Nanyang Business School
In this report we will identify business risk that AT&T experienced due to their divestiture in 1982. We will conduct our analysis based on financial concepts, and finally recommend necessary actions that should have been conducted when the company formulated its financial policy in 1983.
2. AT&T Background
AT&T was founded in 1876 by Alexander Graham Bell. Prior to the divestiture AT&T had been a force to be reckoned with for over a century within the telephone service industry. Before the divestiture the …show more content…
Finally, AT&T had relied for a long time on their old and out-dated patents, which included old machinery, equipment and plants in order to create profit. As more and more competitors emerged with new technologies and services, AT&T needed to keep up with all changes in the market. As a result of the divestiture the R&D was reduced at Bell Laboratories and the development-part was eventually intergraded into the Western Electric division. After these changes many concerns arose relating to the future profitability of Western Electric (WE). Firstly, they were concerned that WE might not be able to attain marketing and product development skills that were vital in operating in the newly competitive markets. The main reason for this is that the workforce was used to working in a captive market, where competitors were almost non-existent. Secondly, WE’s manufacturing labor force had become unionized at the same time, as their plants were old. This meant that WE would have to invest in R&D to make sure that their competitors did not exceed them. Their unionized workforce would lead to a considerable increase in salary and WE would have to follow the regulations that were set by the labor union. As a consequence these factors would most likely affect both the firm’s market share and eventually the stock price in a