Western Eiectric There may not be universal agree m e n t a b o u t w h a t t h e f u t u r e h o l d s f o r Western Electric, but nobody disputes that, whatever it turns out to be, it will be different. Change is the order of the day, and some of us are somew^hat uncertain as to how we'll be affected. Some changes have already taken place; some will occur in the near future: and some will proceed at a measured, evolutionary pace. For Western Electric's top manage ment, the past year was one of intensive planning for the future—plan ning that, in some ways, has been even more difficult than for the rest of the AT&T enterprise. In large measure their roles are clearly spelled out b>- the Modification of the Final Judgment and by the Federal Communications Commissions Computer Inquiry 11. In contrast, as AT&T's vice chairman and WE Board Chairman James Olson noted recently, Western's situation is different. "Certain aspects of Western Electric's new mission," he said, "seem difficult to get our arms around. There are more questions and more intangibles to grapple with at this point in the process." Even so. Western's planners have laid out a fairly comprehensive road map showing the way. To get a sense of direction for the future, WE Maga zine spoke to our 10 top executives. Most of this issue is based on their comments. Second Quarter Contents 35th Year

Page 5

2 Looking Ahead The view from the top

24 The Road to Deregulation A chronology

Test Your Reorganization 26 Know-How Getting the terminology straight

28 Exciting New Products Some of our top items

30 T h e R B O C s W h a t a n d w h e r e t h e y a r e

What's Going to Happen 31 to My Stock? T h e s t o c k s i t u a t i o n i n b r i e f

32 Benefits A few words on pensions and other benefits

33 J i m O l s o n S o m e c o m m e n t s b y o u r n e w c h a i r m a n

WE is published for employees of Western Electric. President: D.E. Procknow; E d i t o r ' s N o t e Secretary: A.M. Zigler; Treasurer: R.E. Ekeblad. The dominant themes of this special T h i s i s s u e h a s b e e n s t a f f - w r i t t e n . P a r Editorial office: 222 Broadway, NY NY 10038 Telephone: (212) 669-2621 issue are the extensive planning our ticular credit goes to ex-Associate top people have done to prepare us Editor, Lydia Whitefield. George Gray Steve Tomczyk for the future and the many changes The portraits of executives were done Editor Design that will be a consequence of that Saul Fingerman Leonard Stern by Dennis Lyall. planning. Many of those changes were Managing Editor Photography already in effect by early June when Adele Donohue-Evans Thomas J. O'Donoghue Associate Editor Production we went to press. Others may have been made since press time, and Copyright ® 1983 by Western Electric Co., Inc. a d d i t i o n a l m o d i fi c a t i o n s w i l l e v o l v e a s All Rights Reserved. the company prepares for its new Printed in the United States of America. Title "WE" is a registered U.S. trademark. b u s i n e s s c l i m a t e . Western Electric "These are days for taking stock, for capitalizing on strengths and overcoming weaknesses, for looking ahead and for careful planning."

Don Procknow President These are chal s e r v i c e s t h a t o u r c u s t o m e r s w a n t a n d lenging times for need. We have our well-deserved repu Western Electric. tation for quality, reliability, and The New AT&T T h e d e c i s i o n s w e service—and these are the strengths make today . . . and traditions we're going to build on. The new AT&T will be a smaller and tomorrow . . . Our greatest strength is in our company than it is now, but it will determine people. The Western Electric em will no longer be constrained by the kind of business we will be in and ployee today is highly skilled, highly o u t d a t e d r e s t r i c t i o n s o n t h e the kind of success we will enjoy for motivated and very, very capable. 1 kinds of business opportunities it many years to come. These are days know that some of our people are can pursue. In the future, AT&T for taking stock, for capitalizing on c o n c e r n e d a b o u t t h e i r o w n f u t u r e a n d will be free to apply its technol strengths and overcoming weaknesses, that of Western Electric. All 1 can say is ogy in new businesses, including for looking ahead and for careful that we're doing everything in our unregulated businesses for data planning. power to address these concerns. processing and other information Our strengths will stand us in good services. For the people of Western Electric, stead as we meet our competition there is approaching a period of sharp head on. After divestiture, we'll be Aside from a headquarters transition. The System we've been a fully separated from our traditional staff, AT&T will be made up of part of for more than a century will customers, the Bell Operating Com five principal organizations: cease to exist in just a few months. panies. We have to do everything We'll be doing business in entirely possible to maintain their confidence, ■ Bell Telephone Laborato new and difierent ways. But, as sorely their respect, their business. That's our ries, the world's leading as we will be tested, 1 am just as sure goal, our number one priority. industrial research and develop that we have the basic strengths and ment organization. resources to come out on top. W e a l s o w a n t t o e n t e r n e w m a r First of all, we have a business plan ketplaces, new businesses. To do this, ■ Western Electric, this coun that will help keep us on the right we're going to have to stay on top; to try's foremost supplier of high- track. To live up to our mission and to make sure that we continue to have technology products, systems, achieve our goals, we know what we the right products in the right place at and services. have to do. Part of the plan is devoted the right time. And we're going to to repositioning Western so that it is in have to make sure those products are ■ A new interexchange or the best possible shape to take advan priced right.. . right from the ganization, which will operate the nationwide long distance tage of the opportunities that will be moment they're introduced. We have network while marketing and open to us. have a fine plan; our to strengthen and enhance our mission today is to manage by that tradition of cost control. Every penny providing a range of long dis t a n c e s e r v i c e s t o r e s i d e n c e a n d plan. We also have the strength of our we can save is a penny we don't have b u s i n e s s c u s t o m e r s w i t h i n t h e continued relationship with Bell Labo to earn back. United States and to points ratories. The Laboratories, ATTl, and And, finally, our most compelling Western are working together as part challenge is to maintain and around the world. of a sector headed by Jim Olson—and strengthen the fine reputation we have I'm convinced that the working rela earned over the years. Today we are ■ American Bell, AT&T's new est subsidiary, formed to market tionships within this sector will reeognized as the world leader in become even stronger and more effec telecommunications equipment. As we and service high technology tive in the future. enter our new world—looking to sell products and systems for the We have a fine product line and to the Bell companies, the inde home and office through two divisions. Advanced Information we're adding to it every day by intro pendents, to new businesses, both ducing state-of-the-art products and d o m e s t i c a n d i n t e r n a t i o n a l — o u r Systems (AIS) and Consumer reputation is our calling card. Our Products. expectation is to enhance and ■ AT&T International, which strengthen that reputation so that the n a m e o f W e s t e r n E l e c t r i c w i l l since its formation in 1980 has continue to be known and respected continued to enlarge its pres the world over. ence in major foreign markets. I a m c o n fi d e n t t h a t w e i n We s t e r n Electric have everything we need to meet every single one of these challenges and to come out where we've always been, on top. A winner.

S e c o n d Q u a r t e r 1 9 8 3 3

These blocks represent P - D o n a l d E . P r o c k n o w Western Electric's President senior management: (page 3) Z - P a u l Z w e i e r S e n i o r E x e c u t i v e V i c e P r e s i d e n t (page 7) T - T h o m a s R . T h o m s e n President, Technology Systems Group (page 8) W - E. Wayne Weeks Jr. President, Network Systems Group (page 13) B - John M. Brown EVP Corporate Resources and Planning (page 18) H - PhUip E. Hogin EVP Components and Electronic Systems (page 10) N - John M. Nemecek E V P B u s i n e s s a n d R e s i d e n c e P r o d u c t s a n d S e r v i c e s (page 21) O - John T. O'Neill EVP Network Systems Products (page 14) V - P a u l M . V i l l i e r e EVP Network Systems Marketing and Customer Operations (page 17) C - George V. Cook Vice President and General Counsel (page 22)

Second Quarter 1983 "We must broaden our international sales base as quickly as possible... an expanded sales base is critical to our success."

Paul Zweler S e n i o r E x e c u t i v e V i c e P r e s i d e n t

WE quickly and efficiently. A most impor go to a lines-of-business organization is b u s i n e s s f o r 4 0 tant requirement is to understand the that you put responsibility for a prod years," said Paul reality of the present situation, to uct line or sector of the market in the Zweier, Senior understand our strengths, and to be hands of a business unit, and then you Executive Vice sure that major values are preserved l e t t h a t b u s i n e s s u n i t f u n c t i o n . President, picking and nurtured. "You measure the unit on bottom- up on Mr. Prock- "One of the big changes I see in the line results relative to the objectives ■now's optimism,"I've been "and I've alwaysin this had future is the nature of the competition that you agree to. Now, when you go exciting, challenging jobs. I've always we face. This doesn't mean that we into that mode, it means that there been lucky, always got picked to go haven't had competition to worry needs to be a set of processes and someplace where the action was. But a b o u t b e f o r e . I t i s m o r e t h a t t h e n e w some mechanisms for keeping those never, out of all those fruitful years competition will be more sharply lines of business together; otherwise have I had this feeling of excitement focused and more intense. I think just they become uncoordinated and may and optimism about our Company's about every business transaction in not be synchronized with all the other future. the new mode will be a competitive changes that are going on in the "It's just fantastic to think after all battle. There will be a premium on our corporation. these years of being constrained and being responsive, on our being sensi "I foresee expansion of business regulated that now, for the first time in tive to our customers' new require planning at the corporate level, with my career, we have the freedom to ments, options and choices. further development of lines-of-busi create and to achieve, to strive and to "We must not lose sight of the fact ness planning, and the establishment triumph. We are making now the t h a t o u r t r a d i t i o n a l c u s t o m e r s w i l l b e of a process for new venture analysis." judgments and the assessements of operating in a new environment too. how we can best apply our strengths A n d m o r e t h a n e v e r b e f o r e w e m u s t Zweier is currently on special as to capitalize on the opportunities of understand their objectives and con signment with AT&T International fered. We've shown over a period of vince them that we are the right (ATTI) to coordinate Western Electric 100 years what we can do as a "captive supplier to support them. and Bell System activities in connec supplier." Now it's our turn to show "If one of our salespeople gets a tion with the agreement in principle what we can do when freed from question from a customer about a by ATTI and N.V Philips of the Nether restraints. product, we must be able to get back lands to form a joint venture company. with an answer the same day, rather Philips, a major electronics supplier, " I n a n e c o n o m i c c l i m a t e l i k e w e ' r e than have the customer wait and wait w i l l w o r k w i t h A T T I t o c o n v e r t W e s t in, however, one of the knotty prob and maybe become provoked and take ern's electronic switching equipment lems still facing us is how to get h i s b u s i n e s s t o s o m e o n e e l s e . for the European market. through the recession. Last year was " W e m u s t b r o a d e n o u r i n t e r n a t i o n a l really a matter—from my perspec "I think there's another thing. We sales base as quickly as possible," tive—of managing the impact of that can't afford to become so specialized Zweier said. "Through this particular r e c e s s i o n . W h e n s a l e s a r e l o w e r t h a n that we have lost sight of the real effort. Philips will benefit from our forecast, we must reduce everything objective of the business—^which is to engineering and technical strengths accordingly. All of our budgets and provide good products at the right and we will tap their marketing exper planning are based on forecasts, and if price and to take care of the customer. t i s e i n o r d e r t o e n h a n c e W e s t e r n ' s we don't make them, everything has to I know that that's the way I like to feel international market position. be trimmed back. Last year required a when I go out to spend money. I don't "There is no question that serving lot of tough management decisions on want to run into someone who takes the needs of the operating companies cutbacks and 1 expect we'll face many me for granted. I want someone to and the AT&T Interexchange company similar difficult situations this year. appreciate me as a customer. And if is our top priority," he said. "But there "I don't know when the economy I've got a problem or if I want to know will be temporary disruptions in our will boom again, but I do know that something about the merchandise, I business that are due not only to we have been provided a tremendous want to have the feeling that some divestiture but also to the economy. opportunity to chart our own future. body is working on that for me right Therefore, an expanded sales base is We can continue on the course we've now c r i t i c a l t o o u r s u c c e s s . " steered in the past or we can venture "The most important thing in any into uncharted ne^' fields. What I'm b u s i n e s s i s t h e c u s t o m e r . Y o u c a n h a v e saying is that the reverse face of the best technology, the best machin opportunity is risk. When the world ery, the finest factory, and the best around you is changing, you need to sales force, but if you don't have a bring things back into equilibrium customer, you are in trouble, and everybody in this company has got to understand that. It's a day of victory when you get a new one, and it's a day of tragedy when you lose one. All our lives will have to be lived that way f r o m n o w o n . "Business planning continues to be critical. We're moving from functional organizations into a lines-of-business organization. The inference when you

S e c o n d Q u a r t e r 1 9 8 3 7 The Technology better marshal our skills and resources Systems group, for this particular technology and fam L I N E S O F B U S I N E S S formed in May, ily of products." w i l l f o c u s o n C o n fi d e n t t h a t t h i s c a n b e d o n e To improve its competitive posi areas that the because of our very strong techno tion and to better serve the 22 group's President, soon-to-be divested Bell operat logical base, Thomsen cites our Tom Thomsen, experience with processors. "For ing companies and other calls "new opportunities for Western years," he says, "we've had a very customers, AT&T recently Electric." strong processor technology underly organized the resources of " W h i l e t h e f o c u s o f t h e N e t w o r k Western Electric, Bell Laborato ing our electronic switching Systems group will be on Western's systems—a technology that provides r i e s a n d AT & T I n t e r n a t i o n a l i n t o established business—transmission high uptimes and is at least up to the l i n e s o f b u s i n e s s . E a c h o f t h e s e and switching equipment, and wire state of the art. Although this technol s e l f - c o n t a i n e d u n i t s w i l l f u n c t i o n and cable—our group will target the ogy has been aimed at the unique as a well-defined, customer-ori areas considered new opportunities requirements of telecommunications, ented business entity, and each for the company." we are now using this base to evolve a will be responsible for the de The group is made up of three lines complete line of processors that is velopment, manufacture and of business: Components and Elec fully competitive in all the areas we sales of its own product line. tronic Systems; Processors; and Gov seek to serve. By 1985, we expect to T h e n e w l i n e s o f b u s i n e s s a r e : ernment. "It is our hope that through have a full 32-bit line, and, don't forget t h e s e l i n e s o f b u s i n e s s w e c a n i n c r e a s e that we already have the 3B20S, which ■ Network Systems will be volume of corporate sales. That, in is fully competitive price-wise and responsible for the sale of turn, will allow us to offer lower costs performance-wise with anything on transmission, switching and and a wider variety of products to our the market. central office products and c u s t o m e r g r o u p s . services to Bell operating "We've been moving toward this Finally, Thomsen has responsibility companies and to AT&T's in- type of an organization for some time for the Supplies Engineering and Mar terexchange company. It will now," Thomsen says. "In fact, the also be responsible for sales keting organization, the former Purchased Products Engineering and to Independent telephone Components and Electronic Systems group organized as a line of business Inspection group. "We will be transfer companies. last year. This same group was the first ring people from this group to the ■ Components and Elec to be identified by corporate planners Central Staff Organization to help tronic Systems will be as having a commercially viable prod build their purchased product engi responsible for the sale of uct line." neering and inspection capabilities," integrated circuits, semicon Thomsen says. "However, that doesn't ductors, high-capacity chips According to Thomsen, while the mean that we will leave ourselves and electronic systems to Components and Electronic Systems without these capabilities. We are in o t h e r AT & T l i n e s o f b u s i n e s s unit will be addressing two distinct the process of assessing functions to a n d t o b u s i n e s s u s e r s . group of customers—^Western's inter determine profit-center needs and will n a l l i n e s o f b u s i n e s s a n d c o m m e r c i a l — ■ Processors will be responsi replace people where necessary." the group's Government line will focus ble for sale of information Looking to the future, Thomsen entirely on its particular customers. concludes, "Every job and individual processing equipment " T h e G o v e r n m e n t l i n e o f b u s i n e s s i s contribution is important and every through other AT&T lines of one of the fastest growing and healthi business to the Bell operating level needs an entrepreneurial spirit. est parts of the business," Thomsen We need new ideas and new ap companies, AT&T's interex- says. "We've won some significant con change company and other proaches—people who will take risks, tracts, such as the one we were be accountable for them and be re b u s i n e s s u s e r s . awarded last August for the develop warded accordingly. As in the past, the ■ Government will be respon ment of the Navy's Enhanced Modular rewards will go to those individuals sible for sale of network and Signal Processor." and to those companies and suppliers other products and military While a line of business usually that bring a differential value or some systems to the federal focuses on its market segment, thing new to the marketplace. We have government. Thomsen explains, the group's third always taken great pride in our ability ■ International will be respon unit. Processors, is built around to do that better than others. As we sible for the sale of products Western's information-processing look to the future, there will surely be a n d s e r v i c e s t o u s e r s equipment. "Our Processor line will, more 'others' trying to do the same throughout the world. therefore, be more product-focused thing we have done so well over the with its customers being principally years. If we all keep our eye on the ■ Business/Residence, al o t h e r l i n e s o f b u s i n e s s a n d B e l l a f fi l i right objectives, and are aggressive though not a line of business, ates," he says. "The intent here is to and innovative, we will do all right. We will support the sale of tele have great strength and a great phone sets, data sets, PBXs heritage." and related equipment.

8 S e c o n d Q u a r t e r 1 9 8 3 "We need new ideas and new approaches— people who will take risks, be accountable for them and be rewarded accordingly"

To m T h o m s e n President, Technology Systems As the process of outside. I expect that we will sell this commercial marketplaces, we plan to implementing the service successfully. We will also man dedicate capacity to support those Plan of Reorgan u f a c t u r e f o r t h o s e c u s t o m e r s w h o customers." ization goes for choose our design services." P r i o r t o t h e d e c i s i o n t o m o v e i n t o ward, corporate commercial sales, the divisions were planners are Supplying quality components for organized as a line of business. "At the studying new Western Electric's equipment divisions time it was a new concept for Western market outlets for Western's vast array will continue to be the primary mis Electric," Hogin explained. "For as of products and services. The device sion of Hogin's organization. "Within long as we've been in business we've product line produced by the Elec the Bell System alone the demand for been organized functionally, with sepa tronic Components division was one electronic functions is growing at a rate manufacturing and sales divisions. of the earliest identified as being a rate of 50 percent annually. We can The line of business organization has viable commercial offering. After fur never lose sight of our internal cus all the functions required to design, ther careful study of the potential tomers," Hogin said. "The fact that we manufacture and sell a product, with sales, Philip Hogin, executive vice use our own components in our profit level—as contrasted with cost president of the Components and equipment will be a help to us when level—accountability as the bottom Electronic Sales organization, an we deal with prospective purchasers. line." n o u n c e d t h a t W e s t e r n E l e c t r i c w a s "Even more important, we will be Effective use of plant capacities is prepared to place its components on able to say that our components meet one way the divisions are assuring t h e c o m m e r c i a l m a r k e t . I t w a s a m o v e the stringent requirements of the Bell manufacturing efficiencies. Another is that prompted Fortune Magazine to System. Our design objectives for elec the work being done at the Engineer refer to Western as an "awakening tronic switching systems are more ing Research Center. "The ERG will giant." demanding than, say, those of the become even more important to our computer industry. The level of re f u t u r e . T h e i r r e s e a r c h i n m a n u f a c t u r "To start, we will offer products liability and life expectancy is greater ing techniques such as flexible auto such as electronic devices, power sys than almost any other electronic ap mation will help keep us on the tems, relays, printed wiring boards and plication requires. We will, however, leading edge of manufacturing tech c o n n e c t o r s t o c u s t o m e r s o u t s i d e t h e design our processes to any level of nologies," Hogin said. "Western Bell System. Some of our products will functional reliability a customer E l e c t r i c ' s c l a i m t o e x c e l l e n c e h a s b e e n b e m o r e a t t r a c t i v e t h a n o t h e r s o f needs." largely in its manufacturing technol course." Hogin said. "But everything ogy. This will continue to be our this organization makes will be a A major objective of the move into strongest asset and will be even more candidate for possible sale." t h e m u l t i - m i l l i o n d o l l a r w o r l d w i d e important as we get into the commer Included on the list of offerings will component business was to spread the cial marketplace. be the 256K Dynamic Random Access development and fixed costs invested "I feel that in spite of these many Memory which contains more than in components over a larger base. "If changes—changes that are greater 256,000 bits of information on a single we can recover some of these costs than I've ever experienced in this chip. The 256K DRAM, made at the through component sales, we can business—the net result will be to Allentown Works, has four times the lower the cost of components we use make this a better company," Hogin capacity of any chip ever marketed. in our own equipment lines, further concluded. "These changes, some of "We will also try to sell our custom enhancing our competitiveness." which will be traumatic, will offer us chip design capabilities," Hogin added. The division is not overlooking the greater challenges. It will give us an "The computer aided design capability realities of commercial sales. "As we opportunity to prove we can stand up we offer is superior to anything on the become more and more active in against the best in price, quality and commercial sales we will learn, per service. I feel very confident and haps painfully, that other manufac optimistic about the ability of the turers can be as good as we are in people in my divisions—and every certain areas. We had better be willing division—to rise to the challenge and to learn from those lessons if we're prove Western Electric is one of the going to survive in a highly competi finest organizations in our competitive tive world." world." O u r c o m m e r c i a l c u s t o m e r s h a v e e x pressed some concern over our ability to meet their needs. "We need to demonstrate that we are in the busi ness for the long pull and are not merely selling excess manfacturing ca pacity," Hogin said. "As we assess the extent to which we will penetrate

10 S e c o n d Q u a r t e r 1 9 8 3 V ;•■■■ r'.:; '■■■■! y^:- .

"We need to demonstrate that we are in the business for the long pull and are not merely selling excess manufacturing capacity"

Phil Hogin EVP (Components and Electronic Sales)

WE "To be responsive, we must delegate more authority to commit Western Electric resources at lower levels. We can't make a federal case out of every non-standard opportunity that comes along."

Wayne Weeks President, Network Systems "Providing West Network Switching Services and Net the organization will coordinate sales ern Electric's work Operations Systems. compensation plans and work with the traditional cus Similarly, a portion of Network Sys Public Relations division on promo t o m e r s w i t h a f u l l tems' sales force has been reorganized tional materials. A line of network t o s e r v e t h e n e e d s o f A T T I X . " T h e Network Systems Croup is working products and ser mission of ATTIX will be to provide t o fi l l s e v e r a l v o i d s t h a t d i v e s t i t u r e w i l l v i c e s w i l l b e t h e high quality, innovative, widely avail l e a v e . " U n d e r t h e t e r m s o f t h e S t a n d primary goal of the Network Systems able electronic communications," says ard Supply Contract, Western Electric group," explains Wayne Weeks, presi Weeks. "The Network group has the was obligated to manufacture or pur dent of the new organization. "To products and services that will help chase equipment or material for use gether with Bell Labs' Network Sys them achieve that goal. We hope to by the operating companies and to tems group, we will concentrate on earn their business by ensuring quality provide a variety of other services. identifying and addressing the unique production and rapid delivery of the The operating companies, however, needs of the emerging Regional Bell products they need. were always free to purchase equip Operating Companies and AT&T's ment and services from others," Weeks Interexchange entity (ATTIX). "Responsiveness is the key to the explained. "We are in the process of "Gone are the days when one sys success of this company," Weeks preparing contracts that will be of tem-wide solution will be offered for added. "To be responsive, we must fered in its place. There are going to the network problems of the operating delegate more authority to commit be stipulations in the new agreements companies," says Weeks. "Each com W e s t e r n E l e c t r i c r e s o u r c e s a t l o w e r on delivery date penalty clauses and pany is going to have special needs. levels. We can't make a federal case provisions for quantity discounts and For instance, the area served by the out of every nonstandard opportunity fixed prices. There are going to be new Southern Bell Company has needs that comes along. We must be pre provisions in these contracts that that the Metropolitan New York Com pared to respond quickly to requests w e ' v e n e v e r h a d b e f o r e . W e w i l l m e e t pany doesn't have and vice versa. We'd for proposals. Above all, we must work these obligations. better solve those unique problems or in close harmony with Bell Labs to our competitors will." compress our product introduction "We have a tremendous job ahead of cycle and keep our first costs down. us," Weeks continued, "and I'm not To strengthen their ability to "This, in turn, means that we need a talking about just the Network Sys quickly identify those needs in order strong engineering organization which tems Marketing and Marketing to attract and earn the operating com c a n w o r k w i t h t h e L a b s o n b o t h Development groups. Manufacturing— panies' business after divestiture, the hardware and software, bring those our Network Systems Products organi division created seven regional vice designs out of the Labs, and get them zation—will continue to have a very, presidential posts. "It will be the into whichever Western plant is going very large role to play in our success responsibility of these vice presidents to make them. And that's precisely in the marketplace after divestiture." t o d i r e c t c u s t o m e r r e l a t i o n s f o r t h e why we built the Network Software full range of network products and Center—^which is actually a Network services," Weeks noted. "Formerly Engineering Center with heavy em Western's seven regional general man phasis on software." agers of Bell Sales Operations, these Looking ahead, he notes that, "In the executives will serve as the primary first one to two years after divestiture point of contact with the operating the operating companies will be under companies within their territories and great pressure to keep their debt ratio will have the authority to commit low. That will also mean that their W e s t e r n E l e c t r i c a n d B e l l L a b s r e capital budget will be under heavy sources in meeting the individual pressure. Therefore, they will want the needs of the operating companies." very best service to support their early financial growth. We will have Marketing offices will be set up near excellent products and services that the headquarters of the seven regional will help achieve that growth." Bell units. The staff of these offices W e e k s s a i d t h a t W e s t e r n E l e c t r i c will perform sales administration and m u s t c o n t i n u e t o e x c e l i n a r e a s s u c h sales engineering functions, and han as cost control, distribution, engineer dle Network Distribution Systems, ing, etc. He recognizes that there will be certain areas within his organiza tion that will need to be strengthened. "Our Marketing Development organi z a t i o n w i l l a s s u r e t h a t t h i s d i v i s i o n — a s well as every organization with sales and marketing functions in Western's product lines is properly trained," he said. "For skills we don't have, we'll have to go outside of Western." In addition to its training responsibilities.

S e c o n d Q u a r t e r 1 9 8 3 13 "The Network whatever changes are necessary to do business. "If you are going to Systems Products improve their performance. m a n u f a c t u r e fi v e m i l l i o n l i n e s o f organization's "By the same token," he adds, "the switching equipment, and that equip r o l e i n o u r n e w products we're making, or will be ment is crossbar, you might need five structure will making, may need to be modified to crossbar plants to do it. But, if those continue to be to satisfy a particular customer's needs- five million lines of switching are manufacture Bell and Western Electric engineers will going to be provided by ESS switches, Laboratories designs economically, on also take on the responsibility for you might need only one or two time and with outstanding quality and that." factories." reliability," explains John O'Neill, Ex ecutive Vice President of the organiza Some of this is already happening, O ' N e i l l s e e s We s t e r n ' s h i s t o r i c a l tion. "These have been our strengths says O'Neill. "Every one of our engi trends as indicative of the dynamics throughout our long history, and they neering organizations is taking on we are facing today in our Network have served us well. Now, we will use delegated work from Bell Laboratories, business. "If you look back, the manu them to remain the supplier of choice and such work includes components, facturing life cycle of our products for Network Systems products." h a r d w a r e a n d s o f t w a r e . T h i s k i n d o f was very long. Step-by-step was intro early handoff from the Labs to Western duced in 1926 and was continuously O'Neill looks to the competence of is absolutely essential if we're to re manufactured until 1972. Crossbar our entire manufacturing force to spond to customers' needs quickly came in 1937 and we stopped manu adapt to a changing world with maxi You have to keep in mind that, with- facturing complete systems in 1975, mum process efficiency. "We have the divestiture, the seven regional Bell 38 years later. lESS started in 1963 and finest manufacturing team there is," companies and ATTIX will probably yielded to lAESS in 1975. Now, in says O'Neill proudly, "and its strengths have different needs. In the past, they 1983, we are rapidly accelerating the will keep us ahead of our competition all used the same things, and we built production of 5ESS switches which, as in all disciplines. I have confidence in the network that way—but that was in part of our software-driven family, is the dedication of our people—all of the past. Now, we'll have to cater to adaptable to rapid changes as develop our people—and in their can-do spirit. individual needs, and we'll have to do m e n t s o c c u r a t B e l l L a b o r a t o r i e s . T h i s "One of the directions we are mov it fast." all leads us to our future, which will ing in is to recognize that the dis O'Neill cites the lAESS* switch as an never again give us the manufacturing t i n c t i o n b e t w e e n d i f f e r e n t k i n d s o f example of the kind of handoff from stability we enjoyed with some of products, such as switching and trans Bell Labs to Western he has in mind. these older products. Swift progress mission gear, is rapidly disappearing. "It's in the field and working with a by Western and Bell Labs with inte That means we'll have to have more generic software program. Now, being grated circuits has led to, and will coordination of engineering functions software-driven, it's adaptable, and you continue to lead to, a constant stream for uniformity of processes," says want to add some new features— of important design modifications. The O'Neill. "But everyone will be in maybe, a whole lot of them. And you life cycles of our emerging products volved. It is essential to accelerate the want to do it with the same language will require us to develop new and hand-off of product designs from Bell a n d a r c h i t e c t u r e t h e l A E S S s w i t c h quicker means of reacting to change Laboratories to Western, shorten the already uses. Well, that's a large engi and, most of all, will mean that we communication and coordination neering project. And, since large must manage change in our historic channels and get new products into engineering projects are exactly the reference of low costs and high quality. manufacturing in shorter intervals. kind of thing Western Electric is so "More than ever, this will require Our engineers, our material manage good at doing, we should be doing it t e a m w o r k a n d r e n e w e d d e d i c a t i o n t o ment people, our suppliers, our and not Bell Laboratories." Western Electric's philosophy of man operating people, and our administra Along these lines, much is happen agement. In the future, we will make tive people will all be vital to the ing, or already has happened. "Eor this an even greater company than it is process." example," says O'Neill, "we're taking today—and that's an exciting prospect, After designs are passed from Bell over design responsibility for all ana because we're already one of the best." Laboratories to Western, responsibility log ESS from the Labs. Similarly, at for those designs will be Western's. Merrimack Valley, we are developing "Western engineers will be responsible transmission design capabilities. In for further developing those products fact, we are increasing our capabilities so that they perform more and more for designing or tailoring products in functions, for analyzing their perform all of our product lines. And, in the ance in the field, and, then, for making future. Western Electric and Bell Labs will be an even more closely knit team than ever before. Even now, we have Western engineers working on prod uct designs at the Labs."

As O'Neill points out, micro electronics technology, particularly as exemplified by high-density integrated circuits, is also changing the way we

• T r a d e m a r k o f W e s t e r n E l e c t r i c

14 S e c o n d Q u a r t e r 1 9 8 3 "We have the finest manufacturing team there is, and its strengths will keep us ahead of our competition... I have confidence in the dedication of our people...."

John O'Neill EVP (Network Systems Products) "To meet the new competitive environment, we need to change both the way we sell to customers and the way we translate customer needs into future products...

Paul Villiere EVP (Network Systems—Marketing and Customer Operations)

WE "Until I moved serve. Selling is, of course, a funda grounds, worked together to analyze a c r o s s t h e s t r e e t mental part of any business operation. the selling situation for the switch, set last fall," says Paul No matter how great our products are, program goals and objectives and de Villiere, executive they do not sell themselves. Someone veloped sales strategies as well as vice president, has to go out and meet the customer, planned the message we wished to Network Systems explain features and advantages, dis c o m m u n i c a t e t o o u r c u s t o m e r s . and Customer cuss prices and options, delivery Operations, "my entire career had schedules, installation. "Another area that I am particularly been in the operating companies and "The other two aspects of the sales concerned about, since it was in my at AT&T. While I did get to know the and marketing effort are more in the baliwick at AT&T just before I trans company quite well on paper during area of staff support of sales people on ferred in, has to do with software several years in AT&T planning, the the firing line and in marketing developed by the Labs and Western main reason I've been brought on development. Electric to enable the operating com board has been to lend an operating- "Sales support involves training for panies and ATTIX to operate the company perspective to Western Elec- our people—not just in the features of business efficiently. tric's marketing effort. the product, but in how to close a "This is an increasingly vital part of "In the future, as in the past, we'll sale. We're also developing attractive operations, both for our customers still be trying to serve the operating sales programs for their use. and for us. A great deal of thought and telephone companies and AT&T's in- effort has gone into dividing these terexchange company, ATTIX, better "Western Electric used to be very r e s o u r c e s i n h a r d w a r e a n d s o f t w a r e than anybody else. We'll continue to good at this sort of selling in it's early equitably between AT&T and the do everything we can to enhance their years, but we've not been as media RBOCs. What we had the difficult time ability to enlarge their revenue oriented as many of our competitors dividing was the operational systems, streams, and we'll do our utmost to for a long time. Getting back into that not the systems that are part of the develop exciting new products for posture is going to require some call-processing network. them to bring to the marketplace. adjustments. Fortunately, we have an "Centrally developed systems in We'll also be actively seeking to sell excellent team of highly capable peo clude network operations systems, our products to the independent tele ple in place to help us get there. procurement related systems, business phone companies. information systems, and some other "In the regulated environment of "Right now we're concentrating on administrative systems. Also included the past, our sales efforts were tech modifying our systems support—how are EPLANS and other computer sys nically oriented and aimed primarily at you process an order, how you bill the tems developed by Western Electric operating people in the telephone customer, how you provide engineer and used by the operating companies companies—the engineering staff in ing support to configure the right to solve technical or management large part. Now, in addition, we'll be system for the customer's needs. We'll problems." trying to reach a much broader range be doing much more custom tailoring In dividing the systems, Villiere's of decision makers—marketing peo to individual needs and, for that, we people worked with information spe ple, for example, and computer will have to be located close by the c i a l i s t s f r o m B e l l L a b s a n d t h e people, systems analysts, people on customers. In addition there are the operating companies. "All of this will the financial side of the house. front-office concerns—how do you be to the ultimate advantage of the "This means that many of Western measure the productivity of salesper RBOCs," says Villiere. "As part of our Electric's traditional ways of doing sons and how do you determine that total product line, we expect to fully business are going to have to change— sales teams are dispersed correctly. support and enhance EPLANS and in a very fundamental way. We handled "In the third area, marketing de other computer systems. Like all of sales and marketing very well in a velopment, we are working on our products, the end goal will be to regulated market. Now we are going to predictive models for forecasting sales, make things easier and more profitable h a v e t o d o i t a s w e l l o r e v e n b e t t e r i n for example, and for estimating the f o r o u r c u s t o m e r s . " an unregulated one. To meet the new potential of new service features and Villiere also sees changes coming competitive environment, we need to new products. We're developing finan soon in Western Electric's engineering change both the way we sell to cus cial analysis tools for evaluating relationship with Bell Laboratories. tomers and the way we translate elasticity of demand and financial "The resource we have in Bell Labora customer needs into future products, consequences. tories is so important to us," he says, which is what marketing is all about. "Our top product as we enter this "that we must make sure it is directed new competitive era," Villiere says, "is toward the development of new tech "I see my responsibilities as having the 5ESS*switch. To develop an effec nology and the use of that technology three aspects," Villiere says. "The first tive sales strategy and the appropriate in new products. We can't allow that is sales, which encompass all functions sales message for the 5, we brought precious resource to be diverted from performed traditionally by the account together a team known as the Sales those primary tasks." managers. We have been redeploying Program Development Team. The our forces, so to speak, setting up team included representatives from branch offices to position our sales Product Line Planning and Manage people close to the customers they ment, Service Line Planning and Management account team. Public Re lations, Legal, Market Operations, Market Planning and Bell Labs. These people, with their diverse back

S e c o n d Q u a r t e r 1 9 8 3 • T r a d e m a r k o f W e s t e r n E l e c t r i c 17 Like every other position to deal with all their suppliers W e s t e r n E l e c t r i c a n d B e l l L a b s e m major business, on a fair and equitable basis. In many ployees wear their employee identi Western Electric cases, these modifications require that fications at all our locations." does plan ahead. we transfer both employees and assets We must think to the new Regional Bell Operating In addition to Planning, Brown has ahead on how to Companies. responsibility for resources that are manage swings in "To give you an idea of the types of utilized by all lines of business. "The the economy, changes in technology transfer we are talking about, approx Corporate Engineering, Human Re and how to cope with the thrusts of imately 165 people in the Purchased sources and Labor Relations, Com the competition. Products group in Springfield, N.J. and puter Systems and Administrative Sup "Each division has a planning other locations around the country port, and Purchasing and Transporta group," explained John Brown, execu will be transferred to the new Central tion groups provide services for all tive vice president. Corporate Re Staff to help build its purchased prod our lines of business. All of these areas sources and Planning. "My organiza uct engineering and inspection will be critical to the success of tion supplies each of these units with capabilities. Our purchasing organiza Western in its new environment," information that will permit them to t i o n w i l l t r a n s f e r b e t w e e n 4 0 0 t o 4 2 5 Brown said. "For example, the work create plans they will submit to us. We employees to help develop the Central that is done at the Engineering Re supply them with guidelines on antici Staff Organization's skills in areas such s e a r c h C e n t e r w i l l b e e v e n m o r e pated inflation rates and housing starts as buying, contracting, expediting and important in the future. Their research and we forecast changes in access forecasting," Brown explained. in manufacturing techniques Such as lines, long distance messages, etc. This flexible automation will help keep us data, along with a statement on the "Last year we began reshaping the on the leading edge of manufacturing mission and goals of the company and organizational structure of the com technologies. Western Electric's claim a view of the sales by customer and pany so that we can more effectively to excellence has been largely in its product, helps create a standard for meet the mission and objectives of the manufacturing technology. This will m a t f o r e a c h o f t h e u n i t s t o w o r k w i t h . Plan," Brown said. "As a result, we continue to be our strongest asset and "Planning for the next year's Busi recently established several customer will be even more important as we get ness Plan," Brown said, "traditionally o r i e n t e d l i n e s o f b u s i n e s s t o b e t t e r into competitive markets. begins in the spring of the previous address the market segments we now "Another example is the work that year. In 1982, however, we began s e r v e o r s e e k t o s e r v e . is being done at the Corporate Educa looking at Western's strengths and "The plan itself takes a look, for tion Center. So that we can meet the weaknesses almost immediately after example, at technology, economic mission objectives of the Business the Jan. 8, 1982 announcement of the conditions, and the public's changing Plan, the division's Corporate Educa MFJ. With a better understanding of tastes for telecommunications equip tion Center is working to update the our capabilities we hoped to identify ment. It looks at them in terms of risks management skill of our most precious future opportunities for the company. and opportunities presented to the resource, our people. Starting imme "On top of this, the division had the company. We try to figure out how diately and over the next few years, it additional immediate obligation of much risk and how much opportunity is intended that all supervisors attend working with the Bell Operating Com there is and how to be prepared to act a training program on the environ panies to identify linkages that existed on that basis." ment facing them." with Western Electric. In accordance In support of the traditional Busi with the terms of the MFJ, these asso ness Plan, the organization prepared, B r o w n i s e n t h u s i a s t i c a b o u t W e s t ciations would undergo substantial in cooperation with the other divi ern's future. "Of course, our number changes on January 1, 1984, the date sions, a Repositioning Implementation one job is to be sure we continue to s e t f o r d i v e s t i t u r e . Plan. "This is the plan we started to serve the operating telephone com "An example of the associations we put together after the initial an panies better than anyone else. We are talking about is each operating nouncement," Brown said. "After n e e d t o k n o w a n d m e e t t h e i r d e company's need to strengthen its pur looking at the kind of company we are m a n d s . " I n a s i m u l t a n e o u s l o o k a t b o t h chasing organization," Brown said. and the kind of company we want to past and future, he says, "Bell System "For generations, much of their pur become, we came up with a number technology has been responsible for chasing and purchased-product of key corporate programs that are more businesses in this country than inspection has been done by Western indispensable to Western Electric's any other force. Now, that technology Electric." future. will open lots of business oppor There were 25 other interface areas, "The details of all these programs tunities for us that we couldn't get such as billing, systems equipment would be of great interest to all of our into in the past. Now, we can follow engineering and warehousing, that competitors, and those that would like our technology into appropriate mar have been worked on to assure that to have us disadvantaged for one ketplaces, based only on our abilities the operating companies will be in a reason or another. Therefore, it is and priority utilization of our re strong position to serve their custom appropriate that we keep the specifics sources. I think it's exciting." e r s c o m e d i v e s t i t u r e a n d b e i n a and particularly their timing under close wraps. The increased tempo of competitor-interest in what we are doing or have underway has never been greater and was one of the reasons behind the decision to have all

18 S e c o n d Q u a r t e r 1 9 8 3 "Bell System technology has been responsible for more businesses in this country than any other force. No\y that technology will open lots of business opportunities for us...."

John Brown EVP (Corporate Resources and Planning)

WE "New product introductions will increase at a rate of up to four to five times the rate of recent years."

John Nemecek EVP (Business and Residence Products and Services) While the impact a n d s c h e d u l e s a n d w e w i l l c o m m i t t o introduce this year. What this means of divestiture will delivery dates and prices." to residence products is that we are c r o s s a l l d i v i Another stipulation of the Order is moving from the days when we made sional lines, the that the division's Teletype Corpora millions of single line telephones, like changes dictated tion must discontinue its sales to end- Trimline® telephones, to the time of by the Federal users. Unlike Western Electric, Tele multiplicities of new product designs Communications type, Western's wholly-owned and rapid model turnover. Incidentally, Commission's Order, known as Com subsidiary responsible for the manu our future manufacturing capability puter Inquiry II (CI II), have had their facture of data terminals, has always will be designed for this rapid model biggest impact on the way the Busi sold to end-users. turnover." n e s s a n d R e s i d e n c e P r o d u c t s d i v i s i o n "Teletype is strong," Nemeeek said, conducts its business. The net effect is "a real bright spot in our division. An area under intensive study is the to make this division's relationship Sales in 1982 were $378 million and future of the repair capability for w i t h i t s c u s t o m e r s m u c h m o r e c o m will grow dramatically in 1983 and Western's products. "As the technology plex. For example, to comply with CI 1984. This year we plan on introduc r o l l s o v e r a n d m o r e a n d m o r e o f t h e II, AT&T formed American Bell, Inc. ing a new line of products that will public opt to purchase their phones, I (ABI) to market and sell the division's have broad commercial applications. expect the demand for repair of single newly manufactured products. ABI is A s t h e w o r l d w i d e d a t a t e r m i n a l b u s i line residence phones will diminish," responsible for developing the Sys ness grows—and it will—Teletype will Nemeeek said. "In the future, simple tem's strategy for customer premises be well positioned to increase its share single line residence phones will be products. Also as a result of CI II, it is in that market place." like any other household appliance—if expected that Western's traditional dis it breaks, it may be thrown away. Don't tributors, the Bell Operating Com More important than the many pro misinterpret that to mean that Western panies, will be out of the new equip cedural changes that have occurred Electric is going to start making in ment business for a year. Should the since January 1,1983 is the evolving ferior phones. Western Electric is divested telephone companies decide v i e w o f t h e d i v i s i o n ' s f u t u r e . T h a t known for the quality that it builds t o r e - e n t e r t h e t e r m i n a l m a r k e t s o n future, like that of every other divi into its products and we intend to 1/1/84, as they surely will to varying sion, will be shaped by the variables of maintain that reputation. We will have degrees, we want to sell them our rapidly changing technology; intensify a new line of phones that will be products again. "We want them to take ing competition; and the health of this attractively priced for quality and advantage of our customer premises nation's economy. functionality. We expect that custom equipment (CPE) capabilities," says "Our organization will continue to ers will want to update their phones John Nemeeek, executive vice presi introduce products that offer new to keep up with the features and dent of the division. "We must take f e a t u r e s a n d f u n c t i o n s t h a t t h e m a r k e t f u n c t i o n s t h a t w e w i l l b u i l d i n t o o u r advantage of every sales opportunity." demands," said Nemeeek. "New prod equipment." u c t i n t r o d u c t i o n s w i l l i n c r e a s e a t a N e m e e e k m a d e i t c l e a r t h a t W e s t e r n In addition to eliminating the tariff rate of up to four to five times the rate E l e c t r i c w i l l c o n t i n u e t o u s e i t s d i s regulation on all new customer prem of recent years. Among the newest is tribution and repair capabilities to ises equipment and requiring the the Genesis™ Telesystem. The Gene make its product offerings attractive. formation of a separate subsidiary to sis system uses cartridges very much handle its sale, CI II also requires all like those used in video games. Each As to their future, he added that "A applications programs software for cartridge provides services such as great deal of planning has been done new equipment be developed by that Call Forwarding, automatic redialing of and continues to be done on the subsidiary. To comply with that por a busy number and customer control future of our MMCs and service cen tion of the Order, the division and Bell of the use of the phone. There is no ters. Our extensive repair and distri Labs transferred approximately 4,000 other phone system like this on the bution system is probably unique and employees responsible for engineer market today. Another product, our has always done a superb job of ing, design and development of new private branch exchange, the responding to the needs of the operat hardware and software for CPE to ABI Dimension® System 85, offers the cus ing companies. I have no doubt they on 1/1/83. tomer a combination of analog and will continue to do a superb job, The four Western Electric plants digital systems, handles voice, data, although in a modified form. most affected by CI II are those facsimile and video communications. "I say 'modified,' because, with the essentially devoted to products for the It also controls and monitors building advent of divestiture, the operating business-residence market—Indi security, fire alarm and energy usage companies—^who have always had anapolis, Montgomery, Denver and systems. These are just two of the their own distribution systems—^will Shreveport. almost 100 products we're going to need more such facilities in order to "As a consequence of CI II, for be self-sufficient. We are, in fact, nego example, American Bell and Western tiating right now to determine which are conducting business on a con elements of our distribution system tractual basis," Nemeeek explains. will go to them. We expect the people "That is, ABI will commit to quantities t o f o l l o w t h e i r w o r k . "In addition, the repair capability in our service centers will need to be repositioned. We expect telephone re pair work to fall off over time. This is

S e c o n d Q u a r t e r 1 9 8 3 21 due partly to the public buying its Western Electric trade secrets can be even more impor own telephones, but also to the chang h a s o n e o f t h e tant than its physical assets. The need ing nature of telecommunications oldest corporate to safeguard ours is vital." technology. law departments Antitrust laws have, of course, long "As a result of all these factors, some in the country. been a matter of great concern to of our repair and warehousing capac Over the years in Western Electric lawyers and manage ity may become surplus. However, it is our century-old ment. ITiey still will be, but with an still far too early to state precisely how association with the Bell System, West important change. In the past, our much, when and where, because we ern's lawyers have been involved in i n v o l v e m e n t w i t h a n t i t r u s t l a w s w a s are working diligently to identify new the full spectrum of corporate legal largely shaped by our position as an distribution and repair opportunities. problems and issues. In the post- integrated manufacturer for the largely What I can say now—and I can't divestiture world, our legal division regulated Bell System. This made us emphasize it too much—is that we will continue to deal with a wide unique. In the future, however, our will have to operate in this area as cost range of problems, but, in many areas, a n t i t r u s t c o n c e r n s w i l l b e m o r e l i k e effectively and economically as in all those problems will be quite different. those of any other large manufacturer. other operations of the company if we "Take contracts, for example," says Says Cook, "The antitrust issues raised are to prosper in the highly competi George Cook, Vice President and Gen by integration will no longer predomi tive future we are entering." eral Counsel. "In the past. Western n a t e . E r o m n o w o n w e w i l l v i e w E l e c t r i c d i d t h e b u l k o f i t s b u s i n e s s antitrust from the same perspective as Of that future, Nemecek reminds us with the telephone companies under a other business enterprises." that now, more than ever, the success single, standard supply contract that of this company is tied to how well was the same for all companies. Those Touching on the closely related each employee does his or her job. companies will remain our principal subject of regulation. Cook is quick to "Our competitors in the business and customers in the future, but we'll be m a k e i t c l e a r t h i s w i l l s t i l l b e w i t h u s . residence products area are clever and dealing with them on an arms-length "You may have read a lot about de hard working and will be drawing on basis under new contractual arrange regulation in the telecommunications similar technology. Although our jobs ments. Separate bids or proposals on industry," he says, "but the day when will have some similarity to theirs, we i n d i v i d u a l t r a n s a c t i o n s w i l l b e m u c h AT&T will be completely free of regu m u s t d o o u r s b e t t e r . " more frequent. Legally, we're going to lation is not here yet, and we don't see be in a very different world from the it looming close. The end of indirect On technological advances, he said, o n e i n w h i c h w e d i d b u s i n e s s w i t h a regulation of Western Electric isn't "Future opportunity is unbounded. In standard contract backed up by 100 a r o u n d t h e c o r n e r e i t h e r . " teresting work is being done by the years of tradition." Since Western's biggest customer in Labs in the area of displays. Micro the near term will be AT&T's regulated processors and memory will become As for the independent telephone interexchange operations, our prices routine elements of our terminal prod companies. Cook sees some changes and profits will, to some extent, be ucts. Imagine personal data cards with there, too—at least, of a quantitative subject to regulatory scrutiny as in the microprocessors and memory. We plan nature. "We've always done a small past. Moreover, Cook predicts that to be in the AMPS terminal market amount of business with independent Computer Inquiry II will generate a with an attractive new design. This telephone companies, but now we're new and different regulatory life-style will lead us into the promising new actively working to expand this busi a l l i t s o w n . world of portable terminals. Another ness, and that's certain to involve us One thing that won't change for the area is terminals for the emerging with new legal problems and issues." legal organization is its desire to serve h o m e i n f o r m a t i o n s e r v i c e s m a r k e t l i k e As to proprietary information, the legal good of the community. "This the new instant visual information which we've always tried to protect. will always be important to us," says service being trialed in Florida and Cook stresses that greater efforts will Cook emphatically. "We'll continue to New Jersey—and the list goes on. We now be necessary. "We're going to b e a s a c t i v e i n t h i s a r e a a s e v e r . " are on the leading edge of a host of continue furnishing substantial new technologies. There is an exciting amounts of proprietary information to world ahead of us. Let's go for it!" the telephone companies so that they can keep operating efficiently; but, since they'll no longer be part of the family, we'll have to improve our methods of protection by things like contractual provisions and better iden tification of proprietary papers. In this Information Age, a manufacturer's

22 S e c o n d Q u a r t e r 1 9 8 3 "Legally, we're going to be in a very different world from the one in which we did business with a standard contract backed up by 100 years of tradition."

George Cook Vice President and General Counsel

WE The Road to Deregulation (A Chronology)

July 1,1934. The Communications August 31,1962. The Communica August 14,1969. The FCC granted Act of 1934 created the Federal Com tions Satellite Corporation (COMSAT) MCI (Microwave Communications munications Commission and placed was authorized by Act of Congress. Inc.) permission to construct and op the interstate telephone business un Initially proposed by President Ken erate a microwave communications der its regulatory purview nedy, the corporation would own and service between St. Louis and Chicago. operate a commercial communications The newly-formed company would January 14,1949. The United States satellite system. Under the law, half the provide private-line service in compe Attorney General filed suit in Federal stock would be owned by the public tition with AT&T. District Court in New Jersey against and half by communications com AT&T and Western Electric, alleging March 18,1971. Under the FCCs panies. violation of the Sherman Antitrust Act order in the First Computer Inquiry and asking that Western Electric be June 26,1968. In its Carterfone deci (CI-I), telecommunications companies separated from the Bell System. sion, the FCC struck down existing were allowed to provide unregulated interstate telephone tariffs prohibiting computer services through separate January 24,1956. A final judgment, attachment or connection to the pub subsidiaries. AT&T, however, w^as still limiting the Bell System to common lic telephone system of any equipment excluded from the computer mar carrier communications and govern or device that was not supplied by the ketplace under terms of the 1956 final ment projects, but preserving the telephone companies. The suit, judgment that limited it to regulated vertical relationship between the man brought by Carter Electronics of telecommunications. ufacturing, research and service Dallas, concerned interconnection of a activities of the System, was entered in May 25,1971. The FCC extended the private mobile radio system to the District Court in New Jersey It M C I d e c i s i o n a n d a u t h o r i z e d o t h e r s o - switched network. brought to a close the seven-year called Specialized Common Carriers to government anti-trust suit, which had November 1,1968. Liberalized tariff operate nationwide. The Bell System sought to separate Western Electric regulations became effective which was directed to provide local links from the Bell System. allowed direct connection of a variety between the independent carriers' fa of customer-owned equipment to the c i l i t i e s a n d t h e i r c u s t o m e r s . November 8,1956. Court of Appeals Bell System's switched network. In in the District of Columbia set aside June 16,1972. To encourage competi c l u d e d u n d e r t h e t a r i ff s w e r e s u c h tion in satellite communications, the an FCC decision in the so called Hush- devices as business machines, data a-Phone case. In effect, this allowed FCC invited non-Bell applicants to modulating and demodulating sets and seek the right to provide telecom telephone users to attach harmless voice transmitting and receiving devices to their telephone sets. The munications services through equipment. In all cases, the connec satellites. By treating satellites like Hush-a-Phone was a cup used to muf tion to the message network would "microwave transmitters in the sky," fle telephone conversations by entail a protective coupling device the decision in effect expanded the shielding the mouthpiece. This was furnished by the telephone company the first time a non-Bell attachment Specialized Common Carrier decision. was allowed to be used with a Bell March 7,1974. MCI filed an antitrust telephone set. The FCC issued con suit against AT&T and the associated firming rules on February 6,1957. Bell companies in the U.S. District July 29,1959. The FCC made a Court in Chicago. The complaint, portion of the microwave spectrum seeking triple damages, alleged that above 890 megahertz available for the Bell companies violated the Sher private microwave communications man Act by monopolizing or systems. Until then, microwave service attempting to monopolize the business had been available only from AT&T. a n d d a t a c o m m u n i c a t i o n s m a r k e t . April 23,1974. Independent carriers were authorized by the FCC to con nect their private lines into local exchange networks.

24 WE November 20,1974. The Justice De August 2,1976. Administrative Law January 8,1982. AT&T and the De partment filed an antitrust suit against Judge David Kraushaar issued his ini partment of Justice announced that AT&T, charging monopolization and tial decision in Phase II of the Inter they had agreed to a settlement in the conspiracy to monopolize the supply state Rate Case (FCC 19129). The antitrust suit brought in 1974. The so- of telecommunications service and judge stated "There's no justification called Modified Final Judgment called equipment and asking the separation on the present record for government for divestiture of the "local exchange of Western Electric from the Bell policy makers to attempt to restruc telecommunications and exchange ac System. The suit also asked separation ture this healthy industry at this time." cess functions" of the Bell operating of some or all of the Long Lines companies. Western Electric and Bell Department and perhaps other parts July 28,1977. In the so-called Ex- Labs would remain with AT&T, as ecunet decision, the court reversed an of the Bell System. would Long Lines and certain intra F C C o r d e r a n d a l l o w e d M C I a n d o t h e r state interexchange functions. November 5,1975. The FCC elimi independent carriers to provide regu nated the need for protective lar long-distance service through their July 20,1982. Rep Timothy Wirth interconnection devices available only own microwave networks. from AT&T by establishing a registra (D-Col.) withdrew HR5158, the latest proposed legislation which would tion program for single-line phones April 7,1980. Under the decision in its Second Computer Inquiry (CI-II), have replaced the Communications designed to connect to the Bell net Act of 1934. He stated that he was work. Suppliers were required to meet the FCC ordered the deregulation of doing so because of the opposition FCC standards to insure that their terminal equipment and enhanced transmission service, effective January generated by AT&T shareowners and equipment would not harm the employees through letter-writing and network. 1, 1983. Under the ruling, AT&T would be allowed to provide unregulated visitation campaigns. March 4,1976. The Consumer Com services and equipment through a August 11,1982. Judge Harold munications Reform Act of 1976 Fully Separated Subsidiary. Greene issued a 178-page opinion on (CCRA), the first of a number of bills the Modified Final Judgment, charac June 13,1980. The jury in the MCI designed to modernize the regulation terizing the proposed divestiture of of telecommunications, was intro trial in Chicago awarded $600-million in damages to MCI, on the basis that the operating companies as "plainly in duced in the House of Representatives AT&T had willfully maintained its mo the public interest" but asking for by Rep Tino Roncalio (D-Wyo.) modifications in 10 areas. In separate nopoly in the business and data March 18,1976. The registration pro c o m m u n i c a t i o n s m a r k e t . U n d e r a n t i actions, AT&T and the DOJ accepted gram of 1975 was extended to include trust law, damages were automatically Judge Greene's modifications on Au multi-line terminal equipment, includ tripled to $1.8 billion. gust 19. ing PBX and key telephone systems. December 16,1982. AT&T filed a June 29,1981. After eight days of June 7,1976. TWo subsidiaries of deliberations, the jury in the Litton comprehensive 471-page plan for Litton Industries filed a suit in Federal I n d u s t r i e s a n t i t r u s t c a s e f o u n d AT & T reorganization of the Bell System, de District Court in New York seeking guilty of two of four specific allega tailing how it proposed to divest the $111 million in damages from AT&T, tions. If the verdict is upheld, the operating companies, including prop Bell Labs, Western Electric and seven damages awarded to Litton would be erty, personnel and operations. operating companies, alleging viola automatically trebled to $276 million. January 1,1983. American Bell Inc., tion of the antitrust laws. Litton AT&T's fully-separated subsidiary au charged Bell with monopolizing the thorized by Computer Inquiry II for manufacture, distribution, sale, rental handling the sale of non-regulated and leasing of PBX and key telephone services and equipment, began equipment. operations.

Second Quarter 1983 25 ■ Q. What is a LATA? Test Your CA. LATA is short for local access and transport area. It is a geographic entity, usually a major city, with its suburbs and surrounding towns in which the Reorganization local Bell operating company will be responsible for telephone and other communications services. On April 20, Know How 1983, Judge Greene approved 157 LATAs, while six are pending approval. ■ Q. Isn't ATTIX merely a new name for Long Lines? OA. No. It includes other things as well. The events of the past The acronym stands for AT&T Inter- exchange Entity and refers to the few years have company that will come into being on January I, 1984 to assume respon brought a lot of new sibility not only for Long Lines words and concepts operations, including international, but also for all inter-LATA services as well. into use. . . some of ■ Q. Why is the divestiture proposal called a "Modified" Final Judgment? which appear here. OA. On January 8, 1982, AT&T and the Department of Justice agreed to settle How many do you the antitrust suit that had been under know? way for nearly eight years. The s e t t l e m e n t i s k n o w n a s a c o n s e n t decree or Final Judgment. An earlier Department of Justice antitrust suit had been settled in 1956. The January 1982 agreement was written as a modification of the 1956 Final Judg ment. Hence, Modified Final Judgment. ■ Q. What's this CPE that everyone is talking about? OA. CPE is not a new acronym al though it became a fashionable buzzword following the FCC Second Computer Inquiry order. It stands for customer premises equipment, that is, telecommunications terminal equip ment located on the subscriber's premises which is connected to the network. The term encompasses vir tually everything from plain black desk sets to the most advanced data termi nals and PBXs. Presently excluded are coin-operated telephones and inside wiring. ■ Q. What is cream skimming? OA. a situation in which market sup pliers can selectively choose to service only the more profitable areas (or the "cream") of the communica t i o n s s e r v i c e s . T h e t e r m c a m e i n t o prominence when certain companies offered private-line service along high- volume, lower-cost routes, while ignor ing areas in which costs were high. Common carriers, however, are re quired by law to provide service on all

26 WE routes, even for those routes where Horizontal integration refers to the c o m m i s s i o n a n d i s t h e t o t a l a m o u n t o f costs are high. structure of a corporation which investment (such as plant and equip ■ Q. How are services enhanced? brings together enterprises with the ment) on which the allowed rate of A. As defined by the FCC in the same function, as in the case of AT&T, r e t u r n i s c a l c u l a t e d . Second Computer Inquiry, enhanced which owns a number of telephone ■ Q. What are OCCs? services involve computer-processing companies, all of which provide simi A. The acronym stands for other com that acts on the format, content, code, lar services. mon carriers and includes specialized protocol or similar aspects of the ■ Q. What is an access charge? common carriers (such as MCI), do subscriber's information; provide the A. It's a charge by the local telephone m e s t i c a n d i n t e r n a t i o n a l r e c o r d subscriber additional, different or re company for use of that company's carriers (such as RCA) and domestic structured information; or involve exchange facilities and/or interconnec satellite carriers (such as SBS) — all of s u b s c r i b e r i n t e r a c t i o n w i t h s t o r e d i n tion with the telecommunications which are authorized by the FCC to formation. Enhanced services may be network. provide communications services in provided without filing a tariff. AT&T, ■ Q. What happens to public pay competition with the established tele however, was required to, and did, phones under the divestiture plan? phone common carriers. form a fully separated subsidiary, A. Coin and non-coin public and ■ Q. What makes a carrier common? American Bell, Incorporated, to semi-public telephones will remain A. In a word, regulation. A supplier provide any enhanced services. the responsibility of the operating that undertakes to "carry" goods, serv ■ Q. If people are going to be buying companies. ices or people from one point to their own phones in department ■ Q. What is meant by embedded base? another for the public in general or stores and specialty shops, from now A. Under the FCC's Second Computer for specified classes of the public is on, who is going to install the jacks Order (CI II), telecommunications ter k n o w n a s a c o m m o n c a r r i e r. I n t e l e and wiring for them? minal equipment on a subscriber's communications, such "carriage" OA. The divested operating companies premises or in the telephone com relates to provision of transmission will provide installation and mainte pany's inventories before December capability over the telecommunica nance of all inside wire — under tariff. 31, 1982 is considered "embedded" t i o n s n e t w o r k . A c o m m o n c a r r i e r Customers will, however, have the and will remain regulated under tariff company that offers communications option of installing their own inside for a period of time. New CPE (cus services to the public is subject to wire or using other vendors. tomer premises equipment), however, regulation by federal and state regula ■ Q. What's the difference between is considered detariffed as of January tory commissions. ABII, ATTI and Western Electric Inter 1,1983, and can be offered by AT&T ■ Q. What are FO.T.S ? national? Don't they all sell interna only through a fully separated subsidi A. Plan old telephone service — as tionally? ary, such as American Bell. AT&T has basic as you can get in this business. A. ATTI (AT&T International) is the requested that the FCC deregulate ■ Q. What is AMPS? current subsidiary established in 1981 embedded base equipment by January A. Advanced Mobile Phone Service. to take over the work of ABII (Amer 1, 1984. Formerly known as High Capacity ican Bell International) and Western ■ Q. What is MTS (Message Telecom Mobile Telecommunications Service, Electric International. It may engage in munications Service)? AMPs is a mobile telephone service. It joint ventures with manufacturers, and A. Non-private line intrastate and in employs low-power radio transmitters it may also own and operate telecom terstate long distance telephone in cells and a special telephone munications systems outside the service. Interstate prices for MTS are switching office. As the vehicle moves United States. uniform nationwide regardless of from one cell to another, its messages ■ Q. What ever happened to Baby Bell? w h e t h e r s u b s c r i b e r s a r e l o c a t e d o n a are automatically switched from one A. Baby Bell was a sobriquet that the high-cost route. frequency to another. press came up with for a fully sepa ■ Q. What is packet switching? ■ Q. What is interconnection? rated subsidiary that AT&T would A. A data communications switching A. A term generally used to describe f o r m t o h a n d l e t h e s a l e o f c u s t o m e r and transmission system whereby an the connection, with or without a premises equipment as required by input data stream is broken into uni protective connecting arrangement, of the FCC in its Computer Inquiry II form data "packets" to which is customer-provided equipment or com order. The new company was formally appended addressing information, se munications systems to fecilities of the named American Bell, Inc., and began quence counts and error controls. Bell System or those of the Indepen operation on January 1, 1983- Each packet is transmitted indepen dent telephone companies. ■ Q. How does vertical integration dif dently through the network so as to ■ Q. What is an L.O.B.? fer from horizontal integration? maximize the utilization of transmis A. The acronym which appears fre A. Both pertain to corporate struc sion facilities. At the receiving end, the quently in marketing plans stands for ture. Vertical integration brings packets are checked for errors, rese- Line of Business. Western Electric is together a number of enterprises at quenced as necessary and combined moving from a functional organization different functional levels, as in the into an output data steam. into a line of business organization. In Bell System, where research and de ■ Q. What is the rate base? a line of business, resources and ac velopment, manufacturing and service A. The rate base for a Bell operating countability are concentrated, with were amalgamated in a single system. company or other regulated utility is o n e b o t t o m l i n e . determined by the state regulatory

S e c o n d Q u a r t e r 1 9 8 3 27 2BE3, allows the 2B ESS switch to host RSS. This new generic, which is available now, also increases the system's capacity for providing Customer Calling features. The equipment is made at EXCITING Columbus. 4. DACS (Digital Access and Cross Connect System). A digital switch for special services circuits for central offices. It NEW allows faster implementation of customer orders by using remote terminals to make direct connections between channels of incoming and outgoing digital lines and to provide access to any channel for remote digital testing. First installed at Cedar Knolls, PRODUCTS N.J. in June 1981, it is made at Merrimack Valley Works.

1 . 5 E S S * E l e c t r o n i c S w i t c h . 5. international Telephones. A local digital switch developed by Bell Laboratories and Shreveport is making a new line of electronic telephones suitable manufactured by Western Electric. The 5ESS switch combines for the international marketplace. The first were shipped to microelectronics with digital and fiber optics technology to Australia in 1982. They employ circuitry that enables them to provide advanced capabilities and versatility. It is being designed comply with local electrical standards in the using country. to cover the entire spectrum of switching needs from small rural 6. Fiber SLC* Carrier System. offices to large, metropolitan offices. The first 5ESS switch went An optional feature of the SLC-96 system. It is a long wavelength into service in Illinois in March, 1982. The first multi-module 5ESS (1.3 micron) light-emitting diode (LED) system. Initially, Fiber switch is scheduled for cutover at Sugar Grove, Illinois this sum SLC carrier system will operate at the 6 megabit-per-second mer. Subsequent systems will be manufactured at Oklahoma City. (Mb/s) rate, which will provide 96 channels over a pair of 2. The 3B 20S Processor. lightguide fibers. First installation was in Chester Heights, Pa. late This is the simplex version of the 3B20 processor used in the 5ESS last fall. The lightguide comes from Atlanta. SLC carrier system is switch. Using UNIX* * software, it handles a wide variety of jobs in manufactured at North Carolina Works. factories and offices, such as computer-aided design, business data 7. Dimension® AiS***/System 85. processing, and operations support systems. It is an Oklahoma City Our eagerly anticipated digital PBX using digital technology was product. Introduced early this year. Made at Denver, it is a top-of-the-line 3. 10A RSS (Remote Switching Systems). Brings electronic switching service features to very small commu nities with as few as 150 customer lines. Previously, only the lA ESS switch could be used as a host. A new generic program, the

28 offering aimed at Fortune 500 companies with sophisticated 13. Bellmac* 32A microprocessor. communications needs. It offers a variety of services in five major This "computer on a chip" went into production at Allentown in areas: sophisticated office applications, building management, 1982. Capable of processing 32 bits of information simultaneously, voice and data integration, and networking capabilities. Terminals it will provide intelligence for the 3B5 processor. The 3B5 is an are made at Teletype in Skokie. Special electronic phones come Oklahoma City product. from Shreveport. 14. Solid-State Laser. 8. High-speed Teleprinters. One of the tiniest, fastest solid state lasers ever made is produced Two new terminals from Teletype Corporation provide higher at Reading Works. This laser can generate a beam of light which function and modularity. The Model 42 ASR and BSR teleprinters, can be turned on and off at a rate of 90 million times a second. It with 4-kilobit memory, add value and convenience to data powers new lightwave transmitters for new systems such as those communications offerings. Both are dual-voltage units, requiring along the Northeast Corridor. no extra interconnect equipment. They are made at Skokie. 15. Quorum® teleconferencing equipment. 9. Genesis*** telesystem. Facilitates the setting up of meeting rooms from wliich bu.sy A new electronic telephone system produced at Indianapolis that executives can communicate by picture and voice over long can be programmed using plug-in cartridges not unlike tbose used distances. One new item is a bands-free microphone and loud in video games. One cartridge for example, can be programmed speaker that provides excellent voice reproduction while muting for your schedule, to alert you of special dates and appointments. background noises. Much of the equipment is made at 10. UNIX Operating System. Indianapolis. UNIX System y which provides improved performance, screen 16. EMSP (Enhanced Modular Signal Processor). editing, text processing, file system maintenance and networking Bidding against some of the toughest competition in the country, capabilities, was released last year. AT&T also announced it would we won a major contract last year to develop and build the Na\y's provide licensees with consultations, technical seminars and other next generation of computers for use in submarines, surface ships, support. Tapes are generated at the Warrenville Data Center. aircraft and land-based systems. Bell Labs is designing hardware which we will build at Burlington. 11. Frame Creation Terminals. Used for consumer information services, these are made at Montgomery for use by providers of shop-at-home Videotex services. The suppliers create graphics on these terminals. It is " Tr a d e m a r k o f W e s t e r n E l e c t r i c these graphics that appear on the customer's home screen to " Tr a d e r m a r k o f B e l ! L a b s furnish information about the product or service desired. ■■" Tr a d e m a r k o f AT & T 12. 256K RAM (Random Access Memory). This new memory chip went into pilot production at Allentown last year. It contains about 600,000 components and stores 262,144 bits of information and is already seheduled for use in several Bell Labs designed systems, including 5ESS switching equipment. 29 The RBOCs

On January 1, 1984, the local Bell Judgment, AT&T will transfer re about 27 million people or about 84 operating companies will assume a sources directly to the new entity. The percent of total population of its new basic organizational structure regional companies will then share the states. composed of seven regional com ownership and cost of this new • Total assets—S17.3 billion. panies, and a Central Organization. organization. • Exchange access lines—13 7 All the local operating companies, million. except Southern New England Tele • Employees 108,103. phone and Cincinnati Bell (in which Northeast** AT&T holds minority interests and • Will provide service in Maine, which will not be divested) will be Massachusetts, New Hampshire, New Southeast grouped into seven regional holding York, Rhode Island, Vermont, and a • W i l l h o l d s t o c k o f S o u t h e r n B e l l companies, each roughly the same size small portion of Connecticut. and South Central Bell. i n t e r m s o f a s s e t s . * • Service territory of companies— • Will provide service in Alabama, To preserve the efficiencies inherent about 25 million people or 92 percent Florida, Georgia, Kentucky, Louisiana, in centralization, a Central Organiza of total population of its states. Mississippi, North Carolina, South • To t a l a s s e t s — S 1 7 . 8 b i l l i o n . tion owned by the regions will be Carolina, and Tennessee. established. The Central Organization • N e t w o r k a c c e s s l i n e s — 1 2 . 5 • Service territory—about 30 mil will also serve as a single point of million. lion people or 70 percent of the total • Employees—121,600. contact for the coordination of operat population of its states. • T o t a l a s s e t s — $ 2 1 . 8 b i l l i o n . ing company operations to meet • Exchange access lines—13 government requirements for national Mid-Atlantic security and emergency preparedness. • Will hold stock of New Jersey Bell, million. As permitted by the Modified Final Bell of Pennsylvania, Diamond State • Employees—137,500. Telephone, the Chesapeake & Potomac *ln the regional summary, all figures arc as of Telephone Companies of Washington, Midwest December 21, 1981. D.C., Maryland, Virginia, and West • Will hold stock of Illinois Bell, * * Except for U S West, the RBOCs have not yet Virginia and the District of Columbia. Indiana Bell, Michigan Bell, Ohio Bell, been given their official names. • Service territory of companies— and Wisconsin Telephone.

30 WE I What's Going to Happen Virginia A. to My Stock? ^ D w y e r • Will provide service in Illinois, More than 90 percent of Western means that, for each 10 shares of AT&T Indiana, Michigan, Ohio, and Electric employees own stock in stock owned, the AT&T investor will Wisconsin. AT&T, acquired largely through ESOl^ receive one share in each of the seven • Service territory—about 30 mil the Bell System Savings Plan and ear newly created regional companies. To lion people or 74 percent of total lier employee stock purchase plans. e a s e b u r d e n s o n t h e s h a r e o w n e r s w i t h population of its states, After the foremost question of "What's fewer than 500 shares and on the • Total assets—$17 billion. • Exchange access lines—14 going to happen to me?" the next regional companies, arrangements will most frequently asked question about be made to facilitate the initial dis million. divestiture is "What's going to happen tribution and trading of regional • Employees—112,978. to my stock?" AT&T has tried to company shares and to reduce associ answer that question in its quarterly ated costs. Southwest letters and various other publications. Shareowners who own stockholder • W i l l h o l d s t o c k o f S o u t h w e s t e r n What we say here may be repetitious. accounts containing at least 10 but less Bell. For every 10 shares of AT&T that you than 500 shares and who are, there • Will provide service in Arkansas, hold, you will receive an additional fore, entitled to receive at least one Kansas, Missouri, Oklahoma, and seven shares—one for each of the but less than 50 shares in each re Texas. regional Bell operating companies to gional company, will be sent a • Service territory—21 million peo be formed upon divestiture. The peo statement indicating the number of ple or 76 percent of total population ple at AT&T are doing everything they shares which are being held for them of its states. can to ensure that all seven of these in computerized stockholder ac • To t a l a s s e t s — $ 1 6 b i l l i o n . new shares will be as sound as c o u n t s . T h e s e s h a r e o w n e r s w i l l a t t h e • Exchange access lines—9.8 possible. same time be offered three options: • They can request certificates for million. According to the AT&T plan of • Employees—97,600. reorganization filed on December 16, their whole shares in any regional s t o c k h o l d e r s w i l l r e c e i v e o n e s h a r e i n companies, and receive cash for any each regional holding company for fractional shares. U S W e s t e a c h 1 0 s h a r e s o f AT & T c o m m o n s t o c k • They may deposit any regional • Will hold stock of Mountain States they own as of a record date in company shares in the appropriate Telephone, Northwestern Bell, and December, 1983. regional company Dividend Reinvest P a c i fi c N o r t h w e s t B e l l . • Will provide service in Arizona, Following incorporation, the re ment and Stock Purchase Plans. gional companies will begin to • They can sell the stock of one or Colorado, Idaho, Iowa, Minnesota, compile and organize a vast quantity more regions and invest the proceeds Montana, Nebraska, New Mexico, of data required by the Securities and in the stock of one or more other North Dakota, Oregon, South Dakota, Exchange Commission for financial regions, with the regional certificates Utah, Washington, and Wyoming. documents dealing with stockholder • Service territory—22 million peo e i t h e r r e m i t t e d t o t h e s h a r e o w n e r o r prospectuses and information e n r o l l e d i n t h e s t o c k h o l d e r ' s a c c o u n t ple or 78 percent of total population documents. in the selected regional company or o f i t s s t a t e s . • To t a l a s s e t s — $ 1 6 . 1 b i l l i o n . During October or November of companies. At present, shareowners with less • Exchange access lines—10.4 1983, the regional companies will file applications to list these stocks on the than 500 shares represent about 77 million. New York Stock Exchange (NYSE) and • Employees—104,900. percent of all accounts and about 30 other major exchanges they choose. percent of the outstanding shares. The About that same time, the Boards of three options will be offered to them Pacific Directors of the regions will announce for approximately four to six months • W i l l h o l d s t o c k o f P a c i f i c T e l e their quarterly dividends for the first following divestiture. After this period, phone, which in turn will hold all the quarter of 1984, and AT&T's Board those share owners who have not s t o c k o f N e v a d a B e l l . w i l l a l s o a n n o u n c e i t s d i v i d e n d . expressed a preference among the • Will provide service in California These announcements are expected options will automatically receive cer and Nevada. to set the stage for trading of the t i fi c a t e s f o r t h e w h o l e s h a r e s t o w h i c h • Service territory—20 million peo regional company stocks on a "when- they are entitled in the seven regional ple or about 78 percent of total popu issued" basis, beginning in November holding companies and cash for their l a t i o n o f i t s s t a t e s . o r D e c e m b e r o n t h e N Y S E a n d c o n fractional holdings. As shareowners • To t a l a s s e t s — $ 1 6 . 6 b i l l i o n . tinuing into February, 1984, when the w i t h l e s s t h a n 1 0 s h a r e s o f A T & T s t o c k • Exchange access lines—10.4 fi r s t c e r t i fi c a t e s w i l l b e d i s t r i b u t e d . w i l l b e e n t i t l e d t o l e s s t h a n o n e f u l l million. Normal trading then will commence. share in each regional holding com • Employees—114,700. T h e d i s t r i b u t i o n r a t i o o f o n e f o r 1 0 pany, they will not participate in the Second Quarter 1983 31 Benefits options. They will, instead, receive are transferred will also be remitted to cash for their fractional shares. This Pensions the regional companies and the Cen group represents about 17 percent of Pension programs are viewed by tral Organization. the accounts and about one quarter of most employees as an indispensable "Incidentally, some of the regional one percent of all outstanding shares. part of any company compensation companies won't be ready to accept Large share owners, those with ac program. any of these funds at divestiture. AT&T counts containing 500 or more shares But today, many pension programs will offer what we've labeled a 'fiill- of AT&T stock, will receive certificates face virtually the same problems as service' option, under which we for the regional shares to which they Social Security—changed life expec would continue to administer these are entitled and cash for fractional tancies, a shrinking base of young assets until a regional company estab shares. participants, inflation, early retirement lishes its own pension operations. This F o r a c c o u n t s w i t h l e s s t h a n 5 0 0 and a lack of adequate funding. 'fiill-service' option will be available shares, orders will be accumulated to For the Bell System, however, wise until 1987, at which time the ffinds reduce trading costs. Transactions will investment by professional ftmd must be transferred to the regional b e r e c o r d e d i n s h a r e o w n e r a c c o u n t s managers and the foresight to begin companies. and appropriate fees will be charged funding years ago have kept pension for sales and purchases to consolidate programs in the black for both man Medical, Dental and Vision holdings. agement and non-management. Care Plans Virginia A. Dwyer, AT&T Vice Presi On October 1, 1980, the pension At divestiture, employees will con dent and Treasurer, explained that the programs previously operated by the tinue to be provided medical and one for 10 distribution ratio was se individual Bell System companies, in dental plans. lected so that regional company shares cluding Wekern Electric, were con Health Maintenance Organization would be traded in a price range solidated in AT&T. With divestiture, (HMO) coverage options will con appropriate to their eventual listing on funds assets are going to be re t i n u e a f t e r d i v e s t i t u r e . major stock exchanges. Dwyer added distributed among AT&T and seven A vision care plan to be offered by that a primary motive for offering the Regional Bell Operating Companies, each company beginning January 1, options was to assist shareowners with although it may take a few years to 1983, will be continued after less than 500 shares in rearranging work out all the details. Virginia A. divestiture. their holdings, if they choose, at re Dwyer, Vice President and Treasurer at duced cost. Also, she said, these AT&T, was asked about this in a recent Group Life Insurance Plans arrangements will help reduce the interview and had this to say: At divestiture, employees will con enormous shareowner populations and "Let me first say that everyone who tinue to be provided basic, supple the attendant costs of providing share- is entitled to get pension benefits will mentary, and dependent group life o w n e r s e r v i c e s f o r t h e d i v e s t e d continue to receive payments with no insurance plans. companies. At divestiture, each re break in continuity. The process of gional company will have an estimated pension fund transfers will not affect Disability Benefit Plans and 2 . 7 m i l l i o n s h a r e o w n e r s . T h i s w i l l b e individual benefits. 1 think it is impor L e a v e s o f A b s e n c e the second largest body of share- tant to give that reassurance. owners of any domestic corporation, "Back to your question. One of the At divestiture, employees will con exceeded only by AT&T which will reasons we are adopting a slow and tinue to be provided various disability benefit plans and leaves of absence. have about 3.2 million. Next in size to measured pace with regard to pension the regions will be General Motors funds transfers is that we need to Generally, employees who are re with 1.1 million. determine precisely how much should ceiving disability benefits at the time of divestiture will be reassigned if It is estimated that more than 100- be transferred. The first step is to take their work groups are reassigned, and m i l l i o n s h a r e o w n e r s t r a n s a c t i o n s w i l l an employee census which is the basis be processed for the regional com for our pension transfer calculations. their benefits will be continued by the panies and AT&T during 1984, the first AT&T and the regional companies will post-divestiture employer in accord ance with plan terms. year of divestiture. Because of the begin this census after divestiture. Leaves of absence to begin after unprecedented, combined burden of "It's not just a matter of counting m o r e t h a n 2 2 m i l l i o n s h a r e o w n e r a c heads. Each pension is based on the divestiture and any reemployment counts which will exist at divestiture, commitments made by a pre-divesti- employee's age, length of service, earn ture employer will be honored by the AT&T will establish and operate a ings, and other factors. An actuarial post-divestiture employer. wholly-owned subsidiary, made up of study taking all factors into account the company's existing Stock and for each employee in each company Bond Division operations in Piscata- will take some time. Employees Retired Prior to Divestiture way. New Jersey and New York City, "There will be no real problems and a new facility in Jacksonville, created by this cautious approach. Employees retired prior to divesti Florida. The new subsidiary will Funds that we will hold, which will ture will continue to receive the same provide a full range of record keeping eventually be turned over to the re pension and other benefits as before a n d o t h e r s h a r e o w n e r s e r v i c e s f o r gional companies will be prudently divestiture from the company from AT&T and, on a fee basis, for regional managed and the earnings they accrue which they retired or such company's companies. between divestiture and the time they parent organization. 32 Second Quarter 1983 I

Comments by Jim Olson, Western's new Chairman.

To succeed in a competitive arena want you to know how strongh-1 feel. is going to take an outfit that is expert This compan)' is rich in all the right in the arts of cost reduction and resources. But those resources—your qualit>- control, and Western Electric reputation, for example—would erode wrote those books. To succeed in the rather rapidly if we were to make the new competitive arena is going to take mistake of riding them, and little else, strength, not just in people, but in into the competitive future. Those technology; in manufacturing and dis attributes give us a big leg-up. but tribution techniques, and most impor we've got to go on from here, using tantly. in o\ erall management. No one. our historic strengths as bricks on regulated or unregulated, can top the which to build new strengths. Bell companies in all of those areas. "The third and final point 1 want to "And success in the new competi make is from the July-August 1982 tive arena is going to require self- issue of the Harvard Business Re\ iew. confidence. the kind that can come It's titled 'Deregulation: Surviving the only from years of performance, years Transition.' and the authors discuss of trial by fire in good times and bad. what they call the regulation mentality like 1982, and years of seasoning and and the difficulties in shifting mental improving. This company, in my judg gears when an industry such as ours is m e n t. h a s th a t s e l f- c o n fi d e n c e . Yo u 'v e dismantled. I recommend the piece if acquired it the only way it can be you haven't seen it. Meanwhile, here's acquired: You've earned it. So those what the authors say in their closing, are a few of the reasons that I feel under the heading, 'Business Not as awfully good, awfully confident myself, Usual,' and let me quote: about the prospects for Western. " 'Eor companies fresh off the regula "The second point 1 want to make, tory treadmill, success will come from and this might be considered the abandonment of the regulation men other side of the coin, is that no tality and adoption of a competitive matter how encouraging the prospects frame of mind, adjustment to the new are for Western Electric in the new corporate climate with its stress on world, they aren't just going to evolve, performance, expediency, risk taking, 'i'ou have to make them happen. And if functional specialties and cross-fertil you were to let it unfold by itself, the i z a t i o n f r o m o t h e r i n d u s t r i e s w i l l b e future of this company in the new age difficult for most managers. The re would be zilch. Others would usurp ward structure will have to be revised your responsibilities. Others would to encourage risk taking rather than appropriate your markets, your tech smooth system maintenance. Skills in nology and your craftsmanship. They strategic planning v^'ill be at a pre would, that is. if you let them, and of mium. To meet changing market needs course you won't. 1 know that. We're in competitive situations, deregulated going to think on our feet and think companies will require more flexible and act correctly and quickly in order organizational structures. Indeed, sen to keep the edge we have today in this ior management must recognize that organization. We're going to guard the very essence of the business might against complacency against the temp change. In industries such as financial tation to stand on our history and our services, transportation and telecom legacy. Histories and legacies don't munications, companies face options buy you much, at least not for long in u n d r e a m t o f u n t i l n o w . B u s i n e s s a s this tough competitive environment. It usual for many companies may be a is. what have > ()u done for us today. road to obsolescence and irrelevance.' "1 know vou know that, but I also End of the author's quote." Reorganization—see page 5.

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