American Telephone & Telegraph Co., in a series of moves billed by the company's officials as the first step in a major restructuring of Bell System, yesterday announced a massive reorganization involving billions of dollars and potentially altering the basic relationships between the company and the nation's consumers.
The board of AT&T, the world's largest company, announced that the company had begun to set up a separate subsidiary to market telephone equipment and other services that the company, until now, has not been able to sell under federal law.
In addition AT&T announced a realisgnment of company structure, a consolidation of 33 pension funds -- worth $28 billion -- into just two funds, a $1.013 billion stock purchase of four local operating companies in which the company had not been majority owner, andthe organization of a wholly owned new subsidiary to run the company's worldwide operations.
The moves are in response to a preliminary Federal Communications Commission decision issued on April 7, which ordered at&t to set up a separate, fully independent subsidiary by March 1982 to sell communications equipment, even though under the terms of a 1965 consent decree with the government AT&T was banned from offering unregulated products to the public.
If, under the FCC decision, AT&T is to remain in the business of selling customer equipment, such as telephone and switchboard, and offer computer-to-telephone links, for instance, the Bell System had no other choice but to announce the dramatic changes in its operations.
"We are setting the stage for the restructuring of the business," AT&T Chairman Charles Brown said. Brown called the plan the first phase of the transformation of AT&T into a "very significantly different business in the future . . . The customer will no longer be able to obtain his telephone from his local telephone company."
Nevertheless, Brown emphasized that the 1982 date for the implementation of the FCC decision is "clearly impractical." Further, the company has previously told the FCC that since it has an investment of about $10 billion in terminal equipment that it cannot fully write off as a depreciated asset, the fully separte subsidiary, under the FCC proposal, is an "economicallyunviable" entity.
Precise details on which business segments might be transferred and what kinds of accounting measures would be adopted, how the new firm would be initially captialized and what the relationships would be between the directors of the parent firm and the subsidiary were also left to be decided.
The company, in its announcements, left its Western Electric and Bell Laboratories operations untouched. Those two subsidiaries in particular are the target of the Department of Justice, which is seeking in court to force AT&T to divest those two major operations.
At the same time, other industry experts emphasized that instead of splitting the company up, the stock purchase effectively brings company divisions closer to the holding company,limiting the independence of Bell operating firms. "What they're doing is tightening their grip on facility ownership." one observer said.
Reactiom from at least one congressional sponsor of the troubled legislative effort to restructure the Bell System was swift and critical. "Until Congress acts, only Ma Bell and her stockholers can applaud this," said Rep. Lionel Van Deerlin (D-Cal.),chairman of the communication subcommittee. "It contains no assurances for 100 million customers.
"In its computer II decision, the FCC has not -- and cannot -- order the major changes in industry structure that will protect consumers. Only Congress and the courts can do that . . . It seems more urgent than ever to break the legislative logjam."
Nearly as negative was the reaction from William McGowan, chairman of MCI Communications Corp., the District-based firm that offers long distance telephone service in competition with AT&T and recently won a record $1.8 billion antitrust verdict against Bell.
"A lot of it is window dressing," said McGowan. "But it does demonstrate to the Fcc, the courts and Congress that despite AT&T's claim that it would be impossible and wrong to do anything in a separate corporation, they're now saying they can move around assets and people. Therefore relief in the Department of Justice's suit is going to be a lot easier to accomplish."
The Department of Justice, which is scheduled to open its landmark antitrust suit against AT&T this fall, had no formal comment on the AT&T announcements.
But FCC Chairman Charles Ferriscalled the AT&T move a "positive first step." Ferris said AT&T management has "moved quickly in recognition" of the FCC decision. "It certainly is the first step toward reorganizing to become effective, but fair, competitors in the new communications markets opening up in the 1980s," Ferris added.
In splitting the company, AT&T placed James Olson, the company's vice chairman, in charge of business that ultimately may be deregulated and moved company regulated activities, such as long distance telephone rates, in the hands of AT&T President William Eddinghaus.
The quick response to the FCC decision, the timing of which surprised industry officials and observers, is clear demonstration of AT&T's political and business commitment to moving business quickly to adapt to competition in the burgeoning telecommunications industry.
During the late 1960s and through the1970s, must industry experts say the company acted indecisively in reacting to a growing regulatory and judicial consensus that the Bell System's strangehold on the communications marketplace was eroding.
The succession of Brown to the top post in the company, replacing John de Butts, was viewed as a step towards a realization of the inevitable changes in the industry, which are the result ofmerging computer, microwave and telephone fields, and the increasingly deregulatory mood that has captured both the FCC and Congress.
While some observers suggested yesterday that the AT&T announcements were an attempt to force the FCC to adopt in final form its April preliminary decision, it is clear that the debate over the decision, which was condemned by smaller computer firms and other Bell competitors, will continue for some time. Already, the decision has brought a spate of appeals to the courts, and others are expected.