Flush with profits after their first year of independence from AT&T, the seven regional Bell operating companies are turning to the office automation and computer industries as a means of expanding their businesses.
Their entrance into the multibillion-dollar computer trade, which they view as a natural evolution of the communications services and products already provided, promises to intensify the already existing fierce competition and could hasten a retail shakeout. It will pit some of the regional companies against such industry retail giants as Computerland, Radio Shack/Tandy and Sears Business Centers.
The new move by the regionals also has led to complaints of unfair competition by some retail dealers. They cite the companies' financial base, their marketing expertise and their long affiliation with AT&T.
Two of the Bell companies -- Nynex in the Northeast and Pacific Telesis on the West Coast -- have announced ambitious plans to open fully stocked retail computer outlets that will compete with existing franchise and independent computer retailers. Nynex already has opened two stores in New York and Massachusetts. PacTel will enter the business in April.
A third regional company, Bell Atlantic Corp., also is studying a major move into the computer industry some time this year. Its precise strategy is evolving. But two recent acquisitions appear to position the company to become a serious computer retailer.
Last year, Bell Atlantic acquired TriContinental Leasing Corp., an equipment lease financing concern. It also spent $175 million to acquire Sorbus Service Systems division, the second-largest supplier of third-party maintenance for the computer industry, from Management Assistance Inc.
"The elements required to operate successfully in the computer market are the ability to service and the ability to finance," explained John L. Baird, assistant director of corporate communications for Bell Atlantic.
"We can finance it and we can service it, and we do indeed have plans to sell it. There are a number of options available to us. We could use our existing equipment subsidiaries in marketing communications terminals. The other way is to grow with additional retail capability or to acquire. We're naturally studying these options and we are absolutely not ruling them out.
"Once we are confident on how we intend to go, off we go. It's definitely going to be this year."
The other four Bell regionals -- American Information Technologies, or Ameritech; Bell South Corp.; Southwestern Bell Corp., and US West -- are studying computer marketing prospects. Officials said they are targeting various aspects of the office automation market but aren't planning to open retail stores.
For example, St. Louis-based Southwestern Bell Corp. is aiming for "the office automation marketplace" for "middle and upper-sized business," said Jack Zalovdek, executive vice president of business systems for the company's telecommunications subsidiary.
Although it has a sales force and several national clients, the company won't open storefronts. "We're taking an applications approach," explained Zalovdek. "We'll offer a turnkey solution. Customer problems will be solved through the horizontal or vertical software we will provide."
Retailers view the PacTel and Nynex operations as much more of a direct threat, however, because these will solicit walk-in computer business.
Nynex Business Information Systems Co. opened its first two Datago retail stores in December in Colonie, N.Y., near Albany, and in Springfield, Mass.
"The Datago operation is very particular," said John Bear, general merchandise manager. "It looks at small businesses and entrepreneurs. Those are very, very segmented areas. They are people who need a certain amount of new technology. But they don't want to go to a store and get elbowed away by someone looking at video games."
The 5,000-square-foot stores carry IBM, Wang and Compaq hardware; packaged software; peripherals such as printers, cables and modems, and telephone equipment manufactured by AT&T and others.
The Datago outlets also offer equipment repair, a telephone problem hotline and computer courses.
Nynex plans to open additional stores within its service area later this year.
Pacific Telesis, through its newly created PacTel Information Systems subsidiary, will open retail outlets in northern California beginning in April. PacTel also will use a direct sales force and a telemarketing operation to sell computer products.
If successful, the retail outlets will be expanded to other areas of the state, the region and, eventually, the nation. Will Luden, newly named president of the division, said the stores will carry four hardware lines, 12 to 15 software lines comprising 75 different packages, and peripherals such as modems, printers and telephone equipment.
"We are starting from the ground up," said Luden. "Initially, we will stay within this region. We have to be successful in one region before we open in the next. It will very definitely be a region-to-region expansion.
"We're very serious about being a diversified business."
The regionals' move into computers was boosted by a Department of Justice decision at the end of last year that "customary premises equipment" the firms could market under the AT&T divestiture agreement included high-tech devices "interconnectible to telecommunications facilities or used for communications functions."
In 1984, sales of personal computer hardware, software and related peripherals through specialty outlets approached $4.7 billion, according to Alice Brown, an analyst with Dallas-based Future Computing, a computer research firm. Sales should exceed $6.3 billion this year.
Some 4,337 computer specialty stores already serve the market, up from approximately 4,000 a year ago and 1,700 in December 1981. Principal national retailers include Computerland (562 outlets), Radio Shack Computer Centers (430), Entre Computers (214), ValCom Computer Centers (128), Microage Computers Stores (127), Sears Business Systems Centers (100) and IBM Product Centers (81).
Existing retailers are watching the approach of the Bell companies cautiously.
"It irks me no end to pay more for my telephone bill and to see the number of dollars being spent on television advertising by Nynex Datago ," complained Bob Smith, sales manager of the Computerland outlet in Latham, N.Y. "They're throwing lots of advertising dollars at the marketplace. What upsets me is that I'm helping to pay for it."
Nynex officials emphasize, however, that telephone revenue is not used to support the firm's Business Information Systems subsidiary.
Martin Umholtz, whose Santa Rosa, Calif., Computer Center may face competition from PacTel, said: "What scares me the most is unlike a lot of other dealers, they've got money -- lots of dollars. The independent retailers have to utilize their money two or three times a month turing it into products or inventory.
"They, the regionals have the dollars to stock a lot of product and to make a number of mistakes and still stay in the marketplace."
The regional telephone companies' turned in a strong financial performance in their first year of independence, posting earnings ranging between $828.5 million and $1 billion.
Major computer chain retailers believe the Bell regionals will be formidable competitors, but have yet to prove themselves in the highly volatile computer field.
"It's another massive corporation entering the ball game with resources that could overpower most retailers," said Edward Ramos of New York-based Future Information Systems. "But there are factors that mitigate their instant success. Their management doesn't understand this business. They aren't accustomed to a competitive environment. Their people don't have experience in the specific markets they are in. You have to sell differently in every community."
Ed Juge, director of marketing planning for Radio Shack/Tandy, added: "We're no more afraid of them than we are of anybody else. We've been bucking competition for years. Some of it is pretty tough, but we've managed to stay profitable. You're aware of them and you're cautious and you're not complacent. But it takes an awful lot to scare you."