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Analysis of Telephone Company Management Problems

Telephone Company Management Problems

Industry Leaders

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Total Industry Earnings for 2004: 6.8 Billion Dollars

Chief Operating Officer: Michael D. Cappellas

2003 Sales (mil.) $27,315.0
1-Year Sales Growth (15.2%)
2003 Net Income (mil.) $22,211.0
2003 Employees 56,600
1-Year Employee Growth (9.7%)
Total Market Share 18.6%

Chief Operating Officer: David W. Dorman
Vice President: Thomas W. Thorton

2004 Sales (mil.) $30,537.0
1-Year Sales Growth (11.6%)
2004 Net Income (mil.) ($6,469.0)
2004 Employees 47,600
1-Year Employee Growth (22.7%)
Total Market Share 19.5%

Chief Operating Officer: Gary D. Forsee

2004 Sales (mil.) $27,428.0
1-Year Sales Growth 4.7%
2004 Net Income (mil.) ($1,012.0)
2004 Employees 59,900
1-Year Employee Growth (10.5%)
Total Market Share 13.5%

* Information from


Alexander Graham Bell patented the telephone in 1876, and formed Bell Telephone which licensed local telephone exchanges in major US cities. AT&T was formed in 1885 to connect the local Bell companies. Their logo read “The Bell System: AT&T and Associated Companies.” The network grew rapidly with the slogan “one system, one policy, and universal service.” In 1913 AT&T agreed to become a regulated monopoly.

Their monopoly would be allowed, but they had to connect competing local companies and let the Federal Communication Commission (FCC) approve their prices and policies Competition began creeping in 1956 when the courts overruled an FCC ban on Tom Carter’s Hush-a- Phone, a device which snapped on to a telephone and made it possible for the user to speak in a whisper. That was perhaps the first step in the dissolution of the telephone monopoly.

The Hush-a-Phone decision paved the way for 110 and 300 bit per second acoustically-coupled computer terminals, like the one shown here. Mr. Carter returned to court with his Carterphone, a device for patching radio calls into the telephone network. The 1968 Carterphone decision allowed the direct connection of devices to the AT&T network, creating an opportunity for many competitors.

Where do you think we would be today, if all telephones, modems, FAX machines and answering machines were sold by one company? The FCC also decided to permit a startup company called MCI to set up microwave links along the highway between Chicago and Saint Louis. On January 1, 1984, a court forced AT&T to give up its 22 local Bell companies, establishing seven Regional Bell Operating Companies (RBOC). A few local companies that were not wholly-owned subsidiaries of AT&T remained independent, but the RBOCs were very powerful and covered the US.

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Since that time, mergers have reduced the number of RBOCs to four: Verizon (originally Bell Atlantic and Nynex), Qwest (Qwest Communications International took over US West), BellSouth and SBC (originally Southwestern Bell and Pacific Telesys). The AT&T logo has evolved to reflect changing market conditions AT&T also spun off their equipment manufacturing and research operations.

They became a long-distance carrier with a new logo. AT&T had competition in long-distance from companies like MCI and Sprint, but the RBOCs could only offer local service. The Telecommunications Act of 1996 required RBOCs to allow competitors access to their local lines at regulated wholesale rates. In return, RBOCs could offer long-distance service if they demonstrated there was a local competition in their market.

In February 2004, the FCC ruled that electric power companies could use their wiring for Internet service, including voice over IP (VOIP). They also ruled that Pulver.Com and other companies providing computer-to-computer VOIP service should not be subject to the same regulations as telephone companies.

Like the Carterphone case, this may turn out to be a watershed event in the erosion of local telephone monopolies. Others fear that it may strengthen the telephone companies. It is too soon to tell. Other nations have also introduced private ownership and competition in the telephone industry.

Until 1984 AT&T was a regulated monopoly in the US, but it was privately owned. In other nations, the telephone company was usually a government-owned and operated monopoly. By 2001, most of those incumbent telephone operators had been privatized. Only two percent of world telecommunication revenue is generated by companies that are fully owned by the government. In spite of privatization and the introduction of competition, the initial incumbent telephone companies remain very powerful, accounting for 85% of telephone company revenue.

This is the case in the US also. The RBOCs remain dominant, although they are under threat from wireless operators, cable companies, VOIP providers, etc. Like incumbents in every nation, they use their influence and the courts to maintain their power.

Products and Services

Telecommunication Industry is known for its basic telephone services. Such as long-distance phone calls, local calls and 411 information services. However, over the years, they have expanded the services and products that they provide. Many companies now offer their own brands of telephones products, such as home telephones and answering machines.

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They have also many new services such as prepaid calling cards which allow customers to make a call from any payphone any place in the world. In addition to calling cards, all companies also offer to collect calls which allow the caller to call anyone and have it billed to the person receiving the call.

Due to the rise of the internet, many phone companies now offer some sort of internet connection services, which allows them to pay one monthly fee for both home telephone calls and internet service. Also in order to keep up with the cell phone market, many companies now offer caller ID and voicemail.

The caller ID allows you to see who is calling before you answer your phone by displaying the incoming call number on a screen. Voicemail makes there no need for an answering machine because it stores your messages electronically within the phone system. Both of these features come standard on cell phones and having them available on your home phone has help to keep some customers using their home phones and not cancelling their services.

Major Issues

Issue #1

Cell phones have taken most of the communication industry, over many people no longer see the need to have home phones because their cell phones can do all the same thing and most of the time is cheaper. The home telephone industry has been fighting to get customers off their cell phones and on to their homes.

I feel that this problem can be solved in a number of ways. The first and most basic solution is to make a home phone as closely priced to cell phone charges as possible. Also remind customers that with a landline that you never get a bad connection, you always able to make your call because you are never out of range and that you can never go over your minutes and be charged extra for your calls.

Something else that might help them to compete is to offer some of the same services such as caller ID and voicemail for no charge just as the cell phone companies do.

Issue # 2

How do you get new customers in an ever-changing environment? Many companies have problems getting customers to switch from one service to another.

This is a big problem among large companies because they are always trying to get customers onto their service and away from their competitors. The key to solving this problem is finding what the customers find wrong with their service and making it an issue with yours.

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Pushing that you care about what they care about and you will work as hard as you can to make it right. This will also help to keep your current customers happy and make them stay with your service and not move to one of your competitors. That is truly key because if you can get new customers but can’t keep the ones you have it really makes no difference.

Issue #3

Many large companies are faced with the problem of being under constant watch from the government. The reason for this is because many of them are too big and fall under the anti-trust laws. An example of this is AT&T, they have been broken up many times in their company’s existent.

The way that these large companies should go about this is when starting a new venture they should start smaller companies to run the service. Also, they should look partner up with smaller companies which can help them deal with customer service and local matter. The reason that this is necessary is that large companies have trouble when it comes to dealing with individuals so letting a smaller company handle that part would help them tremendously.


“Products and Services .” AT&T . 16 Mar. 2005 <>.
“Telecommunication Leaders .” 01 2003. Hoovers. Hoovers. 16 Mar 2005 <>.
“History of MCI.” History. MCI. 16 Mar. 2005 <*j>.
Marks , John . “CNN Money .” Telephone Leaders . CNN. 16 Mar. 2005 <>.

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