Date of Award

1994

Document Type

Thesis

Degree Name

Master of Business Administration

Department

Business

First Advisor

Daniel W. Kemper

Second Advisor

Joseph Ancona

Third Advisor

Jan Kniffen

Abstract

This thesis examines the history of AT&T, the divestiture of its operating companies in 1984 and the subsequent impact on the parent company, its offspring and the telecommunications industry. The focus is on the impact to AT&T's original owners.

The Bell Telephone Company which spawned AT&T was formed in 1877 with Alexander Graham Bell's invention of the telephone. AT&T became the largest telephone company in the world and one of the most powerful economic forces within the United States. However, over the course of its history, it fought three separate antitrust suits filed by the U. S . Justice Department . The last, filed in 1974, was ultimately responsible for dismantling AT&T. At the time of the suit, AT&T was both vertically and horizontally integrated. After the settlement, it lost its operating companies which provided local telephone service across the country, but retained its research and development, manufacturing and long distance branches. By agreeing to this arrangement, AT&T broke free from the cycle of antitrust litigation, restrictions from entering other lines of business and intense regulatory scrutiny.

The purpose of this study is to examine divestiture's impacts and determine whether the deal made by AT&T's management benefitted its owners/investors or whether there is evidence to indicate it harmed them.

AT&T's divestiture had many impacts. Certain consumer burdens were short lived, such as local service price increases and service delays. The most lasting negative impact may have been on employees due to massive layoffs. However, the benefits of divestiture continue to accrue. Consumers experienced sustained lower long-distance rates, competition thrived and both AT&T and RBOC earnings were good.

Financial data, including dividends and share price appreciation, were examined both pre- and post-divestiture for AT&T and post-divestiture for the RBOCs, the S&P 500 and the S&P utilities. Comparative results indicate that the original AT&T shareholders, on a cumulative basis, benefitted financially from divestiture even though the hypotheses were not proven statistically due to limitations of the data and the nature of the tests.

Download

Included in

Business Commons

Share

COinS