The Failure of AT&T, Victim of a Disruption

So it’s over ; The subsidiary of Bell Telephone Company, child of Graham Bell, the 120 year-old AT&T has been sold to SBC Communications. It’s still a family story, as SBC Communications started in the mid-eighties as the smallest of the seven “baby bells”, the companies created after the regulator ordered the AT&T break-up. But what a story !

AT&T introduced many innovations, and not small ones : first commercial radio (1922), first television transmission (1927), first mobile phone (1946 !), first transistor (1947), first telecom satellite (1962). AT&T has long been a giant of the economic landscape: one million employees at the beginning of the 80s and not so long ago, a market value of $180 billions (1999).

The last numbers were much smaller : 60,000 employees and a market value down to $16 billions. Of course, you can blame it all on the settlement of the antitrust case again AT&T by the Department of Justice in 1982, which was followed by the 1984 break-up ; seven “baby bells” for local telephone services whereas AT&T kept long-distance services.

But the end of the AT&T icon is probably more related to the inability to cope with breakthroughs than pure regulatory matters, and it’s been the place for a quite unusual story : the ODD group.

ODD stood for “Opportunity Discovery Department”, and it was the 1995 brainchild of eight scientists within the famous Bell’s Labs, in Murray Hill, New Jersey. They were acutely aware of breakthroughs which obviously threatened AT&T’s strategic position, and they wanted these issues to trigger a strategic dialogue. To make things worse, AT&T’s strategy at the time was totally focused on incremental marketing targets ; the linear extrapolation of previous years curves (nowadays hopefully, there’s not a single company which operates that way…;-). But ODD scientists became aware that AT&T future would not always look like the past, and they decided to communicate about what they saw, using an ODD vocabulary.

Among the concepts they created, was the “freight train” ; a trend that is going to flatten a company unless it changes its strategy. ODDsters though the concept was especially relevant to the price of long-distance calls ; starting around $100/minute in 1915, it fell to $10 in 1945, $1 in 1970 and 10 cents in 1996. A case study of predictability of economic breakthroughs ! AT&T is gone, but freight trains are still around (talked Peer-to-Peer with a music major lately ?…)

Another striking concept was the “data bomb”. ODDsters favorite example was : “AT&T took 75 years to acquire 50 million customers; AOL took 2,5 years to acquire 50 million chat users”.

Life of ODDsters was not easy. They wanted to save the company, but AT&T didn’t like what they had to say. It became especially obvious when an unscrupulous journalist published an ODDster (David Isenberg) internal memo in Computer Telephony in August 1997. It was called “The rise of the Stupid Network” and it was meant to get the attention of AT&T management on the following mechanism : intelligent networks with stupid peripheral devices (such as telephones) were being replaced by stupid networks with intelligent devices (such as computers). Here’s an extract : “A rudimentary form of the Stupid Network – the Internet – is here today. The telephone companies are beginning to realize this. Fearing erosion of their control and, more importantly, their revenue stream, they have been quick to call for the banning of Internet Telephony, quick to call for the federal imposition of charges on Internet access, and slow to implement widely available, reasonably priced broadband services. To counter the threat of the Stupid Network, the telephone companies are now speeding deployment of the Intelligent Network services, much like sailing merchants responded to the threat of steam by inventing faster sailing ships in the mid 1800s… Instead, telephone companies should cannibalize their own products.”

David Isenberg had to leave AT&T by the end of 1997. On July 1998, the ODD group disappeared. Another perfect example of how easy it is to see breakthroughs, but how difficult it is to get companies to react in an appropriate way.

The detailed ODD story has been written by one of its former members (Amy Muller) and Liisa Välikangas (Strategos). It can be read at: