The public isn't supposed to notice, but the testing of the world's largest corporate reorganization will begin in two weeks. American Telephone & Telegraph Co.--the Bell System--will start to operate as if it had already been split apart.
Since January 1982, when the Justice Department and AT&T signed an antitrust consent decree, the giant corporation has been figuring out where to draw the dotted lines and how to cut along them as it divests itself of its 22 local operating companies. With the separation deadline just some three months away, the AT&T of yesteryear will try to act as the AT&T of the future.
"Our intention is to operate as if divestiture has already occurred," Edward Block, AT&T's vice president for public relations and employe information, said of the test. "We want to make sure nothing falls in the cracks."
Although company planners say they expect things to go smoothly, there remain thousands of tasks, ranging from massive changes in computer programs related to billing, to signing thousands of new contracts with firms from which AT&T companies lease space and buy supplies. Moreover, extremely complicated contracts dealing with whether AT&T or the seven newly formed regional operating companies own certain equipment--that in central switching facilities, for example--have yet to be completed.
On top of that, despite the inevitable juggernaut of divestiture, several key pieces of the reorganization puzzle haven't yet been fitted in: The various Bell companies have yet to file their tariffs for rate increases that are due Oct. 3; the state of California has appealed aspects of the consent decree to the Supreme Court; and Congress, suddenly realizing it is a reality, is speedily preparing legislation to try to minimize divestiture's impact on telephone rates.
Those events notwithstanding, it's AT&T which is bearing the brunt of all the reorganizational manuevering.
Probably the most important thing on the AT&T agenda this fall concerns the financial aspects of the breakup. It is such a complex procedure that AT&T has formed a new unit, called American Transtech, to handle all the shareholder services.
Two events will occur in mid- or late November that the investment community is waiting for before it can make judgments about the financial health of the seven new regional holding companies.
The first is that AT&T and the regional companies plan to announce the dividends they will pay next May for the first quarter of 1984. Secondly, the companies will file registration statements with the Securities and Exchange Commission and applications with the New York Stock Exchange to seek listing on the Big Board. Those filings will include projected revenues and earnings--key information that the investment community is waiting for.
Shortly thereafter, financial and other disclosure information will be sent to owners of AT&T stock, the most widely held stock in the country. For every 10 shares owned, shareholders will keep their AT&T stock and will also receive one share in each of the seven regional holding companies.
But even at that point, there will still be considerable uncertainty about the future prospects of the companies. "We expect that the companies will tend to be conservative in their earnings estimates and dividends," said Edward M. Greenberg, an analyst with Sanford C. Bernstein & Co. Adding to the uncertainty is the fact that the local phone companies have record numbers of pending rate increase proposals before state regulatory bodies; the outcomes of those controversial cases will dramatically alter their prospects.
Not until mid-January will stockholders receive a statement of their accounts and a formal option card, outlining their investment choices. Certificates and checks, if investors choose to dispose of shares, will not be mailed until February.
That effort appears to be on schedule, company officials say. Similarly, ongoing efforts to make sure employes are correctly reassigned also appear to be on schedule. Bell System officials say they do not expect many relocations and have a year after divestiture to handle any imbalances in the work force.
There is enormous uncertainty and confusion, however, on what will happen to its long-distance service. AT&T Communications (the renamed AT&T Long Lines which handles interstate calls) will file on Oct. 3 a major rate reduction package, cutting some charges by as much as 15 percent. The firm hopes those rates can go into effect on Jan. 1. The company also is completing work on reassigning the ownership and maintenance of the long-distance electronic switching equipment.
Meanwhile, AT&T Communications is setting up 36 business centers around the country to deal primarily with long-distance business customers. More than half the 122,000 people who will work for AT&T Communications have already been assigned; about 57 percent will come from the operating companies and another 35 percent from the existing Long Lines operation.
In terms of AT&T's ambitions to compete in the unregulated business computers market--a market from which it had been excluded--a major decision is pending before the FCC on whether AT&T Information Systems, the unregulated "Baby Bell," or a regulated part of AT&T will be responsible for the so-called "embedded base." The embedded base is the equipment--such as telephones--which is already in place.
For the newly regulated unit, what's at stake is whether AT&T Information Systems will have an additional 35,000 people reporting to it. Also at stake is which of the AT&T operations are responsible for the computer billing systems for the millions of products leased from AT&T. Officials of the company say they are proceeding as if that equipment will be deregulated.
At Western Electric, a new profit-and-loss business approach is supplanting the manufacturing company's historic role as supplier of the local operating companies' needs. Western Electric's work force, now at 132,000, can now in effect turn out products to compete with IBM, Apple Computer, Rolm, Mitel and dozens of other companies that fuse data processing with data communications technologies.
AT&T Consumer Products does not expect to introduce any major products; its agenda is dominated by getting more and more retail outlets for its array of telephone products.
Company spokesman Michael Tarpey said that group expects the number of independent retail outlets selling AT&T products to rise from the current 2,000 to 6,000 by Jan. 1. They also have 413 company PhoneCenter stores already in place today.
Meanwhile, only three of the seven regional companies (Pacific, USWest and Nynex) have said they plan to be in the business of selling telephones.
Otherwise, the operations of the consumer products operation, set in motion with the Jan. 1, 1983, implementation of the Federal Communications Commission Computer II decision, will continue very much as it has over the past eight months. "We're already set up for divestiture," Tarpey said.
The so-called central staff organization, designed primarily to provide technical staff for the seven regional companies and coordinate national defense and emergency preparedness matters, has essentially begun operations. It will ultimately have 8,000 workers to advise and coordinate new marketing and product plans for the regional operating companies.
However, say various state regulators and federal legislators, the contortions that Bell has to go through to break itself up will be nothing compared to the price consumers have to pay when the full impact of the breakup finally kicks in.
"We know there will be negative effects," said Genevieve Morelli, deputy assistant counsel to the National Association of Regulatory and Utility Commissions. "But nobody can quantify or categorize them yet. The data just isn't available.
"But," she said, "there will be higher rates. That's a given."
There already have been clear moves towards extraordinary increases in telephone rates. Southwestern Bell, for example, has filed a $1.7 billion rate increase request with the Texas utility commission; under the proposal, residential rates would triple from the current average monthly bill of $10. By Oct. 3, when all the tariffs and filings from the Bell operating companies fall due, it will become much clearer what the financial cost of the breakup is going to be.
The FCC has authorized a Michigan request that it explore how divestiture will affect households and the several states that filed their comments with the commission earlier this month. However, it is far from clear--outside of rate increases--what impact the divestiture will have on such things as service, phone availability and quality of connections.
Clearly the most controversial of the impending changes has been the FCC's ruling on access charges. In July, the commission issued a final ruling stating that telephone subscribers should have to pay an additional monthly fee for the right of access to long-distance phone services such as the former AT&T Long Lines (now AT&T Communications), MCI Communications Corp., and GTE's Sprint. The charges, which would begin at $2 a month on Jan. 1, could eventually reach $6 or $7 monthly by 1987.
The reasoning behind the commission's ruling was that long-distance rates had been kept artificially high to subsidize the cost of local service. The FCC chose to eliminate the long-distance subsidy and have consumers pay the cost of having access to the nation's long-distance network.
The commission's ruling, which drew sharp fire from U.S. District Judge Harold Greene, who presided over the AT&T antitrust case that ended with the agreement to break up the Bell System, also provoked the introduction of more than a dozen bills in Congress to overturn it. The sentiment was that the access charge would cause telephone bills to increase so much that, for poorer households, telephones would become unaffordable luxuries.
The most powerful attempt to repeal the FCC's access charge comes from the efforts of Rep. John Dingell (D-Mich.), Rep. Tim Wirth (D-Colo.) and Sen. Bob Packwood (R-Ore.). There have already been combined House-Senate hearings and legislation is expected shortly.
"Legislation reversing the access charge decision and provid ing for rural telephone service and the poor will be marked up and in full committee in mid-October," said a Wirth aide. A bill is scheduled for markup in the Senate telecommunications subcommittee on Tuesday.
What's astonishing, say the aide and other Hill sources, is that no organized opposition to the repeal effort has yet emerged. "I'm amazed that it hasn't," he said. "It is perceived to gore the ox of every identifiable interest group."
In essence, the bill would retain many of the aspects of the long-distance subsidy to lessen the impact of local rate increases. However, opponents charge that this goes directly against the thrust of phone deregulation and will drive major telecommunications users away from the phone system and into creating their own long-distance networks in order to bypass the "artificially high" rates.
Basically, said both sides, the question boils down to a trade-off between economic efficiency and the concept of "universal telephone service" available to all Americans. After Jan. 1, it will become clearer just how difficult those trade-offs are going to be.