|Note: The following transcript was wrote during 1994. Much of the content may seem out of date, it is. We are working with the original author to revise the publication and finish it. New revisions of the transcript will be appearing here monthly. Click here for a list of scheduled additions and submit your own requests.|
The Wrong Choice
A Report and Commentary Published By:
The Keith Maydak Foundation
(c)1994-97 The Keith Maydak Foundation. A NOT-FOR-PROFIT Corporation.
this report is dedicated to:
the stockholders of AT&T
You, the stockholder
As of October 31, 1993, AT&T had 1,350,339,000 common shares. That sure is alot of shares. Just think if you invested $1,000,000 in AT&T, you would only own about 18,000 shares. Being the owner of all these shares you probably could not even get an executive on the phone.
Most investors explain that it is still a good investment because it is safe. Safe? Yes, of course. AT&T is a big blue chip company, diversified in many areas of research and development. With joint ventures all over the world, how could you go wrong? Seemingly nothing could trip up this company.
Are you sure? We are not. We think AT&T is over-valued. It's share of the long-distance market is rapidly declining. AT&T's customer base is mostly the older folk and large institutions resistant to change. These people still consider AT&T Ma Bell, to them AT&T is the phone company. Unfortunately, no one or nothing is forever. AT&T soon will lose it's share of international markets as they too open to competition.
AT&T is historically a company based on technology. As technology advances, technology becomes cheer. For every AT&T product, there is a similar, better and lower-priced product. Right now AT&T is living on their name, and it's not a name that will last forever.
As you read this report, consider this: Is AT&T a company that will make money for me in the next 20 years? Or is AT&T a company that has reached it's peak?
The price per share of AT&T's stock at the end of 1992 was $51.00. On February 24, 1994, the price was 52 3/8, a meager increase. Today AT&T's stock has plummeted to around $35. Will you heed the warning?
You, the customer
Whether your telephone bill is $600 or $60,000,000 you need to make a choice. Is AT&T the company you want to use? Remember this question as you proceed. Most people figure there really is not much difference in long-distance companies. As long your call goes through, who really cares? When companies use their position to manipulate and deceive, it becomes a matter of ethics. Do business with a company you can trust. Can you really afford to trust AT&T? We do not think you can.
There are hundreds of long-distance companies today. Big companies like MCI worked hard to make a network and fought for the right to exist. Smaller companies like Wiltel provide excellent service. You have a choice, find a company you can trust.
AT&T spends more on advertising than any other company in the United States, yet AT&T continues to lose market share. In 1992, AT&T spent nearly $250,000,000 on advertising. AT&T has been changing slogans quicker than the moon changes phases.
First, we were tortured with the I-plan. Industry leaders referred to this as the idiot plan, computer hackers called it the I-scam. The marketing concept was based on the "I" standing for individual and AT&T had a plan for everyone. Their plan however did not appeal to many people, especially the targeted MCI Friends and Family customers. The people who did call were not really sure what they were really getting. There were so many I-plans. The I-plan was history before it got started.
Next came AT&T's True USA. The plan slammed MCI's Friends and Family Program. It claimed that in reality MCI customers only saved 6% on calls and AT&T said their plan would give customers 20% off. The campaign proved to be deceptive if anything. To qualify, a customer would have had to spend $25.00 minimum per month. The AT&T discounts were then compared to MCI's Basic Rates. MCI's basic rates though were lower than AT&T's basic rates humorously. MCI also offered additional discounts to people who spend over $20.00 per month. Basically AT&T was apples to oranges. What AT&T did not tell the public is that with MCI, if you only spent $2 per month, you are still eligible for the Friends and Family plan.
Other great campaigns were shown on television including one where AT&T showed some change and said 'this is your savings you will receive from those other companies'. Once again AT&T did not tell the public that you saved those pennies on every call. Pennies soon turned into dollars.
AT&T loves to waste investor dollars by underwriting as many sporting events as possible. We got to see United States President George Bush putt golf on the AT&T Pebble Beach Classic. We got to see Shawn Kemp play basketball on the AT&T Long-Distance Shoot-Out. While AT&T spent these millions to play it's "True-Voice" commercials, how many people were paying attention? We polled 35 viewers. Each viewer told us they remembered Nissan's commercials, but had no clue what the AT&T commercials were about.
What is this True-Voice thing? It was a new system AT&T started installing in 1994. With true-voice you are supposed to be able to hear conversations more clearly and louder. You will sound as if you are calling from next door, so they said. We have never really wanted a conversation louder. The problems usually associated with low phone sound can be traced to cheap telephones, poor telephone quality and bad telco connections. With True-Voice, bad connection quality is magnified into a louder more unbearable connection which still can not be heard.
In the near future:
The FBI wants to tap your telephone calls without a court order. The agent's friend at AT&T is not in the office.The agent turns on his computer, dials a number. In 2 minutes, the agent starts listening to your entire conversation.
Have you ever had your privacy invaded? If not, you will and it will be from AT&T.
The You-Will campaign was yet another waste of money. AT&T is spending millions advertising products and services that will not be perfected for another decade. If anything, the people who remember the commercials will be disappointed by AT&T's final product; as they made promises that they just could not keep.
First, AT&T promised that they were working on a system where a person could use a computer to read any book and zoom into the pictures. What they are referring to in that commercials is AT&T's investment in Sierra On-Line, a video-game by computer service. However, reading and looking at books is a long way down the road. For now technology is not cost effective nor portable enough to create a device capable of both storing large amounts of text and while also providing a comfortable reading surface, all while observing issues like battery life, weight and licensing. When the technology finally is brought to market, AT&T will be greeted by stiff competition from companies such as Compuserve, Prodigy and America Online.
AT&T's "Have you ever showed up for a meeting in your bare feet" and the other clip about the video phone booth refer to AT&T's VideoPhone 2500 and improvements on it. The VideoPhone 2500 has been on the market since 1992. Do you own one? MCI designed a video phone that was compatible with many other manufacturer's video phones - something AT&T's VideoPhone 2500 was not, and at a cost of $750.00. - or about half of AT&T's.
AT&T's "Have you ever crossed the country without stopping for directions?" refers to a system that several other companies are working on also. The problems with a nationwide system are manifold. The system would require a transmitter on every pole. The companies that are testing similar systems in certain test market cities have found that most people would rather use a conventional map. The costs to use the AT&T system are surprisingly high. A much wiser alternative to AT&T's dream system is the current GPS technology which is based on a system of satellites in low orbit. Through the mathematical manipulation of several combined signals portable units can track location of the user within about 300 feet. The cost of GPS systems has fallen to under $200 for a fully functioning portable system.
AT&T has another ad which said that soon there will be a system where you will not have to stop for toll-booths. This campaign refers to a joint venture with Lockheed. In 1996 New York City began using some device to accomplish exactly what AT&T advertised some years earlier. The heart of the technology is a smartcard which has we suspect has a transmitter inside. The system however is riddled with accounting problems and of course privacy issues. Much like the plastic card industry, the cost associated with issuing cards is quite high and prone to low-tech duplication fraud. Further, the technology is limited to markets like New York where you pay $4.00 to cross a bridge.
Have you ever invested in a company that was all hype? You will.
Henry Ford said it best, "You can't build a reputation on what you are going to do."
MCI announced 1-800-COLLECT first, a system which was easy to remember, and where the operators were pleasant. AT&T had to copy the idea and came up with 1-800-OPERATOR. It is our understanding that another company had the number on reserve and AT&T simply took it. The company, ZCom, has filed a complaint with the FCC , but it is going to be Z's word against AT&T's. ZCom had reserved the number with AT&T and that is probably why there will be no record.
When you call 1-800-OPERATOR, you do not get an operator, instead you get a computer. Many customers misdial the word OPERATOR. Alot of people can not figure out why it has 8 digits. Like most AT&T campaigns, it too was a flop.
Funny thing, AT&T begged the FCC not to order it to use an 800 alternate access number. AT&T claimed that it would cost millions. Now AT&T has 5 access numbers that we know of.
AT&T used 800-CALL-ATT as it's access number. The number is also AT&T's customer service line. In 1993, AT&T decided that it would be better to have another access number, 800-321-0288. People calling 800-CALL-ATT were told to call the new number.
Then after the 800-OPERATOR fiasco, AT&T decided it would try again. They chose something that the previously decided was not good: 800-CALL-ATT. At least their customers could dial it.
When AT&T's monopoly was about to be broken up, AT&T was glad about one thing. They could start making computers. One of the first AT&T models was the 6300PC, which many people bought because of AT&T's name alone. After a while, people figured out that it would not run alot of software and if you wanted to upgrade it had to be through AT&T. Before long the computer industry had the word out. AT&T's computer flopped. AT&T's dream fell apart.
In 1991, AT&T had another dream. It was a company called NCR. AT&T's 1992 annual report refers to it as a marriage. Many former NCR employees refer to it as a shot-gun wedding. NCR was doing fine and did not want to be AT&T. With $73,000,000,000 of purchasing power the little $7,000,000,000 NCR did not have much of a chance of avoiding being swallowed up. AT&T convinced the stockholders that their offer was a good deal. After the fact, many NCR shareholders were not pleased. "We were raped," one stockholder said.
Today their is no more NCR. It was renamed AT&T Global Information Solutions. The Global Information Solutions name was not a favorite with consumers or market watchers. Comments like "the name is simply stupid" to "what is that a new ad campaign?" were common. AT&T said that a survey of clients still identified the NCR name too much with the former cash register business of the company. Our survey of 100 random people by phone resulted in the following:
67% thought NCR made ATM machines and computers
Air Force Scheme
The United States Air Force awarded a contract worth almost $1,000,000,000 to AT&T even though Honeywell offered a better machine for $140,000,000 less! Sources told a magazine that the Air Force Military Personnel Center executives did not like Honeywell. Another source whom the magazine calls knowledgeable said, "the government wanted to use this contract to ensure the company stayed in the computer business."
When the contract was first put out for bids, Digital Equipment Corporation and Wang Laboratories protested that the Air Force was planning to use an AT&T software test to rate the various bidders machines.
An administrative judge ordered the Air Force to eliminate this "bias" by using other tests as well. The magazine's source continue to say, "Air Force officials secretly inserted another test using AT&T software into the evaluation procedure."
When Honeywell filed court papers protesting the award, the Air Force assured the judge that even though Honeywell's equipment outperformed AT&T's machine in a speed test, the test was not crucial.
The judge agreed with the contention and dismissed Honeywell's claim of bias.
While it was true that the AT&T test was inserted into the evaluation criterion, the criterion was "optional" according to the Air Force. Or so the judge said.
The magazine can not report exactly what went on at the hearing because the judge ordered the records sealed. Dick Muldoon, an AT&T spokesman observed, needless to say, that his company "believes the Air Force made an excellent decision." Of course he does.
AT&T paid $12.6 billion for McCaw (aka Cellular One). McCaw never as a company turned a profit prior to the its acquisition by AT&T.
With the PCS standard being developed, the price for cellular is expected to drop to around $.12 per minute. We do not see how McCaw is ever going to make a profit for AT&T. AT&T has been claiming that they wanted the capability to bypass the local phone companies in order to save on access charges. But McCaw is not everywhere. It's major markets included New York City, Pittsburgh and a good bit of Florida. Does that sound like it is worth $12,600,000,000?
Since it was an all-stock deal, it simply made your AT&T shares worthless. In AT&T's message from President Bob Allen, the said, "True, issuing more shares will affect earnings per share, but we believe that's overshadowed by the value of the merger in our future." They believe a whole lot. How will it though do anything other than make AT&T look like it is keeping the earth spinning? McCaw was a mistake, calling it anything else would be deceptive.
MCI has been planning a nationwide PCS network and we are pretty sure the results will be similar to long-distance. AT&T's share of this market too will erode.
Forbes ASAP spent 5 days with Microsoft's Bill Gates who was asked if AT&T paid too much for McCaw. Bill said, "Assume that supply of bandwidth will continue to go up dramatically. You have to have a deep understanding of the elasticity of demand to know whether it's an industry that shrinks or grows as costs of bandwidth go down. In the case of computers, of course, the demand elasticity is unbelievable. Everytime I read about fiber or wireless I say to myself, wow, that sounds like radial tires. When they got radial tires did people drive four or five times as much just because the tires last longer? No, the industry shrank."
It was AT&T's friendly operators that made AT&T, no one can deny that. However, AT&T decided that it could save millions by replacing them with computers. "This is AT&T. To place your call collect, say collect," etc. The system only understands 80% of the time. Face it, American's hate this new system of computerized phone services. Try it for yourself - dial 10288-0-202-456-1414.
What is really annoying is if you say 'collect' and the number does not take collect calls, their system hangs up on you without warning. If you insist on speaking with a real operator, you have to say 'operator' - then they turn out to be half computer also. 'AT&T may I help you?' just happens to be a recording. After the operator places your call another computer voice thanks you for using AT&T.
AT&T seems to think that people believe a real person is talking to you. What they fail to realize is the people who need help dialing are the ones who use the operator - and the new systems confuse them. If you want to know how the operators themselves feel about this, ask them. Dial 10288-00. Most operators will gladly tell you. Some of the comments we have heard include, "I'm taking severance pay and investing in MCI!", "They won't tell us how long we have left" and "if the customers knew how they treated us they'd be using another carrier."
AT&T has consistently sought to cut costs by cutting staff rather than other expenses. In in 1994 AT&T planned to eliminate nearly one third of it's 18,000 operators, and that was in addition to those already cut earlier that year.
The Wall Street Journal quoted an unidentified headquarters staffer who said, "There are many people here who come to work everyday and are numb, not knowing whether they're next."
Other Employee Relations
In AT&T 1992 annual report, AT&T President Bob Allen said, "More than anything else my confidence is based on the talent, the diversity, the enthusiasm and the energy of AT&T people. They are responsible for our past achievements. And I trust them with our future."
Don Smith, an expert on AT&T layoffs and retirements, told the Wall Street Journal in 1994, "We're expecting huge cutbacks this year at AT&T. Mr. Smith's company, Wordsmith Communications Group Inc., publishes the AT&T Alumni directory. "We're adding names all the time," he told the Journal.
That is exactly how much Allen trusts his employees. We ponder how much his employees entrust him with their future.
A manager who wished to remain anonymous told our investigator, "AT&T feels they can just put their customers on hold longer. What they don't understand is many people don't like to wait and will call MCI- who is adding more sales people because of the large influx of inquiries."
But jobs aren't the only problem at AT&T. Based on speaking to people who have filed lawsuits in federal court against AT&T, we understand that the employees and management of AT&T do not get along. In Pittsburgh alone during 1994 there were two suits pending against AT&T in the U.S. District Court of Western Pennsylvania filed by employees.
AT&T's union employees have found that work slowdowns are more effective than strikes.
It is only a matter of time before AT&T's unions get tough by slamming AT&T's policies- causing major public-relations problems for the communications giant.
The situation is clear that AT&T is experiencing employee problems. In December of 1994 the Wall Street Journal reported that big cuts were planned in the consumer unit. Joseph Nacchio, the President of Consumer Services called the Journal report misleading. He said, "We will take every initiative to drive other costs out of the business before resorting to work force reductions."
Only three months later AT&T announced it was closing centers in Providence, Charleston, Pleasanton, and Silver Springs among others.
Everyone remembers when AT&T turned off the power and forgot. This move left a major portion of the country without long-distance service, shutting down all airports in New York state. The frequent unavailable circuits during emergencies and holidays have become alright with consumers. But let's give AT&T the benefit of the doubt here, these things happen. After all, gophers frequently chew into MCI's fiber connections.
Unlike MCI, when problems occur the attitude kicks in. They stall in providing explanations. Worse, they do not tell their customers how to place calls on other long distance company networks. When Sprint had an outage all of Sprint's operators advised customers they could dial 10288 to reach AT&T. An AT&T operator told us, "we're not allowed to assist our customers even in an emergency. It's wrong."
MCI's trouble reporting 800 number just happens to be on AT&T's network. MCI said, "If our network's down, we have to able to have our customers get through to tell us." We wonder if AT&T could come up with something so simple but yet so effective. An AT&T repair representative told us it would be so defeating to AT&T to go that low.
AT&T's Cordless Telephones
"In my opinion they are junk," said David Schwartz, a partner at Parsek Research, an engineering design firm in Long Island, New York.
"The majority of their telephones just don't compare to those sold for half the price. Panasonic and Sony make a great cordless at a fair price," he continued. The FCC allocated 900 MHZ frequencies for cordless and many manufacturers jumped on the bandwagon while AT&T was still (and is still pushing their old 49 MHZ dinosaurs). They do sell a 900 MHZ telephone, however, like many of their products, they are simply another company's product relabeled AT&T. "They have a name, they sell other people's phones and jack up the prices. The people who get ripped off are their customers. Most of their phones are made on some little island and are made of trash," said a buyer for a major electronics chain.
Cordless phones were a big cash cow for AT&T, but more companies are starting to sell phone including Motorola and Escort (the radar detector company) and they will be taking the market from AT&T.