A Brief History of AT&T – Part 1

by Colin Berkshire

Thirty years ago I worked for the Bell System. It was a company that I was proud of. We created the best telecommunications network in the world. Our official mission statement was “To provide the best possible service at the lowest possible cost.”

Today AT&T’s conference rooms have none of those mission statement signs in its conference rooms. How did it happen that the AT&T network became so poor, their prices so high, and how did the company become one so universally despised?

The spoiler answer is surprisingly similar to Microsoft’s similar decline, and that of HP: Management makes a difference. When management doesn’t understand the core technology of its business, it can only raise prices and trim costs. This is a time honored way that all great companies collapse. Now, a bit of fun Bell System history…

In the 1970s, if you were going to be president of AT&T you had to grow up within the company. Every AT&T president knew how to install a telephone, and had spent years doing so. Every one of them. They had answered calls as switchboard operators. They designed phone systems and they had done “tours” through every department in the company. In short, they intimately knew their business. They knew that lightbulbs inBell System facilities screwed in the opposite direction as the rest of the world (to keep employees from taking them home) and they knew that a red wire was the “Ring” and a green one was the “Tip.”

Talented managers would be spotted by senior management and would be mentored, but they would even still not rapidly rise through the organization. Their education of the business was essential to eventually being a leader of it. We secretly knew who the likely future-leaders were: they were smarter, they got along better, and they were passionate about the products of the company. They got more management time. Even though they didn’t rise up much faster, we knew why: they were learning every aspect of the business.

I also remember meeting with company executives. They didn’t start with questions about return on investment (ROI) or revenue impact. They asked about how we could ensure that the quality and speed of service would be better, how we would avoid downtime, and how service would be restored if there was a disaster. All of the conversations were about how to provide the best possible service. Later, the projects that also could show a return would be advanced…but we started with a passion for great service.

A popular quote within the Bell System was: “Half of France is waiting for phone service and the other half is waiting for a dialtone.” It was a way of reminding how our corporate identity was to be better than every other country and company…they did not set the standard.

When you look at Microsoft you will see a company manically driven by Bill Gates. He could code, he understood the BIOS, and he knew what the internal workings of a floating point processor and a memory manager. Bill was paranoid and would adopt any new technology so that this new technology wouldn’t obsolete his products. And, he drove prices down so that competitors couldn’t compete…he had the volume to offset ridiculously low prices. Remember that DOS used to be $29 and all versions of Windows used to be $89. Word cost $79 while wordperfect charged $500.

Today, under Balmer, Microsoft is slow at adopting new technologies, their prices are silly-high, and there will be 9 versions of Windows 8! The business is focused around complexity and politics, not around value and technology. You see, Balmer has probably never written a program in his life.

The same story plays out at Hewlett Packard. The founders were engineers and they understood what they were managing. They always build the best quality products possible. Laser Jets from the 1980s still work, today.

This brings us back to AT&T history…

Today, AT&T is run by “Harvard MBA types.” These are people who are educated on how to raise prices, and that public relations can solve any problem more cheaply than manufacturing can. The MBA philosophy is fundamentally about how to harvest money from customers, not about building great products.

When the Bell System was broken up, its management development program was abandoned. With dozens of separate operating companies, each went their own way. An operating company by itself no longer could educate its CEO in every aspect of the business, because an operating company didn’t design anything and it didn’t manufacture anything. So it was no longer important to understand anything other than finance and regulatory affairs.

Within a decade, this moral-less management started to fail. The managers were hired from outside, and they had credentials like “MBA” or they had run other companies. But they didn’t know and didn’t understand the communications business. They didn’t know what a switch was…and really they didn’t care.

A couple of years ago I had the opportunity to discuss the CEO of AT&T with a mutual friend who knew him. I asked: Doesn’t he care about service quality? My friend replied: He knows almost nothing about his business, and he doesn’t care to know. His view is that running a phone company is no different than running any other business. You advertise, you buy out competitors, you raise prices, and you minimize investment. This is the formula for MBA managers. I was shocked. By as my friend was the CEO of one of America’s largest stock trading companies, he would know.

So, the sad fact is that AT&T could solve its networking problems by installing LTE faster, by installing more towers, by more utilization of micro-cells, and by building a fiber back-end with excess capacity. But it is cheaper to not make those investments. Public Relations costs less than fiber backbones. And, if you have only one real competitor (Verizon) you don’t have to have a very good network.

The reason that AT&T service sucks is the same reason that Microsoft missed being the next Google, and why they missed the smartphone market and the tablet market and every other market this decade. It’s the same reason that HP has failed. It is the “MBA Manager Syndrome” of managers that don’t know their business and whose main skill is finance and politics.

[This is a three part post.]