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Date: September 1, 1993

Location: Basking Ridge

Title: What Will the New AT&T Mean for New Jersey?

Author: Mukul Pandya

Subject: The telecom giant”s changes in direction spell both good news and bad for the state

New Jersey sometimes seems to be a company state, and that company is AT&T. When motorists drive up Route 202-206 in Bedminster, down Davidson Avenue in Franklin, or on Route 18 in East Brunswick, they see buildings with the company”s striped, globular logo along the highway. The telecommunications giant (1992 revenues: $65 billion) sprawls over New Jersey like a colossal telephone cable. It occupies 289 offices around the state–from a gleaming skyscraper in East Brunswick to its bucolic headquarters among the hills of Basking Ridge. With 51,000 employees who earn $2.25 billion a year, AT&T is New Jersey”s largest private employer.

A decade ago, when the federal government sliced AT&T away from seven Bell regional companies–the so-called Baby Bells, who took over local phone services, while Ma Bell retained the long-distance business–the company resembled a plodding giant much like today”s ailing IBM. AT&T, for example, lost millions going into computers.

Now, however, no one would compare the two–while Big Blue is singing the blues, Ma Bell is chiming joyously. Since taking over the company in 1988, chairman Robert Allen has turned AT&T into a loose collection of businesses united by a core vision, proving that size need not deter sprightliness. As revenues have declined in the long-distance business, where AT&T is under attack by competitors like MCI and Sprint, Allen has led the company into new fields that are emerging from the growing convergence of computers and telecommunications. The most visible sign of AT&T”s new direction are two major acquisitions in the past two years. In 1991, it took over Ohio”s NCR, a leading computer company, for $7.5 billion; and last month, it bought Washington-based McCaw Cellular Communications, a cellular communications company headed by Craig McCaw, for $12.6 billion. Both megadeals were among the top ten acquisitions in U.S. business history.

What will AT&T”s new direction mean for New Jersey? As the company grows stronger, will this mean more jobs for New Jersey residents and opportunities for local firms to do business with the neighborhood giant? Or will New Jersey get left behind in AT&T”s global thrust? Answers are hard to find, but observers believe AT&T”s new direction will be both good and bad for New Jersey. It will certainly be good for the company, which has been racking up record earnings; it will also be good for 219,000 New Jersey shareholders, who have seen the stock jump from $39 in late 1991 to $63 in August; it should even be good for the state and municipalities, which receive more than $300 million a year in taxes from AT&T. On the other hand, the new AT&T will hurt some employees whose jobs are likely to be eliminated as the company makes its mergers efficient. It will also hit hard at other cellular companies, such as Bell Atlantic Mobile in Bedminster, which could be bypassed if regulators approve AT&T”s links with McCaw Cellular. The long-term impact of AT&T”s changing direction is harder to predict, because the company”s most rapid growth in recent years has been overseas. These issues baffle even the most seasoned AT&T watchers. Says a top Somerset County official: “It”s like trying to catch a cloud. You know it”s there, but it”s hard to get hold of anything firm.”

AT&T”s roots in New Jersey lie deep. Though the company”s official headquarters have long been in New York City, its operating base is Basking Ridge. The main reason, observers say, lies in the residential preferences of top AT&T executives. Before divestiture in January 1984, senior managers who rose through the ranks of the regional Bells were promoted to high-power jobs in New York City, but usually they hated living there. Eager for a suburban life style, many settled in rural Somerset County, only a 50-mile train ride from Manhattan. As more AT&T executives started calling New Jersey home–Allen, for instance, lives in Short Hills–the company began buying land and moving more operations to the state. Eventually, by 1984, the company had 54,000 employees in New Jersey. Says Gail Purpura, an AT&T spokesperson: “It is easier today to say what AT&T doesn”t have in New Jersey than it is to say what it does have here.”

In an interview with Fortune, Allen described his vision for the company–“To bring people together and give them access to each other and to the information they want and need–anytime, anywhere.” But while AT&T”s new technology is revolutionizing telecommunications, it is also sparking accusations that AT&T prefers profits to people. Since divestiture, according to Purpura, the number of jobs in New Jersey fell by 3,000 from 54,000 to 51,000. Says Laura Unger, president of Local 1150 of Communications Workers of America, which represents AT&T”s long distance technicians: “The only jobs that are growing at AT&T in New Jersey are lower-paid clerical jobs. The technical jobs are moving out of state, or are being replaced by automation.” A case in point: the introduction of voice recognition technology, which allows AT&T to replace human operators with recordings. Unger claims AT&T”s adoption of this technology will cost hundreds of operators their jobs, including several in New Jersey. “Last year, the company closed an operator center in Howell, and it is now closing another one in Wayne,” she says. Purpura bristles at the suggestion that AT&T is cutting employment. “Jobs aren”t being lost, they are just changing because of technology,” she snaps. “We have been stable at 51,000 employees for the past five years, and expect to be so for the next few years.”

Concerns about job losses were strongest after AT&T took over NCR in 1991. At the time it looked like AT&T was shutting down its own money-losing computer operation. Says Jeff Miller, a CWA official in Washington: “After the acquisition, AT&T eliminated its computer sales operation. Some 1,500 people represented by CWA were affected. Some were offered other jobs, but many were laid off.” Purpura disagrees. “When our computer systems division was merged into NCR, only 1,300 jobs were involved,” she counters. “We have been 75% to 80% successful in finding jobs for displaced people.”

The issues raised by the McCaw Cellular acquisition are more complex. If regulators approve the deal, it will “instantly make AT&T the dominant brand in cellular telephony,” says Berge Ayvazian, an analyst at The Yankee Group in Boston. If that happens, the move will allow AT&T to bypass local cellular companies like Bell Atlantic Mobile, which spokesman Steve Fleischer describes as “the largest cellular carrier on the East Coast.” McCaw Cellular already has a large presence in New Jersey, with one office in Paramus, two in Rochelle Park, and some 950 employees. If AT&T and McCaw join forces, they will deeply bite into the business of Bell Atlantic Mobile and other cellular carriers. Says Fleischer: “We are looking for a level playing field. If we are to remain competitive, we should be able to provide long distance services.” Adds Kate Meagher-Raffa, marketing manager of Comcast Cellular One in Jamesburg: “The merger is good for telecommunications, but it has the regional Bell companies running scared.” Unger of CWA thinks they have good reason. “People at Bell Atlantic will feel the impact of the McCaw merger more that those at AT&T,” she says. “One of AT&T”s biggest expenses is its payments to local phone companies as access charges. If those stop, it will affect jobs at Bell Atlantic Mobile.” Bell Atlantic Mobile employs 700 people in New Jersey.

Despite this impact on jobs, companies that do business with AT&T are elated about its new direction. They regret the loss of employment, but reason that good news and bad often goes hand-in-hand in business. Says one executive, who works closely with the company: “AT&T was once just a staid phone company. I applaud its new creativity. What it is doing is great for New Jersey. I have bought its stock for my children, and think it is a good investment.” If he were a phone operator in Wayne, however, he might say something else. u