Ma Bell board mulls breakup of company

AT&T is weighing multiple changes Monday to boost its stock, including splitting the company into as many as four pieces.

3 min read
It took a federal judge to break up Ma Bell, but an act nearly as brazen could be ordered by AT&T's own board.

Multiple proposals are being presented to the board Monday in an attempt to fortify the company's anemic market value, including everything from a long-discussed spinoff of its consumer long-distance unit to a more radical plan to break the company into four distinct pieces, according to reports.

Analysts have said that AT&T's stock suffers in part because the company has so many different businesses under one ticker symbol, and a massive spinoff theoretically would free up those units to receive direct market investment in the form of stock purchases. But the plan's proponents believe the increased autonomy and efficiency that would come from smaller operations also could mean trouble for competitors and windfalls for consumers in the form of new services and lower prices.

AT&T confirmed Monday's board meeting and the fact that proposals are under consideration. The move had been expected since the company held a board retreat this summer to mull restructuring options.

The company wouldn't detail those proposals, however, or confirm media reports that one involved a four-way split of the company.

AT&T releases its earnings Wednesday, and news of a restructuring could be included in that release.

The talk of AT&T spinoffs is an echo of the celebrated federal antitrust case against the company two decades ago. In 1984, Administrative Law Judge Harold Greene forced the company to divest its local phone network, the largest telecommunications breakup in history. The result was seven so-called Baby Bells, although through mergers following the Telecommunications Act of 1996, that number has dropped to four.

If a four-way split were to occur now, industry watchers say, investors in AT&T would be buying the business-services unit, the company's most profitable, but an underperformer of late. Consumer long-distance, wireless and broadband cable all would be separate companies.

Consumer long-distance would keep the AT&T brand and license it to the unit's siblings, while AT&T Broadband in Denver, composed of the former Tele-Communications Inc. and MediaOne Group, would for tax purposes contain much of the legal corporation language of the former AT&T.

Until now the board has been fairly conservative in its approach to change and has continued to back chairman and chief executive C. Michael Armstrong, who is said to favor the milder restructuring of a consumer long-distance tracking stock.

The most aggressive board members, at least in public statements, have been John Malone, chairman of AT&T subsidiary Liberty Media and the company's largest single shareholder, and Amos Hostetter, former head of Continental Cablevision, which after several ownership changes came to be part of AT&T.

Malone helped guide his former company, see story: Weak business tracks spun off TCI, to AT&T, and Hostetter helped AT&T outmaneuver Comcast in the bidding for MediaOne. But both men have been publicly dismayed at the drop in the company's stock since those combined $100 billion purchases were consummated.

Another scenario that has been discussed is expanding the relationship between AT&T and British Telecommunications. The two have a joint venture called Concert, and AT&T's shuffling of business to that unit is one of the reasons for disappointing numbers in its business-services unit.

Both parties have confirmed they're discussing either solidifying that joint venture or combining their business units altogether. The latter possibility could forestall the four-way split being considered. However, while BT has denied reports that the talks are off, the talks haven't advanced, and the question of who would control the unit is said to be in dispute.

AT&T isn't the only long-distance provider eyeing a restructuring in the wake of disappointing stock prices.

For months, WorldCom executives have been weighing the possibility of spinning off their company's consumer long-distance division. Like AT&T's, it's a steady revenue generator but a business that is seeing its profitability quickly erode from competition.

Chief executive Bernie Ebbers said in June that WorldCom would consider a spinoff or tracking stock, and the latter now seems a greater possibility. But a source close to the company said one eye during these deliberations has been kept on AT&T and its moves, because WorldCom executives aren't sure Wall Street would be hospitable right now to two new consumer long-distance tickers.

WorldCom announces its earnings Thursday.