Like the severed segment of a starfish washed up on an Atlantic beach, the telephone company that soon will be cut off from the Bell System to serve this region wants to grow back whole.
Bell Atlantic Corp. hopes to regenerate itself into a "total communications corporation" after it is spun off from American Telephone & Telegraph next year. And Bell Atlantic executives talk of offering not only local telephone service, but also sophisticated telephone equipment, information processing and even long-distance calling to its customers.
"I want us to be a communications company, total, full and complete," says Bell Atlantic's 56-year-old chairman, Thomas E. Bolger, a long-time AT&T executive who eagerly sought the post shortly after he learned of divestiture.
AT&T's 22 local operating companies, including the Chesapeake & Potomac Cos. that serve the District, Virginia and Maryland, will become part of seven new regional firms that will be created when the century-old Bell System is broken up on Jan. 1. The chief function of the new firms will be to provide local telephone service.
To sell telephone equipment, the regional companies will have to start from scratch, because all of AT&T's manufacturing and marketing expertise will remain with the parent company.
And to enter the long-distance and information processing business, as Bolger desires, Bell Atlantic will need the permission of U.S. District Judge Harold H. Greene, who is overseeing the federal antitrust case that led to the Bell breakup. Under the divestiture consent decree, the regional companies will be barred from entering these fields unless they can convince the judge that their activities will not hurt competition.
But Bolger--like his counterparts at the other regional companies--appears undaunted by these restraints or the task of launching a new venture.
On the day of divestiture, Bell Atlantic will have assets of $17 billion, annual revenues of $8 billion and yearly profits of $928 million--making it one of the 50 largest companies in the country, bigger than Gulf Oil Corp. or Procter & Gamble Co.
Its work force will total 80,000 employes to provide service over 14 million telephone lines.
The new company will be comprised of the former Bell System operations in the District of Columbia and the six mid-Atlantic states of New Jersey, Pennsylvania, Delaware, Maryland, Virginia and West Virginia, with the local companies continuing to operate under their old names.
Bell Atlantic's headquarters, with a staff of about 100, will be in Philadelphia. However, its subsidiary, Management Services Inc., which will oversee the heart of the company--the telephone operations of all the local telephone companies--will be based in Arlington, with a staff of 1,200.
When the divestiture plan was first announced nearly two years ago, many financial analysts were skeptical that the regional companies would be able to thrive. Among other things, the analysts were concerned by the decree's restrictions barring them from from selling equipment or offering the lucrative yellow-page service.
However, when Judge Greene revised the decree to allow the regional concerns to offer these two services, the analysts' view quickly changed so that today they say these companies are good, solid investments.
"The Bell operating companies are clearly high-quality utilities," said Edward M. Greenberg, an analyst with Sanford C. Bernstein & Co. His reasons: The companies have above-average growth, good control over operating expenses, strong balance sheets with a high content of real earnings and almost complete internal financing.
That is good news for AT&T stockholders, who will automatically become shareholders in each regional company, receiving one share of stock in each of the concerns for every 10 shares of AT&T stock they own.
Among the seven regional corporations, most analysts rank Bell Atlantic as the second or third strongest.
One reason for that is the company's low operating costs, noted Bradford L. Peery of the San Francisco-based Sutro & Co. Inc.
For instance, Peery noted, Bell Atlantic's number of employes per telephone line is one of the lowest in the country--75 people per 10,000 lines--compared with a Bell System average of 90. "That shows a relatively high productivity level," he said.
Additionally, the company has the lowest total operating expense per telephone line--$417 a year--compared with a Bell System average of $484. "That $67 spread represents an annual savings of $931 million--over $5 per month per line," said Bolger.
John S. Bain, of Lehman Brothers Kuhn Loeb Inc., also thinks highly of Bell Atlantic because its system has more up-to-date equipment than most other companies.
Like the other regional companies, Bell Atlantic has grand dreams of turning itself from a utility into a full-scale communications company.
All of the companies plan to sell telephone equipment and all plan to actively promote the new cellular radio mobile telephone service, which, by all accounts, promises to be a highly profitable venture.
Yet, noted Greenberg, Bell Atlantic, in planning to enter the information-processing and long-distance markets, "is more aggressive than some of the others . . . trying to start off faster than others."
Initially, Bell Atlantic plans to focus its new equipment sales business on large business customers. It has already entered into agreements with two large manufacturers--NEC America Inc. and TIE/Communications and its subsidiary Technicom International--to sell their business equipment.
"Chances are there is no way we can practically serve the residential customers with telephones," says William L. Mobraaten, Bell Atlantic's chief financial officer. "Sears Sears, Roebuck & Co., which will be selling phones made by AT&T and other companies will always beat us out because they have more outlets," Mobraaten says.
At first, Bell Atlantic plans to market its equipment to businesses within its territory. However, Bolger noted, he hopes soon to sell equipment elsewhere, especially to far-away branches of companies headquartered in the mid-Atlantic region.
"We're not going into the telephone equipment business just to make a profit," Bolger said. "That's the third or fourth reason. . . . The real reason we want to be in this is to position ourselves for the long-range future as an information company. . . . You have to be in (the) customer-premise equipment business to be in touch with the demands of our customers and the marketplace needs."
By information processing, Bolger said he would like to be able to do more than just transport information from one customer to another. He would also like to store it for transmission at a later date or transform it into another form, such as from one computer language to another. But under the divestiture agreement, all the new regional companies are currently barred from this activity, as well as from transporting calls between cities--another business line Bolger would ultimately like to enter.
"GTE Corp. currently the nation's second largest telephone company is the same size as my company and can transport calls between cities . Why can't I?" Bolger asked.
Consequently, he said, beginning in early 1984, his company will begin petitioning Greene for permission to enter these other businesses.
In the meantime, however, Bell Atlantic intends to become involved in a whole host of new business activities that its officers hope will provide high growth and large profits.
Of these, the most signficant is its planned entry into the mobile telephone business early next year.
Like all other regional companies, Bell Atlantic is eager to take advantage of the new cellular radio technology that will permit thousands more consumers to use mobile and portable telephones--and at a cheaper rate--than is currently possible.
The cellular system uses sophisticated computerized call-switching equipment and low-powered transmitters placed in "cells" divided throughout a city. Signals from the limited-range, low-power transmitters are automatically transferred by computer to an adjacent cell's transmitter as the portable telephone moves out of range, permitting thousands of calls to be made simultaneously. Present mobile phone systems, on the other hand, permit only about 20 calls to be made at once because a single, high-powered transmitter with limited frequencies is used to broadcast calls throughout the city.
AT&T developed the cellular radio system, and now its new regional companies, with the blessing of the Federal Communications Commission, are ready to put it in place. AT&T estimates that this new service will create a brand new industry with 1.5 million customers and $6 billion in revenues nationwide by 1990.
Eager to win a big share of this fledgling industry, Bell Atlantic's Mobile Systems Inc. subsidiary plans to launch its cellular service in Washington, Baltimore, Philadelphia and Northern New Jersey in early spring, with Pittsburgh's system scheduled to go on line early in 1985.
Bell Atlantic won't be alone in marketing cellular systems. The FCC last year set aside sufficient radio frequencies for two systems in each major metropolitan area. It then reserved one of the licenses in each area for local telephone companies, opening the other license to bidding by private, non-telephone companies.
Despite the competition, Joseph T. Ambrozy, president of Bell Atlantic's subsidiary, predicts that cellular "will be a very profitable system," coming into the black within two years.
Beyond cellular, Bell Atlantic is exploring arrangements with cable television vendors in its region to see if they would be interested in having Bell Atlantic build a cable system for them; Bell Atlantic would not control the content.
And having run a successful customer billing system for years, Bell Atlantic is also studying whether to sell its expertise to other firms. Similarly, noted Mobraaten, the company is thinking about whether it could sell the knowledge it has gained in managing a large motor vehicle fleet.
Yet critical to all of these business plans is the assumption that Bell Atlantic and its local operating subsidiaries will win federal and state regulatory approval to raise local phone rates and reprice services so that charges are tied more closely to costs.
For residential consumers, that means rates will probably have to double, predicts Philip A. Campbell, head of the management services subsidiary which oversees telephone operations.
Repricing--shifting more of the cost burdens from businesses onto consumers and tying residential rates more directly to the length of calls, distance and time of day when placed--"may be our No. 1 objective," Campbell said.
"The rate decisions are absolutely critical . . . to the financial viability of our business in the short term."
Campbell and his team fear that federal and state regulators will be reluctant to increase residential rates because the increases could make telephone service unaffordable to many customers.
As a result, they are concerned that business rates will be kept high to subsidize the residential bills. Should that happen, they argue, businesses will be encouraged to bypass the Bell Atlantic network, turning to lower-priced competitors to make calls over networks that will avoid any link to the local system.
"A very small number of large customers produce a very large percent of revenue for us," said Bolger. "So if there is bypass, a large part of my revenue stream is at risk."
Analysts say that perhaps more than any other regional company, Bell Atlantic is particularly vulnerable to bypass because its single largest revenue source--the U.S. government--will be looking eagerly for ways to cut its own phone bill, perhaps by even setting up its own network.
Consequently, Bell Atlantic officials are busy pressing state regulators to accept their pending rate requests, totaling $941 million, as well as their plans to restructure rates.
Even so, reliance on regulators is a large planning problem for Bell Atlantic, as was quickly pointed out last week when the FCC suddenly and surprisingly agreed to delay the implementation of a new fee system under which consumers would pay $2 more a month, and businesses $6 more a month, for access into the telephone network. The system, which would replace the current scheme in which a percentage of long-distance revenues were recycled back into the local telephone companies, was scheduled to take effect on the first day of divestiture, but now won't be implemented until April 1st at the earliest.
Bell Atlantic officials, who were counting on getting 30 percent of their revenues from the new access-charge system, are still reeling from the FCC's decision, trying to figure out if they will still get the same amount of money under the old system in the new world of divestiture. Until they have sorted out the answers, they have had to pull an advertisement aimed at Wall Street touting the company's financial health.
Bell Atlantic officials--and officials at the other regional companies--also face another major challenge in getting their companies off the ground. Can these executives who have successfully run a monopoly successfully change their mentality to run an effective competitive company, one that will end up competing with its own former mother, the Bell System?
"The issue of Bell-operating company mangement is not whether the heads of the various operating companies can run a monopoly telehone business without AT&T--most top managers of the operating companies have many years of experience doing that--but whether management can adjust to the competitive era," said Greenberg.
Divestiture "will require adjustments in the thinking of the operating company mangers . . . who will have to concern themselves with such skills as strategic planning and marketing . . ."
Bell Atlantic's team members say they are all eager to meet this challenge and, in fact, repeatedly say they are far happier working for a smaller company than for the big Bell System.
"We're finding that it's an amazingly easier change than I thought it would be," said Mobraaten. "From a management point of view, it's certainly going to be more exhilarating to operate a smaller company where the decision makers are closer to the people."
Yet, if Bolger's dreams come true, Bell Atlantic won't remain little for long.