting, AT&T has gone through massive restructuring and leadership from Hughes Electronics was selected as CEO to replace Bob Allen. AT&T has come a adjustments. In 1996, it split into three companies. In late 1997, C. Michael Armstrong In late 1983, a federal antitrust suit forced AT&T to divest itself of three fourths the company and its TO t be ance, but the battle back would be difficult. long way to be competitive in an environment of globalization and deregulation. ing in trucking, airline, and other industries since the late 1970s, hit the communica tions industry, and AT&T in particular, full force. New rules were being written. The breakup led to greater flexibility in the regulation of AT&T proper. No longer would monopoly, power, and government regulation provide a safe harbor for AT&T. The environment was being radically restructured. In other words, times were changing In fact, most business experts agree that never before has a company been shaken up by an external environmental force as severely as AT&T was. The company was forced to change its basic way of doing business. In other words, AT&T's internal operations had been totally reshaped by a force from the external environment. Meeting this drastic change in the environment has been a major challenge for AT&T. As a regulated utility, costs, not efficiency, drove its profits. Higher costs just expanded the base in which its regulated rate of return was calculated. This auto- matically boosted earnings. Competition changed all this. First, AT&T had to spin off its regional phone companies--the so-called baby bells--which now operate in- dependently. In fact, AT&T now competes with the regional companies in short- and long-distance services. The company also lost its monopoly in the long-distance market as satellite technology opened this market to a host of competitive long-dis- tance companies, such as Embarq, among others. In addition, resellers who buy long-distance time on AT&T lines at wholesale prices and then resell it to customers (10-10 dial-arounds) emerged. No longer could AT&T count on an ensured income stream from long-distance and regional telephone services. Finally, unlimited cell phone usage for long distance has severely reduced AT&T's long-distance services. COMPETITIVE STRATEGY AT&T's first task was to remove some of the excess baggage" associated with giant noncompetitive organizations. Costs were cut by eliminating 27,000 jobs, plus another 48,000 through layoffs and retirements. This amounted to approximately 20% of the company's workforce. As of 2008, AT&T employed more than 300,000 people. Some work was shifted abroad. For example, residential phones are now made in Singapore. The number of models in AT&T's phone line was reduced, and domestic plants were automated, Sales personnel at its retail telephone stores were put on a commission basis. In short, during the restructuring of the early 1980s, the company adopted many of the same cost-cutting tactics used by nonregulated companies. AT&T desperately wants to remain a leader and bellwether" in the communi cations industry. It continues to emphasize its core business while divesting units to improve this focus. AT&T has been forced, however, to rebuild its organization and reorient its HR to instill a sense of creativity and competitiveness. AT&T has had to change its overall personality or culture. This is certainly a difficult thing to do, but the competitive environment, dictated by the government regulators, forced the AT&T staff to change its style. For example, never before had employees been exposed to the pressure of creating new products and services. Never before had employees been expected to beat competitors in the race for radically new ideas and solutions to human problems. AT&T had always been able to sell itself because it was the only game in town." The regulatory action meant that AT&T's viability as a firm now rested on the abilities of its employees to adapt. Employees did develop new products, especially computers suited to AT&T's particular needs. After all, the company believed that its Private Branch Exchange (PBX) and switching systems were, in fact, computers. Company leaders believed that the marriage of telephones and computers was the key union for success in the communications and information management" industry of tomorrow. In the meantime, AT&T noted the potential importance of cellular technology in the communications industry of the future. In 1994, AT&T received government ap- proval for an $11.5-billion merger with McCaw Cellular, Inc. This made AT&T a leader in the cellular industry. In 2004, Cingular Wireless won a fierce bidding war to acquire AT&T Wireless Services. This $41 billion merger combined the nation's second and third wireless companies to create the nation's largest cell phone com- pany, with more than 46 million subscribers. Currently, AT&T has 71.4 million customers. The company has added 1.3 million net wireless subscribers and 705,000 customers who sign service contracts and pay monthly bills. Although wireless subscribers are up, the carrier lost 1.2 million net access lines between 2004 and 2007. "The [w]ireless results continue to deteriorate," said Craig Moffett, an an- alyst at Sanford Bernstein & Co., adding that the line loss was among the worst in the company's history. AT&T also adopted an aggressive marketing campaign. No longer would AT&T wait for customers to discover it. It began to share its vision for the future of communications and illustrate to customers that AT&T was committed to innova- tion and leadership. In past television commercials, a spokesman told viewers about a day in the future when drivers' licenses will be renewed at ATMs, groceries will be checked a full cart at a time, and faxes will be sent from virtually anywhere. The spokesman vowed to the audience that AT&T, an old familiar friend, will lead the way in developing these technologies. AT&T responded forcefully to MCI and Sprint advertising that was designed to *win away" loyal AT&T customers. AT&T developed creative television, radio, and newspaper ads suggesting that savings associated with switching to the "upstarts" were not substantial. In addition, the advertisements emphasized the superior service and product quality offered by AT&T. The company also devel- oped valuable package plans and discount programs, such as the TRUE campaign, which posed a major threat to the relatively smaller competitors. Also, AT&T strengthened its position in overseas long distance and entered the financial services industry. The company even offers leasing services and a credit card that can also be used as a calling card