AT&T; Is Expected to Follow Late Chairman’s Plan
In his 17 months as chairman and chief executive of American Telephone & Telegraph, James E. Olson managed to give a seemingly befuddled company a sense of direction while turning the telecommunications giant into a leaner and more aggressive and profitable outfit.
Most important, Olson, who died Monday following a brief struggle with cancer, developed a strategy that appears likely to keep AT&T; on a successful path for years to come, analysts say.
Not that Olson was able to correct all of AT&T;’s problems during his brief tenure. Company executives still must grapple with low employee morale, a money-losing computer business and the difficult task of breaking into foreign markets.
But the logical step for AT&T; now, analysts say, is to carry out the plans Olson devised rather than to look for new answers.
The strategy Olson established departed sharply from the one drawn up by the company’s executives following the court-ordered 1984 breakup of the Bell System. Then AT&T; set its sights on computers as a major source of growth instead of its traditional telephone service.
“I think AT&T; had some grandiose expectations at the time of divestiture about computers--that was where the future lay,” said Lee. L. Selwyn, president of Economics & Technology Inc., a Boston telecommunication consulting firm.
But so far, AT&T; has struggled with computers and does not expect to turn a profit in that business until 1990. Meanwhile, the company’s long-distance phone service has been its most reliable money maker, despite 35% in rates cuts of since 1984, Selwyn said.
Olson, who had planned to retire in 1990, knew he had a short time to perform a major overhaul, and he moved quickly. To cut costs, he authorized the layoff of 32,000 employees--a dramatic and unpopular move for a company that once was known for providing lifelong employment.
“There was consternation at the direction ATT was taking and animosity about the layoffs,” said Theodore J. Moreau, an analyst with Robert W. Baird, a Milwaukee brokerage firm.
Under Olson, the company also turned to outside firms for ideas and new technologies, a much different approach from the days when AT&T; relied almost totally on its own staff for new products. In recent years AT&T; has teamed up with such companies as Ing. C. Olivetti of Italy, Sun Microsystems and Tandem Computers.
AT&T; has also taken steps to protect its profitable long-distance service from competitors. “AT&T; made the decision to upgrade the quality of the network,” Perry said. “They felt threatened, especially by U.S. Sprint.”
Another key element of Olson’s strategy was to build upon AT&T;’s experience in the phone business by concentrating on private telephone switching services for corporations. The company also emphasized the sale of services and equipment that tie together telephones and computers. “They will sell systems that provide solutions rather than just selling pieces of hardware,” said Bradford L. Perry, president of an investment firm bearing his name that specializes in telecommunications companies.
The benefits of Olson’s efforts became apparent in 1987. AT&T;’s profit skyrocketed to $2 billion from a $139 million in 1986, when earnings were depressed by the huge cost of shutting down plants, layoffs and a corporate reorganization.
All told, Moreau said, Olson “had a difficult job and he was begining to turn the company around. He set the stage and made some difficult decisions. I think the company is much better positioned than when he took it over.”
Olson was considered a straight-talking, hands-on manager. In contrast, AT&T;’s president and acting chairman, Robert E. Allen, who is considered Olson’s likely successor, is seen as a lower-key, more traditional executive.
Fulton Holmes, an analyst with Thomson McKinnon Securities, said: “Olson had drive and energy, and he was a bulldog you didn’t want to cross. Allen is more sophisticated. Maybe he’s got that inner toughness, but I’m going to hold off (on making a judgment) six months or a year until I see it.”
“I think that he (Allen) will be confronted with the same fundamental choice of whether or not to focus on the (communications) network or more speculative businesses,” Selwyn said. “They ought to be concentrating on the things that they do well.”
Said Perry: “The profit outlook improved dramatically under Olson. But they still have a long way to go.”
On the New York Stock Exchange Monday, AT&T; stock closed at $26.375, down 25 cents.
