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The Fall of AT&T Wireless



 
 
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Old September 21st 04, 04:46 PM
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http://seattlepi.nwsource.com/busine...42_attw21.html

The Fall of AT&T Wireless
(Seattle Post-Intelligencer, 9-21-04)
By DAN RICHMAN


In the end, a single event may have sealed AT&T Wireless's fate: the
opportunity for its customers to leave.

A mass exodus from the Redmond carrier began late last year when, compelled
by a new federal rule, wireless companies let subscribers switch among them
while keeping their phone numbers. The portability rule's object was to
increase competition by letting customers choose the best service without
penalty.

Freedom of choice meant a financial and public relations disaster for AT&T
Wireless. In the first three months of this year, millions of subscribers
fled the company.

Years of substandard customer care, spotty coverage and dropped calls had
taken their toll.

"The line from the company was that we lost those people out of bad luck,"
said a regional sales manager. "But they walked away flipping us the bird.
They aggressively walked away from us. They couldn't wait to get away from
us."

By the spring, it was obvious not only that AT&T Wireless was hemorrhaging
customers but also that rivals, especially No. 1 carrier Verizon Wireless,
were snapping them up. Customers were making a choice, and that choice was
not AT&T Wireless.

"When wireless portability came along, it became clear AT&T Wireless was
losing, so they put themselves up for sale," said Derek Kerton, principal
analyst with wireless-consultancy The Kerton Group.

Onto the auction block the company went, selling itself to the highest
bidder. Atlanta-based Cingular Wireless agreed to pay $41 billion in the
largest cash takeover in U.S. history.

The deal, which could close as early as next month, likely will be followed
by massive layoffs among the company's more than 31,000 employees -- 5,700
of whom live in the Puget Sound region.

The takeover is good news for those shareholders who receive a premium on a
historically anemic stock. But it means Seattle will say goodbye to yet
another major corporation -- one that began as McCaw Cellular
Communications, a storied local company that has generated some of the
region's most influential and innovative business leaders.

Its trajectory could have been very different.

Ten years before, the tiny cellular division at telecommunications giant
AT&T Corp., based in New Jersey, got a kick-start of 2 million subscribers
when it bought McCaw Cellular for $11.5 billion.

Anxiety mixed with excitement among McCaw staffers, who feared losing the
spirit of their entrepreneurial organization but believed that taking on the
AT&T brand, experience and war chest would propel the small company into one
that could dominate in the new, evolving market.

"When we came over (to AT&T), we felt we were hooking ourselves to a star,"
said former McCaw Cellular spokesman Bob Ratliffe.

At first, it seemed that combining the companies had indeed created a
winner. By the end of 1997, AT&T Wireless had become by far the nation's
largest cellular provider. It led the industry, creating the first national
coverage plan with no roaming or long-distance fees.

The company received numerous awards for excellent service, and by 2000
several publications, including Forbes and PC Magazine, had named it the
country's best wireless network.

But soon after that, even with the $7 billion it retained from its initial
public stock offering, AT&T Wireless started losing out to its
competitors -- companies that hadn't even existed a year earlier. Those
rivals came into existence only after AT&T Wireless showed that offering
national coverage was technologically and economically feasible.

The customer service and comprehensive coverage that had distinguished AT&T
Wireless began to deteriorate, while the company's competitors improved both
of those critical facets. The final blow came late last year, with the FCC's
ruling implementing local number portability. Customers defected, the
company was put up for sale, and the fate of AT&T Wireless was placed in the
hands of the highest bidder.

On Feb. 18 at 2:30 a.m., AT&T Wireless Chief Executive John Zeglis shook
hands with top Cingular executives on the $41 billion deal.

"I'm feeling good!" Zeglis exclaimed later that morning. "We are doing right
by the three legs of the stool we sit on: our shareholders, customers and
employees."

Certainly some employees will benefit from the deal. Foremost among them may
be Zeglis himself. He will get $21.7 million. A total of more than $86
million will be split among AT&T Wireless executives and directors.

But customers, former employees and angry workers, who now face the
possibility of losing their jobs, wonder why it had to end this way. Could
AT&T Wireless have been where Verizon is now? Or could it have been as big
as No. 2 Cingular, poised to buy another, smaller cellular carrier?

Why did AT&T Wireless go from industry leader to industry loser?

The McCaw roots

When AT&T Corp. bought Craig McCaw's cellular company in 1994, that
flourishing startup formed the backbone of AT&T Corp.'s wireless division.
It was an "amazingly strong culture," running lean, keeping things simple
and stressing customer service above all, said Bob Ratliffe, one of more
than 50 people interviewed for this story.

Cath Washburn, former McCaw senior vice president of human relations,
recalled, "It had so many good things going for it. So many good people, who
just worked their butts off for the company."

After the purchase, workers there remained optimistic for several years.
When the acquisition became final, AT&T Corp. management allowed Jim
Barksdale, who was running McCaw when it was acquired, to remain at the helm
of the new division.

McCaw employees were initially reluctant to embrace the AT&T Wireless name,
out of pride in their own company, recalled Steve Hooper, another McCaw
staffer who served as chief executive of AT&T Wireless. But "when each
market rolled over its name to AT&T Wireless, we did it with classic McCaw
support and enthusiasm. So when I left, people had embraced the name, loved
the name," he said.

But there were strong cultural differences between the two companies. AT&T
Corp. was a highly regulated business, a former monopoly, and strongly
hierarchical in structure. McCaw was an upstart and was free form, if not
nearly anarchic.

When AT&T Corp. brought in the first AT&T "corporate man," Dan Hesse, to
lead the wireless company in May 1997, leery McCaw employees thought the end
had come.

"Everyone was worried about him, because he came from AT&T," recalled
Washburn. "But he did his best to keep the culture and the environment
going."

By the end of 1997, AT&T Wireless had become the nation's largest cellular
provider. Under Hesse's watch, AT&T Wireless lost its subscriber lead. By
other measures, though, the company remained a leader. It was profitable,
and its revenue growth outstripped that of its largest competitors.

AT&T Wireless was especially popular among businesses. That lucrative niche
was developed mainly through the creation, in May 1998, of the Digital One
Rate by Hesse and his staff. It was the first plan offering national
coverage with no roaming or long-distance fees. A national network itself
was still a novelty, much less one with such a simple, economical fee
structure. Companies loved it.

"It caused the rest of the industry to follow suit," said Verizon Chief
Executive Denny Strigl. "It wasn't long after that Verizon Wireless adopted
what we called our single-rate plan."

The big challenge

In 1999 and 2000, the cellular industry began to consolidate, presenting
AT&T Wireless with its biggest competitive challenge yet. Companies merged.
Then the merged companies merged. The new mega-companies bought or built
their own national networks, acquiring subscriber numbers in the
double-digit millions.

From those mergers in April 1999 came Cingular Wireless, which assumed the
No. 2 position that year. Then in July 2000, Verizon Wireless was formed,
instantly becoming the nation's largest carrier.

Acquisitions help cellular companies attract new subscribers by expanding
and strengthening their coverage. AT&T Wireless never made such major
acquisitions, resulting in network coverage inferior to that of its closest
rivals. By the end of 2000, AT&T Wireless had become the nation's No. 3
carrier.

Enter Zeglis

In October 1999, as AT&T Wireless was losing ground, John Zeglis arrived as
its chief executive. The vibrant organization that Hesse had found when he
arrived changed dramatically during the tenure of Zeglis, who declined to be
interviewed for this story.

A Harvard Law School graduate who had served as AT&T Corp.'s general counsel
before becoming its president, Zeglis had little exposure to business
outside AT&T Corp.'s headquarters. The company had hired him in the late
1970s from prestigious law firm Sidley & Austin, where he had served as
general counsel.

"I think the selection of the CEO had some people scratching their heads,
because he was an attorney as opposed to a seasoned executive," recalled Sam
Ginn, former chief executive of AirTouch Cellular Inc.

Nor did Zeglis seem interested in learning the industry or the company by
immersing himself in either, said several former executives, who asked not
to be identified because they're still employed by the company or active in
the industry. Despite promises to do so -- made in front of employees at a
general meeting -- Zeglis and many other key executives have never moved
from New Jersey, instead continuing to run the company from there.

"When they were asked by employees why they weren't moving, their answer was
that it would be easier to work with Wall Street and the national media if
they stayed in New Jersey," said a former senior staffer who spent more than
13 years at the company. "Well, what do Microsoft and Starbucks do? That
didn't help employee morale."

AT&T Wireless spokesman David Caouette said Zeglis maintains a townhouse in
Kirkland and spends two-thirds of his time there.

Zeglis surrounded himself by "cronies" -- a word used by two former senior
executives -- who insulated him from knowledgeable McCaw workers, and he
created layers of bureaucracy.

"He brought his secretary, and his secretary had a secretary," said a former
senior executive. "He brought this huge staff of people that were his
handlers."

Caouette denied that assertion.

A change in culture

As the freewheeling McCaw culture yielded to bureaucracy, communication
among employees faltered.

"With AT&T folks, simplicity went out the window," said the former senior
staffer who spent more than 13 years at the company. "Every six months there
were updates to the strategic initiatives coming from Zeglis. And they
flip-flopped: first, 'Add new customers;' then, 'Focus on keeping existing
customers.' When 30,000 (employees) across the country feel they're getting
a new message so often, it's hard."

McCaw had been an open, convivial environment, where management decisions
were loudly debated and even high-ranking executives could be told their
ideas were off base. In contrast, the company under Zeglis discouraged open
discussion, said a former executive with more than five years at the
company.

"Those who remained, who had the experience, found themselves in a situation
where it wasn't politically correct to necessarily say what needed to be
said," she recalled.

McCaw veterans said Zeglis' hires grated on McCaw staffers -- and
vice-versa. Many McCaw employees came to feel isolated and marginalized.

"(Employees) told me a number of times that they felt like they were walking
around with a big target painted on them," the former senior executive said.

The new regime had different spending habits, several executives said. More
went to executive salaries, support staff, buildings in New York and New
Jersey and corporate jets.

For example, in contrast to McCaw's lean style, Zeglis upgraded from the
company's Falcon 50 jet to a bigger Gulfstream jet for commuting -- then put
millions of dollars more into a new interior for it. He later bought
another, even larger Gulfstream.

Less money than in the past went toward maintaining and improving the
quality of the wireless network and the customer-care division -- the two
aspects of a cellular company that most directly affect customers.

"The network was the No. 1 reason that tanked the company -- especially
problems on the East Coast and in the Northeast," said the former senior
staffer who spent more than 13 years at the company.

Executive exodus

Before long, executives began to leave en masse. Hesse quit a couple of
months after Zeglis arrived. So did a number of key McCaw folks -- so many,
in fact, that several people referred to the departures as a brain drain.
Within 18 months, all six McCaw regional presidents had left.

The heads of the companies that were rapidly gaining on AT&T Wireless --
Cingular's Stan Sigman and Verizon's Denny Strigl -- "had a lot of history
in the (cellular) business," said former Chief Executive Steve Hooper. In
contrast, "the team at AT&T Wireless after Dan Hesse left didn't. To kind of
just fly into it from some other area of telecommunications is just a real
challenge."

In April 2000, through the largest IPO until then, AT&T Wireless became a
separately traded entity, although it remained a division of parent company
AT&T Corp. The division's future was thought to be so bright that only
freeing its share price from that of its stodgy parent company would let
AT&T Wireless achieve its full value.

With both investors and employees clamoring for a share, the offering raised
$10.6 billion, of which the wireless division kept $7 billion.

In early May, the stock hit its all-time high of $35.25. Almost immediately
it began to decline, as did the shares of all the cellular carriers during
the tech bust that began in the spring of 2000.

In July 2001, AT&T Wireless became a separate company, no longer a division
of AT&T Corp. But shares continued to sink steadily during the next three
years, climbing into the low teens only when rumors of a buyout began
swirling early this year.

An unfortunate choice

One origin of the decline may have been a moment soon after AT&T Corp.
bought McCaw, when it made a conservative technology choice that would prove
disastrous because it left no room for long-term growth.

McCaw for some time had been leading the transition from older, analog
technology to a more efficient, digital system. It chose the most widely
accepted of the rival digital standards emerging in the late 1980s, dubbed
TDMA.

When AT&T Wireless bought McCaw, it had to choose between embracing McCaw's
choice or tearing that out and rebuilding with one of two more advanced,
more capable technologies, known as CDMA and GSM. The first of those was
still unproven, while the other was virtually unknown in the United States
but ubiquitous in Europe.

If AT&T Wireless had chosen either of those new technologies, it could have
sidestepped the costly, difficult changeover required a few years ago as it
started outgrowing its old network. But it didn't.

Choosing to continue with its old network was perhaps foreseeable for the
conservative management at AT&T Corp. Changes the company made to its old
network did improve its voice quality. But as events proved, retaining that
network was a wrong choice, and one that cost it dearly.

"Sprint and Verizon went with this wild ... technology, which no one knew
whether it would work right," said Michael Dellomo, a lecturer in
telecommunications at the University of Maryland. "Sprint went crazy with
it -- it just didn't work (at first). But they were moving toward the
future, whereas AT&T Wireless was busy implementing the past."

Former McCaw and AT&T Wireless technology chief Nick Kauser agreed.

"Did we make the wrong technology choice?" he asked rhetorically. "I feel
responsible that we probably did."

Later, cellular carriers tried to sell more airtime by moving customers to
phones capable of text messaging, taking and sending photographs and
accessing the Internet. AT&T Wireless's network lacked most of those
capabilities. That meant the company by late 2000 was forced to move to one
of the new technologies.

"That (distraction) hurt AT&T Wireless badly, while Verizon was very
successful in establishing the network-superiority message," said Mark
Lowenstein, managing director of consultancy Mobile Ecosystems. "AT&T
Wireless had about 40 percent of the corporate market, and they allowed
Verizon to take their network story away."

AT&T Wireless ended up choosing the technology ubiquitous in Europe. The
change required enormous expenditures of time, energy and money to create a
second nationwide network. Meanwhile, its competitors were free to improve
existing networks and expand service offerings.

As a result, AT&T Wireless fell behind.

The company's difficult move from one technology to the other caused
problems with dropped calls, interference and difficulties connecting, said
Herschel Shosteck, president of telecommunications consultancy The Shosteck
Group.

Moreover, AT&T Wireless "never, never acknowledged to us that there were
problems," he said. "And any company that doesn't acknowledge it has
problems when they're there -- we think it's in a dangerous position."

Cingular initially chose the same technology that AT&T Wireless had
inherited from McCaw. But when it moved to the same newer technology AT&T
Wireless had chosen, it dealt with the transition faster and more
effectively. Cingular also chose a frequency that gave its signals better
range and let them penetrate buildings better than AT&T Wireless's, said Ira
Brodsky, president of technology analysts Datacomm Research Co.

Marketing and spending gaffes

Even when AT&T Wireless gained a technological edge, it sometimes failed to
capitalize on that advantage. A long string of marketing mistakes resulted
from management's lack of vision.

In the mid-1990s, the Redmond company had been the only cellular carrier
with anything close to a nationwide network. Though it was partly analog and
partly digital, handsets were available to accommodate that duality, said
analyst Michael Dellomo. But the company failed at the time to market its
industry-leading coverage.

"Why didn't AT&T Wireless jump on it?" he asked. "They could have made a
real case for saying they offered true nationwide coverage. It was all their
network. They wouldn't even have had to charge for roaming."

Later, when the company pioneered Digital One Rate, that program gave it a
strong advantage over its competitors. But within a year or two, its ad
campaign for that program seemed to fade away, Lowenstein said. And as the
brand faded, similar offerings appeared from competitors. Before long,
national calling plans were nothing special.

AT&T Wireless branded its e-mail and Web access services with the "mMode"
label, a name that baffled some people, said "Mobile PC" magazine editor
Robert Strohmeyer.

Last year the company introduced "mLife" to advertise its data services, a
word that meant nothing to many consumers. Then, the company in July
launched its latest wireless data service -- one of three it now offers --
under the name UMTS, which no one could find memorable. It has made no
effort to distinguish that from GPRS or EDGE, its two earlier wireless
efforts.

"I think they have had too many brands," said Bo Hedfors, a 36-year veteran
of the cellular industry who once served as chief executive of handset-maker
Ericsson Inc. "How they positioned themselves, it was at times somewhat
confusing."

No help from Ma

When AT&T Corp. bought McCaw, workers at the smaller company were excited at
the prospect of having access to their new owner's war chest to fund
expansion. Ironically, though, it was AT&T Corp. that had its hand out.

Under the leadership of C. Michael Armstrong, AT&T Corp. in 1999 charged
into the market for cable companies, spending billions of dollars buying TCI
and MediaOne.

Unfortunately for AT&T Wireless, its parent company went so far as to sell
off AT&T Wireless's spectrum licenses to buy cable companies, said former
CIO Nick Kauser. A spectrum license is the right to use a given frequency in
a certain geographical area.

Then, when Digital One Rate succeeded so wildly, AT&T Wireless was forced to
buy back the same licenses it had just sold.

"At the time, AT&T Corp. had a strong balance sheet," Kauser said. "If it
had gone on an acquisition binge instead of divesting (cellular) properties,
AT&T Wireless could very well be the No. 1 carrier today."

Issues with quality

AT&T Wireless hoped that the move to a new network would improve its
reputation for substandard network quality and customer service. But the
move just added fuel to the fire.

In late 2003, the company tried to install new software for signing up and
coordinating customers using its new network. According to many employee
accounts, that software was so complex to implement that it took months.
Those employees said the implementation should never have been commenced so
close to the Federal Communications Commission's November deadline for
implementing local-number portability.

The software was so crippled that it kept thousands of would-be customers
from signing up with AT&T Wireless and prevented thousands more from making
changes to their accounts. Fixing it took months.

Right on the heels of that foul-up, the company botched its implementation
of local-number portability. Late last year, AT&T Wireless delayed about 60
percent of customers who were trying to leave it while keeping their phone
numbers. That delay prompted the FCC to request an explanation.

Customer service representatives were flooded with complaints about both
problems and had no way to help callers.

"The mood here is bad and getting worse all the time," said one
representative at the time. "(The problems) were both pretty disastrous. You
have lots of people complaining to you, including my own father, who'd been
a customer since 1996. It was a very, very hard time, and no one could
explain why they were having those problems."

As a result, the company's reputation continued to decline.

AT&T Wireless faced a public relations nightmare. Customers who desperately
wanted to leave couldn't do so because of problems in the very customer
service they were trying to flee.

Potential customers couldn't sign up, either. For months, when clerks at
retail outlets couldn't activate new AT&T Wireless accounts, they simply
steered customers to other carriers.

By the time the number portability debacle had abated, there was no illusion
anymore. AT&T Wireless was on the ropes.

Number portability was "the turning point that made them a purchasee rather
than a purchaser," said Derek Kerton, principal analyst with
wireless-consultancy The Kerton Group. "I think it was bad management. ...
Combine that with bad luck, and you end up where you are."

'A positive exit strategy'

As early as 2003, suspicions arose within AT&T Wireless that management
might be preparing the company to be sold, according to some former workers.

"I started to hear this (rumor) when the leadership started to give
ambiguous comments like, 'We're always considering any opportunities that
make sense for the business,' said a former manager who put in 10 years at
the company. "Before that, it had been, 'We're growing, we will stay
together.' "

In discussing the company's attitude toward acquisitions, AT&T Wireless
executives seemed almost ambivalent. The company was "always looking at
possible mergers or acquisitions as a way for us to grow," said Lew Chakrin,
AT&T Wireless's strategy chief.

But growth was always just one of several possibilities, said data division
head Andre Dahan.

"We have at different times looked at growth versus acquisition versus an
exit strategy like being acquired," he said. "We decided to participate in
this way (selling to Cingular), and I think it's absolutely a positive exit
strategy."

Cingular has a very different philosophy. It has been consistently
aggressive in its growth.

BellSouth, which owns 40 percent of Cingular, once came close to buying AT&T
Corp. itself. Edward Whitacre Jr., chairman and chief executive of SBC
Communications -- which owns the other 60 percent of Cingular -- has a
reputation as a fearsome acquirer of companies.

Cingular will buy AT&T Wireless, and not vice-versa, because "Cingular was
the most aggressive," said Bo Hedfors, the former Ericsson CEO. "It has to
do with its financial situation and also with leadership -- who was most
aggressive?"

In a weakened state at the end of 2003, AT&T Wireless found itself being
circled by three large companies, all of them in a buying mood.

NTT DoCoMo Inc., Vodafone and Cingular "started to converge on us as a very
attractive target," Chakrin said. "We were the only (wireless-only) company
that's publicly traded, and so we were acquirable."

On Jan. 22, after reporting the slowest growth of any U.S. cellular company
and a loss for the quarter, AT&T Wireless officially put itself up for sale.
On Feb. 18, Cingular agreed to buy AT&T Wireless for nearly $41 billion.

The movie ends

In selling, AT&T Wireless will do well by its shareholders. They'll get a 27
percent premium on their stock. But the company could have driven up share
prices by superb execution, or by making acquisitions, rather than by
selling.

Customers may eventually benefit from an expanded network and better
coverage -- but not, experts predict, before going through a painful period
while the companies integrate their operations.

As for AT&T Wireless's employees, things likely won't work out so well. The
merger will create thousands of redundant positions.

While neither company will discuss impending layoffs because the deal hasn't
yet been finalized, typically it is the seller whose employees see the
majority of pink slips. Experts predicted that AT&T Wireless will bear the
brunt of the layoffs, though the companies said they'll retain the
best-qualified employees at whichever company they work. Cingular has
pledged no layoffs will occur this year.

Current employees expressed anxiety over the pending sale, and even those
who left the company long ago expressed regret.

Former McCaw Cellular executive Bill Malloy remembered that around 1992,
when the company got into the discussions with AT&T Corp. about some form of
cooperation, McCaw employees' excitement at that prospect revolved around
AT&T's "revered" brand.

"We just saw this great opportunity that if you ever took on this brand of
AT&T and attached it to wireless, you'd just live out the dream: to become
absolutely the wireless company that customers stayed with and trusted," he
said.

"So when you ask, are you disappointed (with this outcome), well,
absolutely, you are, because I never wanted to see AT&T Wireless go away.
That's just not the way you would have wanted to end the movie."

P-I reporter Dan Richman can be reached at 206-448-8032 or



  #2  
Old September 21st 04, 05:39 PM
Spike
external usenet poster
 
Posts: n/a
Default

I have seen it over and over again..Degrees don't always
bring with them business acumen. And as an ATTWS
subscriber for twelve years lived through it all from McCAW
to ATT(Waarless) Service and finally bailed. To me TDMA
really stunk to high heaven, although ultimately improved.
Personnel at ATTWS seem to be selected for their unique
ability to irritate and drive away customers. They'll give a
"diverse" female employee a thirty minute course on which
end of a phone to talk into, she then is a know-it-all
"expert" who creates problems for customers. Being from
a Cingular area, I would say that this was a match made in
"hell," and I personally would not put any money on this
new horse.


  #3  
Old September 22nd 04, 05:14 AM
CSS
external usenet poster
 
Posts: n/a
Default

Having been a customer of this company over the past few years, this story
really puts a perspective on what I observed as an end user...


":P" wrote in message
...



http://seattlepi.nwsource.com/busine...42_attw21.html

The Fall of AT&T Wireless
(Seattle Post-Intelligencer, 9-21-04)
By DAN RICHMAN


In the end, a single event may have sealed AT&T Wireless's fate: the
opportunity for its customers to leave.

A mass exodus from the Redmond carrier began late last year when,

compelled
by a new federal rule, wireless companies let subscribers switch among

them
while keeping their phone numbers. The portability rule's object was to
increase competition by letting customers choose the best service without
penalty.

Freedom of choice meant a financial and public relations disaster for AT&T
Wireless. In the first three months of this year, millions of subscribers
fled the company.

Years of substandard customer care, spotty coverage and dropped calls had
taken their toll.

"The line from the company was that we lost those people out of bad luck,"
said a regional sales manager. "But they walked away flipping us the bird.
They aggressively walked away from us. They couldn't wait to get away from
us."

By the spring, it was obvious not only that AT&T Wireless was hemorrhaging
customers but also that rivals, especially No. 1 carrier Verizon Wireless,
were snapping them up. Customers were making a choice, and that choice was
not AT&T Wireless.

"When wireless portability came along, it became clear AT&T Wireless was
losing, so they put themselves up for sale," said Derek Kerton, principal
analyst with wireless-consultancy The Kerton Group.

Onto the auction block the company went, selling itself to the highest
bidder. Atlanta-based Cingular Wireless agreed to pay $41 billion in the
largest cash takeover in U.S. history.

The deal, which could close as early as next month, likely will be

followed
by massive layoffs among the company's more than 31,000 employees -- 5,700
of whom live in the Puget Sound region.

The takeover is good news for those shareholders who receive a premium on

a
historically anemic stock. But it means Seattle will say goodbye to yet
another major corporation -- one that began as McCaw Cellular
Communications, a storied local company that has generated some of the
region's most influential and innovative business leaders.

Its trajectory could have been very different.

Ten years before, the tiny cellular division at telecommunications giant
AT&T Corp., based in New Jersey, got a kick-start of 2 million subscribers
when it bought McCaw Cellular for $11.5 billion.

Anxiety mixed with excitement among McCaw staffers, who feared losing the
spirit of their entrepreneurial organization but believed that taking on

the
AT&T brand, experience and war chest would propel the small company into

one
that could dominate in the new, evolving market.

"When we came over (to AT&T), we felt we were hooking ourselves to a

star,"
said former McCaw Cellular spokesman Bob Ratliffe.

At first, it seemed that combining the companies had indeed created a
winner. By the end of 1997, AT&T Wireless had become by far the nation's
largest cellular provider. It led the industry, creating the first

national
coverage plan with no roaming or long-distance fees.

The company received numerous awards for excellent service, and by 2000
several publications, including Forbes and PC Magazine, had named it the
country's best wireless network.

But soon after that, even with the $7 billion it retained from its initial
public stock offering, AT&T Wireless started losing out to its
competitors -- companies that hadn't even existed a year earlier. Those
rivals came into existence only after AT&T Wireless showed that offering
national coverage was technologically and economically feasible.

The customer service and comprehensive coverage that had distinguished

AT&T
Wireless began to deteriorate, while the company's competitors improved

both
of those critical facets. The final blow came late last year, with the

FCC's
ruling implementing local number portability. Customers defected, the
company was put up for sale, and the fate of AT&T Wireless was placed in

the
hands of the highest bidder.

On Feb. 18 at 2:30 a.m., AT&T Wireless Chief Executive John Zeglis shook
hands with top Cingular executives on the $41 billion deal.

"I'm feeling good!" Zeglis exclaimed later that morning. "We are doing

right
by the three legs of the stool we sit on: our shareholders, customers and
employees."

Certainly some employees will benefit from the deal. Foremost among them

may
be Zeglis himself. He will get $21.7 million. A total of more than $86
million will be split among AT&T Wireless executives and directors.

But customers, former employees and angry workers, who now face the
possibility of losing their jobs, wonder why it had to end this way. Could
AT&T Wireless have been where Verizon is now? Or could it have been as big
as No. 2 Cingular, poised to buy another, smaller cellular carrier?

Why did AT&T Wireless go from industry leader to industry loser?

The McCaw roots

When AT&T Corp. bought Craig McCaw's cellular company in 1994, that
flourishing startup formed the backbone of AT&T Corp.'s wireless division.
It was an "amazingly strong culture," running lean, keeping things simple
and stressing customer service above all, said Bob Ratliffe, one of more
than 50 people interviewed for this story.

Cath Washburn, former McCaw senior vice president of human relations,
recalled, "It had so many good things going for it. So many good people,

who
just worked their butts off for the company."

After the purchase, workers there remained optimistic for several years.
When the acquisition became final, AT&T Corp. management allowed Jim
Barksdale, who was running McCaw when it was acquired, to remain at the

helm
of the new division.

McCaw employees were initially reluctant to embrace the AT&T Wireless

name,
out of pride in their own company, recalled Steve Hooper, another McCaw
staffer who served as chief executive of AT&T Wireless. But "when each
market rolled over its name to AT&T Wireless, we did it with classic McCaw
support and enthusiasm. So when I left, people had embraced the name,

loved
the name," he said.

But there were strong cultural differences between the two companies. AT&T
Corp. was a highly regulated business, a former monopoly, and strongly
hierarchical in structure. McCaw was an upstart and was free form, if not
nearly anarchic.

When AT&T Corp. brought in the first AT&T "corporate man," Dan Hesse, to
lead the wireless company in May 1997, leery McCaw employees thought the

end
had come.

"Everyone was worried about him, because he came from AT&T," recalled
Washburn. "But he did his best to keep the culture and the environment
going."

By the end of 1997, AT&T Wireless had become the nation's largest cellular
provider. Under Hesse's watch, AT&T Wireless lost its subscriber lead. By
other measures, though, the company remained a leader. It was profitable,
and its revenue growth outstripped that of its largest competitors.

AT&T Wireless was especially popular among businesses. That lucrative

niche
was developed mainly through the creation, in May 1998, of the Digital One
Rate by Hesse and his staff. It was the first plan offering national
coverage with no roaming or long-distance fees. A national network itself
was still a novelty, much less one with such a simple, economical fee
structure. Companies loved it.

"It caused the rest of the industry to follow suit," said Verizon Chief
Executive Denny Strigl. "It wasn't long after that Verizon Wireless

adopted
what we called our single-rate plan."

The big challenge

In 1999 and 2000, the cellular industry began to consolidate, presenting
AT&T Wireless with its biggest competitive challenge yet. Companies

merged.
Then the merged companies merged. The new mega-companies bought or built
their own national networks, acquiring subscriber numbers in the
double-digit millions.

From those mergers in April 1999 came Cingular Wireless, which assumed the
No. 2 position that year. Then in July 2000, Verizon Wireless was formed,
instantly becoming the nation's largest carrier.

Acquisitions help cellular companies attract new subscribers by expanding
and strengthening their coverage. AT&T Wireless never made such major
acquisitions, resulting in network coverage inferior to that of its

closest
rivals. By the end of 2000, AT&T Wireless had become the nation's No. 3
carrier.

Enter Zeglis

In October 1999, as AT&T Wireless was losing ground, John Zeglis arrived

as
its chief executive. The vibrant organization that Hesse had found when he
arrived changed dramatically during the tenure of Zeglis, who declined to

be
interviewed for this story.

A Harvard Law School graduate who had served as AT&T Corp.'s general

counsel
before becoming its president, Zeglis had little exposure to business
outside AT&T Corp.'s headquarters. The company had hired him in the late
1970s from prestigious law firm Sidley & Austin, where he had served as
general counsel.

"I think the selection of the CEO had some people scratching their heads,
because he was an attorney as opposed to a seasoned executive," recalled

Sam
Ginn, former chief executive of AirTouch Cellular Inc.

Nor did Zeglis seem interested in learning the industry or the company by
immersing himself in either, said several former executives, who asked not


to be identified because they're still employed by the company or active

in
the industry. Despite promises to do so -- made in front of employees at a
general meeting -- Zeglis and many other key executives have never moved
from New Jersey, instead continuing to run the company from there.

"When they were asked by employees why they weren't moving, their answer

was
that it would be easier to work with Wall Street and the national media if
they stayed in New Jersey," said a former senior staffer who spent more

than
13 years at the company. "Well, what do Microsoft and Starbucks do? That
didn't help employee morale."

AT&T Wireless spokesman David Caouette said Zeglis maintains a townhouse

in
Kirkland and spends two-thirds of his time there.

Zeglis surrounded himself by "cronies" -- a word used by two former senior
executives -- who insulated him from knowledgeable McCaw workers, and he
created layers of bureaucracy.

"He brought his secretary, and his secretary had a secretary," said a

former
senior executive. "He brought this huge staff of people that were his
handlers."

Caouette denied that assertion.

A change in culture

As the freewheeling McCaw culture yielded to bureaucracy, communication
among employees faltered.

"With AT&T folks, simplicity went out the window," said the former senior
staffer who spent more than 13 years at the company. "Every six months

there
were updates to the strategic initiatives coming from Zeglis. And they
flip-flopped: first, 'Add new customers;' then, 'Focus on keeping existing
customers.' When 30,000 (employees) across the country feel they're

getting
a new message so often, it's hard."

McCaw had been an open, convivial environment, where management decisions
were loudly debated and even high-ranking executives could be told their
ideas were off base. In contrast, the company under Zeglis discouraged

open
discussion, said a former executive with more than five years at the
company.

"Those who remained, who had the experience, found themselves in a

situation
where it wasn't politically correct to necessarily say what needed to be
said," she recalled.

McCaw veterans said Zeglis' hires grated on McCaw staffers -- and
vice-versa. Many McCaw employees came to feel isolated and marginalized.

"(Employees) told me a number of times that they felt like they were

walking
around with a big target painted on them," the former senior executive

said.

The new regime had different spending habits, several executives said.

More
went to executive salaries, support staff, buildings in New York and New
Jersey and corporate jets.

For example, in contrast to McCaw's lean style, Zeglis upgraded from the
company's Falcon 50 jet to a bigger Gulfstream jet for commuting -- then

put
millions of dollars more into a new interior for it. He later bought
another, even larger Gulfstream.

Less money than in the past went toward maintaining and improving the
quality of the wireless network and the customer-care division -- the two
aspects of a cellular company that most directly affect customers.

"The network was the No. 1 reason that tanked the company -- especially
problems on the East Coast and in the Northeast," said the former senior
staffer who spent more than 13 years at the company.

Executive exodus

Before long, executives began to leave en masse. Hesse quit a couple of
months after Zeglis arrived. So did a number of key McCaw folks -- so

many,
in fact, that several people referred to the departures as a brain drain.
Within 18 months, all six McCaw regional presidents had left.

The heads of the companies that were rapidly gaining on AT&T Wireless --
Cingular's Stan Sigman and Verizon's Denny Strigl -- "had a lot of history
in the (cellular) business," said former Chief Executive Steve Hooper. In
contrast, "the team at AT&T Wireless after Dan Hesse left didn't. To kind

of
just fly into it from some other area of telecommunications is just a real
challenge."

In April 2000, through the largest IPO until then, AT&T Wireless became a
separately traded entity, although it remained a division of parent

company
AT&T Corp. The division's future was thought to be so bright that only
freeing its share price from that of its stodgy parent company would let
AT&T Wireless achieve its full value.

With both investors and employees clamoring for a share, the offering

raised
$10.6 billion, of which the wireless division kept $7 billion.

In early May, the stock hit its all-time high of $35.25. Almost

immediately
it began to decline, as did the shares of all the cellular carriers during
the tech bust that began in the spring of 2000.

In July 2001, AT&T Wireless became a separate company, no longer a

division
of AT&T Corp. But shares continued to sink steadily during the next three
years, climbing into the low teens only when rumors of a buyout began
swirling early this year.

An unfortunate choice

One origin of the decline may have been a moment soon after AT&T Corp.
bought McCaw, when it made a conservative technology choice that would

prove
disastrous because it left no room for long-term growth.

McCaw for some time had been leading the transition from older, analog
technology to a more efficient, digital system. It chose the most widely
accepted of the rival digital standards emerging in the late 1980s, dubbed
TDMA.

When AT&T Wireless bought McCaw, it had to choose between embracing

McCaw's
choice or tearing that out and rebuilding with one of two more advanced,
more capable technologies, known as CDMA and GSM. The first of those was
still unproven, while the other was virtually unknown in the United States
but ubiquitous in Europe.

If AT&T Wireless had chosen either of those new technologies, it could

have
sidestepped the costly, difficult changeover required a few years ago as

it
started outgrowing its old network. But it didn't.

Choosing to continue with its old network was perhaps foreseeable for the
conservative management at AT&T Corp. Changes the company made to its old
network did improve its voice quality. But as events proved, retaining

that
network was a wrong choice, and one that cost it dearly.

"Sprint and Verizon went with this wild ... technology, which no one knew
whether it would work right," said Michael Dellomo, a lecturer in
telecommunications at the University of Maryland. "Sprint went crazy with
it -- it just didn't work (at first). But they were moving toward the
future, whereas AT&T Wireless was busy implementing the past."

Former McCaw and AT&T Wireless technology chief Nick Kauser agreed.

"Did we make the wrong technology choice?" he asked rhetorically. "I feel
responsible that we probably did."

Later, cellular carriers tried to sell more airtime by moving customers to
phones capable of text messaging, taking and sending photographs and
accessing the Internet. AT&T Wireless's network lacked most of those
capabilities. That meant the company by late 2000 was forced to move to

one
of the new technologies.

"That (distraction) hurt AT&T Wireless badly, while Verizon was very
successful in establishing the network-superiority message," said Mark
Lowenstein, managing director of consultancy Mobile Ecosystems. "AT&T
Wireless had about 40 percent of the corporate market, and they allowed
Verizon to take their network story away."

AT&T Wireless ended up choosing the technology ubiquitous in Europe. The
change required enormous expenditures of time, energy and money to create

a
second nationwide network. Meanwhile, its competitors were free to improve
existing networks and expand service offerings.

As a result, AT&T Wireless fell behind.

The company's difficult move from one technology to the other caused
problems with dropped calls, interference and difficulties connecting,

said
Herschel Shosteck, president of telecommunications consultancy The

Shosteck
Group.

Moreover, AT&T Wireless "never, never acknowledged to us that there were
problems," he said. "And any company that doesn't acknowledge it has
problems when they're there -- we think it's in a dangerous position."

Cingular initially chose the same technology that AT&T Wireless had
inherited from McCaw. But when it moved to the same newer technology AT&T
Wireless had chosen, it dealt with the transition faster and more
effectively. Cingular also chose a frequency that gave its signals better
range and let them penetrate buildings better than AT&T Wireless's, said

Ira
Brodsky, president of technology analysts Datacomm Research Co.

Marketing and spending gaffes

Even when AT&T Wireless gained a technological edge, it sometimes failed

to
capitalize on that advantage. A long string of marketing mistakes resulted
from management's lack of vision.

In the mid-1990s, the Redmond company had been the only cellular carrier
with anything close to a nationwide network. Though it was partly analog

and
partly digital, handsets were available to accommodate that duality, said
analyst Michael Dellomo. But the company failed at the time to market its
industry-leading coverage.

"Why didn't AT&T Wireless jump on it?" he asked. "They could have made a
real case for saying they offered true nationwide coverage. It was all

their
network. They wouldn't even have had to charge for roaming."

Later, when the company pioneered Digital One Rate, that program gave it a
strong advantage over its competitors. But within a year or two, its ad
campaign for that program seemed to fade away, Lowenstein said. And as the
brand faded, similar offerings appeared from competitors. Before long,
national calling plans were nothing special.

AT&T Wireless branded its e-mail and Web access services with the "mMode"
label, a name that baffled some people, said "Mobile PC" magazine editor
Robert Strohmeyer.

Last year the company introduced "mLife" to advertise its data services, a
word that meant nothing to many consumers. Then, the company in July
launched its latest wireless data service -- one of three it now offers --
under the name UMTS, which no one could find memorable. It has made no
effort to distinguish that from GPRS or EDGE, its two earlier wireless
efforts.

"I think they have had too many brands," said Bo Hedfors, a 36-year

veteran
of the cellular industry who once served as chief executive of

handset-maker
Ericsson Inc. "How they positioned themselves, it was at times somewhat
confusing."

No help from Ma

When AT&T Corp. bought McCaw, workers at the smaller company were excited

at
the prospect of having access to their new owner's war chest to fund
expansion. Ironically, though, it was AT&T Corp. that had its hand out.

Under the leadership of C. Michael Armstrong, AT&T Corp. in 1999 charged
into the market for cable companies, spending billions of dollars buying

TCI
and MediaOne.

Unfortunately for AT&T Wireless, its parent company went so far as to sell
off AT&T Wireless's spectrum licenses to buy cable companies, said former
CIO Nick Kauser. A spectrum license is the right to use a given frequency

in
a certain geographical area.

Then, when Digital One Rate succeeded so wildly, AT&T Wireless was forced

to
buy back the same licenses it had just sold.

"At the time, AT&T Corp. had a strong balance sheet," Kauser said. "If it
had gone on an acquisition binge instead of divesting (cellular)

properties,
AT&T Wireless could very well be the No. 1 carrier today."

Issues with quality

AT&T Wireless hoped that the move to a new network would improve its
reputation for substandard network quality and customer service. But the
move just added fuel to the fire.

In late 2003, the company tried to install new software for signing up and
coordinating customers using its new network. According to many employee
accounts, that software was so complex to implement that it took months.
Those employees said the implementation should never have been commenced

so
close to the Federal Communications Commission's November deadline for
implementing local-number portability.

The software was so crippled that it kept thousands of would-be customers
from signing up with AT&T Wireless and prevented thousands more from

making
changes to their accounts. Fixing it took months.

Right on the heels of that foul-up, the company botched its implementation
of local-number portability. Late last year, AT&T Wireless delayed about

60
percent of customers who were trying to leave it while keeping their phone
numbers. That delay prompted the FCC to request an explanation.

Customer service representatives were flooded with complaints about both
problems and had no way to help callers.

"The mood here is bad and getting worse all the time," said one
representative at the time. "(The problems) were both pretty disastrous.

You
have lots of people complaining to you, including my own father, who'd

been
a customer since 1996. It was a very, very hard time, and no one could
explain why they were having those problems."

As a result, the company's reputation continued to decline.

AT&T Wireless faced a public relations nightmare. Customers who

desperately
wanted to leave couldn't do so because of problems in the very customer
service they were trying to flee.

Potential customers couldn't sign up, either. For months, when clerks at
retail outlets couldn't activate new AT&T Wireless accounts, they simply
steered customers to other carriers.

By the time the number portability debacle had abated, there was no

illusion
anymore. AT&T Wireless was on the ropes.

Number portability was "the turning point that made them a purchasee

rather
than a purchaser," said Derek Kerton, principal analyst with
wireless-consultancy The Kerton Group. "I think it was bad management. ...
Combine that with bad luck, and you end up where you are."

'A positive exit strategy'

As early as 2003, suspicions arose within AT&T Wireless that management
might be preparing the company to be sold, according to some former

workers.

"I started to hear this (rumor) when the leadership started to give
ambiguous comments like, 'We're always considering any opportunities that
make sense for the business,' said a former manager who put in 10 years at
the company. "Before that, it had been, 'We're growing, we will stay
together.' "

In discussing the company's attitude toward acquisitions, AT&T Wireless
executives seemed almost ambivalent. The company was "always looking at
possible mergers or acquisitions as a way for us to grow," said Lew

Chakrin,
AT&T Wireless's strategy chief.

But growth was always just one of several possibilities, said data

division
head Andre Dahan.

"We have at different times looked at growth versus acquisition versus an
exit strategy like being acquired," he said. "We decided to participate in
this way (selling to Cingular), and I think it's absolutely a positive

exit
strategy."

Cingular has a very different philosophy. It has been consistently
aggressive in its growth.

BellSouth, which owns 40 percent of Cingular, once came close to buying

AT&T
Corp. itself. Edward Whitacre Jr., chairman and chief executive of SBC
Communications -- which owns the other 60 percent of Cingular -- has a
reputation as a fearsome acquirer of companies.

Cingular will buy AT&T Wireless, and not vice-versa, because "Cingular was
the most aggressive," said Bo Hedfors, the former Ericsson CEO. "It has to
do with its financial situation and also with leadership -- who was most
aggressive?"

In a weakened state at the end of 2003, AT&T Wireless found itself being
circled by three large companies, all of them in a buying mood.

NTT DoCoMo Inc., Vodafone and Cingular "started to converge on us as a

very
attractive target," Chakrin said. "We were the only (wireless-only)

company
that's publicly traded, and so we were acquirable."

On Jan. 22, after reporting the slowest growth of any U.S. cellular

company
and a loss for the quarter, AT&T Wireless officially put itself up for

sale.
On Feb. 18, Cingular agreed to buy AT&T Wireless for nearly $41 billion.

The movie ends

In selling, AT&T Wireless will do well by its shareholders. They'll get a

27
percent premium on their stock. But the company could have driven up share
prices by superb execution, or by making acquisitions, rather than by
selling.

Customers may eventually benefit from an expanded network and better
coverage -- but not, experts predict, before going through a painful

period
while the companies integrate their operations.

As for AT&T Wireless's employees, things likely won't work out so well.

The
merger will create thousands of redundant positions.

While neither company will discuss impending layoffs because the deal

hasn't
yet been finalized, typically it is the seller whose employees see the
majority of pink slips. Experts predicted that AT&T Wireless will bear the
brunt of the layoffs, though the companies said they'll retain the
best-qualified employees at whichever company they work. Cingular has
pledged no layoffs will occur this year.

Current employees expressed anxiety over the pending sale, and even those
who left the company long ago expressed regret.

Former McCaw Cellular executive Bill Malloy remembered that around 1992,
when the company got into the discussions with AT&T Corp. about some form

of
cooperation, McCaw employees' excitement at that prospect revolved around
AT&T's "revered" brand.

"We just saw this great opportunity that if you ever took on this brand of
AT&T and attached it to wireless, you'd just live out the dream: to become
absolutely the wireless company that customers stayed with and trusted,"

he
said.

"So when you ask, are you disappointed (with this outcome), well,
absolutely, you are, because I never wanted to see AT&T Wireless go away.
That's just not the way you would have wanted to end the movie."

P-I reporter Dan Richman can be reached at 206-448-8032 or





  #4  
Old September 22nd 04, 05:45 AM
John Navas
external usenet poster
 
Posts: n/a
Default

[POSTED TO alt.cellular.attws - REPLY ON USENET PLEASE]

That's one of the most wildly erroneous and silly stories I've ever read (and
posting it verbatim presumably infringes its copyright). ATTWS got in trouble
because of (1) insufficient capital, (2) a bad deal with DoCoMo, and (3) a
poor transition to GSM; in other words, bad management.

In on Tue, 21 Sep 2004 08:46:22 -0700,
":P" wrote:

http://seattlepi.nwsource.com/busine...42_attw21.html

The Fall of AT&T Wireless
(Seattle Post-Intelligencer, 9-21-04)
By DAN RICHMAN
[SNIP]


--
Best regards,
John Navas http://navasgrp.home.att.net/
  #5  
Old September 22nd 04, 04:19 PM
RexYBlue
external usenet poster
 
Posts: n/a
Default

On Wed, 22 Sep 2004 04:45:02 GMT, John Navas

That's one of the most wildly erroneous and silly stories I've ever read (and
posting it verbatim presumably infringes its copyright). ATTWS got in trouble
because of (1) insufficient capital, (2) a bad deal with DoCoMo, and (3) a
poor transition to GSM; in other words, bad management.



Bingo! Right on the money. I'd bet a small sum that the author of the
article had a few personal axes to grind with AT&T Wireless. Such a
shame that sh** like that can pass as journalism.
  #6  
Old September 22nd 04, 11:45 PM
John Navas
external usenet poster
 
Posts: n/a
Default

[POSTED TO alt.cellular.attws - REPLY ON USENET PLEASE]

In on Wed, 22 Sep 2004 15:01:57
-0700, Joseph wrote:

On Wed, 22 Sep 2004 15:19:20 GMT, RexYBlue
wrote:

On Wed, 22 Sep 2004 04:45:02 GMT, John Navas

That's one of the most wildly erroneous and silly stories I've ever read (and
posting it verbatim presumably infringes its copyright). ATTWS got in trouble
because of (1) insufficient capital, (2) a bad deal with DoCoMo, and (3) a
poor transition to GSM; in other words, bad management.


Bingo! Right on the money. I'd bet a small sum that the author of the
article had a few personal axes to grind with AT&T Wireless. Such a
shame that sh** like that can pass as journalism.


I thought that the article mentioned all of those! If he was wrong
why don't you say what was wrong with his take on why AT&T Wireless
slid from their high point in 2000.


I did just that.

--
Best regards,
John Navas http://navasgrp.home.att.net/
  #7  
Old November 15th 04, 12:14 PM
Ladonna
external usenet poster
 
Posts: n/a
Default

That's interesting to read, but the issue I find is where I live. Here in
rural America, one doesn't get the coverage that you would in major
metropolitan areas. And that's where Consumer Reports and others do their
research. I find that coverage maps DON'T show true coverage across the
central plains states. ATTWS states that KS is pretty much covered using
the TDMA network, but I find this to be totally incorrect. I find it next
to impossible to send or receive a call, or send a text message while
travelling to Wichita from northern OK. And this is when my Nokia shows
full signal strength. ATTWS has, on multiple occassions, had no reason for
this problem. Or the annoying, and sometimes painful, feedback that is
heard reverberating through the earpiece of my phone. I've been with them
for a couple years, and know people that have been with them for almost ten,
all I can do is hope that a GSM is an improvement to what reception isn't
there.


T Donily
":P" wrote in message
...



http://seattlepi.nwsource.com/busine...42_attw21.html

The Fall of AT&T Wireless
(Seattle Post-Intelligencer, 9-21-04)
By DAN RICHMAN


In the end, a single event may have sealed AT&T Wireless's fate: the
opportunity for its customers to leave.

A mass exodus from the Redmond carrier began late last year when,
compelled by a new federal rule, wireless companies let subscribers switch
among them while keeping their phone numbers. The portability rule's
object was to increase competition by letting customers choose the best
service without penalty.

Freedom of choice meant a financial and public relations disaster for AT&T
Wireless. In the first three months of this year, millions of subscribers
fled the company.

Years of substandard customer care, spotty coverage and dropped calls had
taken their toll.

"The line from the company was that we lost those people out of bad luck,"
said a regional sales manager. "But they walked away flipping us the bird.
They aggressively walked away from us. They couldn't wait to get away from
us."

By the spring, it was obvious not only that AT&T Wireless was hemorrhaging
customers but also that rivals, especially No. 1 carrier Verizon Wireless,
were snapping them up. Customers were making a choice, and that choice was
not AT&T Wireless.

"When wireless portability came along, it became clear AT&T Wireless was
losing, so they put themselves up for sale," said Derek Kerton, principal
analyst with wireless-consultancy The Kerton Group.

Onto the auction block the company went, selling itself to the highest
bidder. Atlanta-based Cingular Wireless agreed to pay $41 billion in the
largest cash takeover in U.S. history.

The deal, which could close as early as next month, likely will be
followed by massive layoffs among the company's more than 31,000
employees -- 5,700 of whom live in the Puget Sound region.

The takeover is good news for those shareholders who receive a premium on
a historically anemic stock. But it means Seattle will say goodbye to yet
another major corporation -- one that began as McCaw Cellular
Communications, a storied local company that has generated some of the
region's most influential and innovative business leaders.

Its trajectory could have been very different.

Ten years before, the tiny cellular division at telecommunications giant
AT&T Corp., based in New Jersey, got a kick-start of 2 million subscribers
when it bought McCaw Cellular for $11.5 billion.

Anxiety mixed with excitement among McCaw staffers, who feared losing the
spirit of their entrepreneurial organization but believed that taking on
the AT&T brand, experience and war chest would propel the small company
into one that could dominate in the new, evolving market.

"When we came over (to AT&T), we felt we were hooking ourselves to a
star," said former McCaw Cellular spokesman Bob Ratliffe.

At first, it seemed that combining the companies had indeed created a
winner. By the end of 1997, AT&T Wireless had become by far the nation's
largest cellular provider. It led the industry, creating the first
national coverage plan with no roaming or long-distance fees.

The company received numerous awards for excellent service, and by 2000
several publications, including Forbes and PC Magazine, had named it the
country's best wireless network.

But soon after that, even with the $7 billion it retained from its initial
public stock offering, AT&T Wireless started losing out to its
competitors -- companies that hadn't even existed a year earlier. Those
rivals came into existence only after AT&T Wireless showed that offering
national coverage was technologically and economically feasible.

The customer service and comprehensive coverage that had distinguished
AT&T Wireless began to deteriorate, while the company's competitors
improved both of those critical facets. The final blow came late last
year, with the FCC's ruling implementing local number portability.
Customers defected, the company was put up for sale, and the fate of AT&T
Wireless was placed in the hands of the highest bidder.

On Feb. 18 at 2:30 a.m., AT&T Wireless Chief Executive John Zeglis shook
hands with top Cingular executives on the $41 billion deal.

"I'm feeling good!" Zeglis exclaimed later that morning. "We are doing
right by the three legs of the stool we sit on: our shareholders,
customers and employees."

Certainly some employees will benefit from the deal. Foremost among them
may be Zeglis himself. He will get $21.7 million. A total of more than $86
million will be split among AT&T Wireless executives and directors.

But customers, former employees and angry workers, who now face the
possibility of losing their jobs, wonder why it had to end this way. Could
AT&T Wireless have been where Verizon is now? Or could it have been as big
as No. 2 Cingular, poised to buy another, smaller cellular carrier?

Why did AT&T Wireless go from industry leader to industry loser?

The McCaw roots

When AT&T Corp. bought Craig McCaw's cellular company in 1994, that
flourishing startup formed the backbone of AT&T Corp.'s wireless division.
It was an "amazingly strong culture," running lean, keeping things simple
and stressing customer service above all, said Bob Ratliffe, one of more
than 50 people interviewed for this story.

Cath Washburn, former McCaw senior vice president of human relations,
recalled, "It had so many good things going for it. So many good people,
who just worked their butts off for the company."

After the purchase, workers there remained optimistic for several years.
When the acquisition became final, AT&T Corp. management allowed Jim
Barksdale, who was running McCaw when it was acquired, to remain at the
helm of the new division.

McCaw employees were initially reluctant to embrace the AT&T Wireless
name, out of pride in their own company, recalled Steve Hooper, another
McCaw staffer who served as chief executive of AT&T Wireless. But "when
each market rolled over its name to AT&T Wireless, we did it with classic
McCaw support and enthusiasm. So when I left, people had embraced the
name, loved the name," he said.

But there were strong cultural differences between the two companies. AT&T
Corp. was a highly regulated business, a former monopoly, and strongly
hierarchical in structure. McCaw was an upstart and was free form, if not
nearly anarchic.

When AT&T Corp. brought in the first AT&T "corporate man," Dan Hesse, to
lead the wireless company in May 1997, leery McCaw employees thought the
end had come.

"Everyone was worried about him, because he came from AT&T," recalled
Washburn. "But he did his best to keep the culture and the environment
going."

By the end of 1997, AT&T Wireless had become the nation's largest cellular
provider. Under Hesse's watch, AT&T Wireless lost its subscriber lead. By
other measures, though, the company remained a leader. It was profitable,
and its revenue growth outstripped that of its largest competitors.

AT&T Wireless was especially popular among businesses. That lucrative
niche was developed mainly through the creation, in May 1998, of the
Digital One Rate by Hesse and his staff. It was the first plan offering
national coverage with no roaming or long-distance fees. A national
network itself was still a novelty, much less one with such a simple,
economical fee structure. Companies loved it.

"It caused the rest of the industry to follow suit," said Verizon Chief
Executive Denny Strigl. "It wasn't long after that Verizon Wireless
adopted what we called our single-rate plan."

The big challenge

In 1999 and 2000, the cellular industry began to consolidate, presenting
AT&T Wireless with its biggest competitive challenge yet. Companies
merged. Then the merged companies merged. The new mega-companies bought or
built their own national networks, acquiring subscriber numbers in the
double-digit millions.

From those mergers in April 1999 came Cingular Wireless, which assumed the
No. 2 position that year. Then in July 2000, Verizon Wireless was formed,
instantly becoming the nation's largest carrier.

Acquisitions help cellular companies attract new subscribers by expanding
and strengthening their coverage. AT&T Wireless never made such major
acquisitions, resulting in network coverage inferior to that of its
closest rivals. By the end of 2000, AT&T Wireless had become the nation's
No. 3 carrier.

Enter Zeglis

In October 1999, as AT&T Wireless was losing ground, John Zeglis arrived
as its chief executive. The vibrant organization that Hesse had found when
he arrived changed dramatically during the tenure of Zeglis, who declined
to be interviewed for this story.

A Harvard Law School graduate who had served as AT&T Corp.'s general
counsel before becoming its president, Zeglis had little exposure to
business outside AT&T Corp.'s headquarters. The company had hired him in
the late 1970s from prestigious law firm Sidley & Austin, where he had
served as general counsel.

"I think the selection of the CEO had some people scratching their heads,
because he was an attorney as opposed to a seasoned executive," recalled
Sam Ginn, former chief executive of AirTouch Cellular Inc.

Nor did Zeglis seem interested in learning the industry or the company by
immersing himself in either, said several former executives, who asked not
to be identified because they're still employed by the company or active
in the industry. Despite promises to do so -- made in front of employees
at a general meeting -- Zeglis and many other key executives have never
moved from New Jersey, instead continuing to run the company from there.

"When they were asked by employees why they weren't moving, their answer
was that it would be easier to work with Wall Street and the national
media if they stayed in New Jersey," said a former senior staffer who
spent more than 13 years at the company. "Well, what do Microsoft and
Starbucks do? That didn't help employee morale."

AT&T Wireless spokesman David Caouette said Zeglis maintains a townhouse
in Kirkland and spends two-thirds of his time there.

Zeglis surrounded himself by "cronies" -- a word used by two former senior
executives -- who insulated him from knowledgeable McCaw workers, and he
created layers of bureaucracy.

"He brought his secretary, and his secretary had a secretary," said a
former senior executive. "He brought this huge staff of people that were
his handlers."

Caouette denied that assertion.

A change in culture

As the freewheeling McCaw culture yielded to bureaucracy, communication
among employees faltered.

"With AT&T folks, simplicity went out the window," said the former senior
staffer who spent more than 13 years at the company. "Every six months
there were updates to the strategic initiatives coming from Zeglis. And
they flip-flopped: first, 'Add new customers;' then, 'Focus on keeping
existing customers.' When 30,000 (employees) across the country feel
they're getting a new message so often, it's hard."

McCaw had been an open, convivial environment, where management decisions
were loudly debated and even high-ranking executives could be told their
ideas were off base. In contrast, the company under Zeglis discouraged
open discussion, said a former executive with more than five years at the
company.

"Those who remained, who had the experience, found themselves in a
situation where it wasn't politically correct to necessarily say what
needed to be said," she recalled.

McCaw veterans said Zeglis' hires grated on McCaw staffers -- and
vice-versa. Many McCaw employees came to feel isolated and marginalized.

"(Employees) told me a number of times that they felt like they were
walking around with a big target painted on them," the former senior
executive said.

The new regime had different spending habits, several executives said.
More went to executive salaries, support staff, buildings in New York and
New Jersey and corporate jets.

For example, in contrast to McCaw's lean style, Zeglis upgraded from the
company's Falcon 50 jet to a bigger Gulfstream jet for commuting -- then
put millions of dollars more into a new interior for it. He later bought
another, even larger Gulfstream.

Less money than in the past went toward maintaining and improving the
quality of the wireless network and the customer-care division -- the two
aspects of a cellular company that most directly affect customers.

"The network was the No. 1 reason that tanked the company -- especially
problems on the East Coast and in the Northeast," said the former senior
staffer who spent more than 13 years at the company.

Executive exodus

Before long, executives began to leave en masse. Hesse quit a couple of
months after Zeglis arrived. So did a number of key McCaw folks -- so
many, in fact, that several people referred to the departures as a brain
drain. Within 18 months, all six McCaw regional presidents had left.

The heads of the companies that were rapidly gaining on AT&T Wireless --
Cingular's Stan Sigman and Verizon's Denny Strigl -- "had a lot of history
in the (cellular) business," said former Chief Executive Steve Hooper. In
contrast, "the team at AT&T Wireless after Dan Hesse left didn't. To kind
of just fly into it from some other area of telecommunications is just a
real challenge."

In April 2000, through the largest IPO until then, AT&T Wireless became a
separately traded entity, although it remained a division of parent
company AT&T Corp. The division's future was thought to be so bright that
only freeing its share price from that of its stodgy parent company would
let AT&T Wireless achieve its full value.

With both investors and employees clamoring for a share, the offering
raised $10.6 billion, of which the wireless division kept $7 billion.

In early May, the stock hit its all-time high of $35.25. Almost
immediately it began to decline, as did the shares of all the cellular
carriers during the tech bust that began in the spring of 2000.

In July 2001, AT&T Wireless became a separate company, no longer a
division of AT&T Corp. But shares continued to sink steadily during the
next three years, climbing into the low teens only when rumors of a buyout
began swirling early this year.

An unfortunate choice

One origin of the decline may have been a moment soon after AT&T Corp.
bought McCaw, when it made a conservative technology choice that would
prove disastrous because it left no room for long-term growth.

McCaw for some time had been leading the transition from older, analog
technology to a more efficient, digital system. It chose the most widely
accepted of the rival digital standards emerging in the late 1980s, dubbed
TDMA.

When AT&T Wireless bought McCaw, it had to choose between embracing
McCaw's choice or tearing that out and rebuilding with one of two more
advanced, more capable technologies, known as CDMA and GSM. The first of
those was still unproven, while the other was virtually unknown in the
United States but ubiquitous in Europe.

If AT&T Wireless had chosen either of those new technologies, it could
have sidestepped the costly, difficult changeover required a few years ago
as it started outgrowing its old network. But it didn't.

Choosing to continue with its old network was perhaps foreseeable for the
conservative management at AT&T Corp. Changes the company made to its old
network did improve its voice quality. But as events proved, retaining
that network was a wrong choice, and one that cost it dearly.

"Sprint and Verizon went with this wild ... technology, which no one knew
whether it would work right," said Michael Dellomo, a lecturer in
telecommunications at the University of Maryland. "Sprint went crazy with
it -- it just didn't work (at first). But they were moving toward the
future, whereas AT&T Wireless was busy implementing the past."

Former McCaw and AT&T Wireless technology chief Nick Kauser agreed.

"Did we make the wrong technology choice?" he asked rhetorically. "I feel
responsible that we probably did."

Later, cellular carriers tried to sell more airtime by moving customers to
phones capable of text messaging, taking and sending photographs and
accessing the Internet. AT&T Wireless's network lacked most of those
capabilities. That meant the company by late 2000 was forced to move to
one of the new technologies.

"That (distraction) hurt AT&T Wireless badly, while Verizon was very
successful in establishing the network-superiority message," said Mark
Lowenstein, managing director of consultancy Mobile Ecosystems. "AT&T
Wireless had about 40 percent of the corporate market, and they allowed
Verizon to take their network story away."

AT&T Wireless ended up choosing the technology ubiquitous in Europe. The
change required enormous expenditures of time, energy and money to create
a second nationwide network. Meanwhile, its competitors were free to
improve existing networks and expand service offerings.

As a result, AT&T Wireless fell behind.

The company's difficult move from one technology to the other caused
problems with dropped calls, interference and difficulties connecting,
said Herschel Shosteck, president of telecommunications consultancy The
Shosteck Group.

Moreover, AT&T Wireless "never, never acknowledged to us that there were
problems," he said. "And any company that doesn't acknowledge it has
problems when they're there -- we think it's in a dangerous position."

Cingular initially chose the same technology that AT&T Wireless had
inherited from McCaw. But when it moved to the same newer technology AT&T
Wireless had chosen, it dealt with the transition faster and more
effectively. Cingular also chose a frequency that gave its signals better
range and let them penetrate buildings better than AT&T Wireless's, said
Ira Brodsky, president of technology analysts Datacomm Research Co.

Marketing and spending gaffes

Even when AT&T Wireless gained a technological edge, it sometimes failed
to capitalize on that advantage. A long string of marketing mistakes
resulted from management's lack of vision.

In the mid-1990s, the Redmond company had been the only cellular carrier
with anything close to a nationwide network. Though it was partly analog
and partly digital, handsets were available to accommodate that duality,
said analyst Michael Dellomo. But the company failed at the time to market
its industry-leading coverage.

"Why didn't AT&T Wireless jump on it?" he asked. "They could have made a
real case for saying they offered true nationwide coverage. It was all
their network. They wouldn't even have had to charge for roaming."

Later, when the company pioneered Digital One Rate, that program gave it a
strong advantage over its competitors. But within a year or two, its ad
campaign for that program seemed to fade away, Lowenstein said. And as the
brand faded, similar offerings appeared from competitors. Before long,
national calling plans were nothing special.

AT&T Wireless branded its e-mail and Web access services with the "mMode"
label, a name that baffled some people, said "Mobile PC" magazine editor
Robert Strohmeyer.

Last year the company introduced "mLife" to advertise its data services, a
word that meant nothing to many consumers. Then, the company in July
launched its latest wireless data service -- one of three it now offers --
under the name UMTS, which no one could find memorable. It has made no
effort to distinguish that from GPRS or EDGE, its two earlier wireless
efforts.

"I think they have had too many brands," said Bo Hedfors, a 36-year
veteran of the cellular industry who once served as chief executive of
handset-maker Ericsson Inc. "How they positioned themselves, it was at
times somewhat confusing."

No help from Ma

When AT&T Corp. bought McCaw, workers at the smaller company were excited
at the prospect of having access to their new owner's war chest to fund
expansion. Ironically, though, it was AT&T Corp. that had its hand out.

Under the leadership of C. Michael Armstrong, AT&T Corp. in 1999 charged
into the market for cable companies, spending billions of dollars buying
TCI and MediaOne.

Unfortunately for AT&T Wireless, its parent company went so far as to sell
off AT&T Wireless's spectrum licenses to buy cable companies, said former
CIO Nick Kauser. A spectrum license is the right to use a given frequency
in a certain geographical area.

Then, when Digital One Rate succeeded so wildly, AT&T Wireless was forced
to buy back the same licenses it had just sold.

"At the time, AT&T Corp. had a strong balance sheet," Kauser said. "If it
had gone on an acquisition binge instead of divesting (cellular)
properties, AT&T Wireless could very well be the No. 1 carrier today."

Issues with quality

AT&T Wireless hoped that the move to a new network would improve its
reputation for substandard network quality and customer service. But the
move just added fuel to the fire.

In late 2003, the company tried to install new software for signing up and
coordinating customers using its new network. According to many employee
accounts, that software was so complex to implement that it took months.
Those employees said the implementation should never have been commenced
so close to the Federal Communications Commission's November deadline for
implementing local-number portability.

The software was so crippled that it kept thousands of would-be customers
from signing up with AT&T Wireless and prevented thousands more from
making changes to their accounts. Fixing it took months.

Right on the heels of that foul-up, the company botched its implementation
of local-number portability. Late last year, AT&T Wireless delayed about
60 percent of customers who were trying to leave it while keeping their
phone numbers. That delay prompted the FCC to request an explanation.

Customer service representatives were flooded with complaints about both
problems and had no way to help callers.

"The mood here is bad and getting worse all the time," said one
representative at the time. "(The problems) were both pretty disastrous.
You have lots of people complaining to you, including my own father, who'd
been a customer since 1996. It was a very, very hard time, and no one
could explain why they were having those problems."

As a result, the company's reputation continued to decline.

AT&T Wireless faced a public relations nightmare. Customers who
desperately wanted to leave couldn't do so because of problems in the very
customer service they were trying to flee.

Potential customers couldn't sign up, either. For months, when clerks at
retail outlets couldn't activate new AT&T Wireless accounts, they simply
steered customers to other carriers.

By the time the number portability debacle had abated, there was no
illusion anymore. AT&T Wireless was on the ropes.

Number portability was "the turning point that made them a purchasee
rather than a purchaser," said Derek Kerton, principal analyst with
wireless-consultancy The Kerton Group. "I think it was bad management. ...
Combine that with bad luck, and you end up where you are."

'A positive exit strategy'

As early as 2003, suspicions arose within AT&T Wireless that management
might be preparing the company to be sold, according to some former
workers.

"I started to hear this (rumor) when the leadership started to give
ambiguous comments like, 'We're always considering any opportunities that
make sense for the business,' said a former manager who put in 10 years at
the company. "Before that, it had been, 'We're growing, we will stay
together.' "

In discussing the company's attitude toward acquisitions, AT&T Wireless
executives seemed almost ambivalent. The company was "always looking at
possible mergers or acquisitions as a way for us to grow," said Lew
Chakrin, AT&T Wireless's strategy chief.

But growth was always just one of several possibilities, said data
division head Andre Dahan.

"We have at different times looked at growth versus acquisition versus an
exit strategy like being acquired," he said. "We decided to participate in
this way (selling to Cingular), and I think it's absolutely a positive
exit strategy."

Cingular has a very different philosophy. It has been consistently
aggressive in its growth.

BellSouth, which owns 40 percent of Cingular, once came close to buying
AT&T Corp. itself. Edward Whitacre Jr., chairman and chief executive of
SBC Communications -- which owns the other 60 percent of Cingular -- has a
reputation as a fearsome acquirer of companies.

Cingular will buy AT&T Wireless, and not vice-versa, because "Cingular was
the most aggressive," said Bo Hedfors, the former Ericsson CEO. "It has to
do with its financial situation and also with leadership -- who was most
aggressive?"

In a weakened state at the end of 2003, AT&T Wireless found itself being
circled by three large companies, all of them in a buying mood.

NTT DoCoMo Inc., Vodafone and Cingular "started to converge on us as a
very attractive target," Chakrin said. "We were the only (wireless-only)
company that's publicly traded, and so we were acquirable."

On Jan. 22, after reporting the slowest growth of any U.S. cellular
company and a loss for the quarter, AT&T Wireless officially put itself up
for sale. On Feb. 18, Cingular agreed to buy AT&T Wireless for nearly $41
billion.

The movie ends

In selling, AT&T Wireless will do well by its shareholders. They'll get a
27 percent premium on their stock. But the company could have driven up
share prices by superb execution, or by making acquisitions, rather than
by selling.

Customers may eventually benefit from an expanded network and better
coverage -- but not, experts predict, before going through a painful
period while the companies integrate their operations.

As for AT&T Wireless's employees, things likely won't work out so well.
The merger will create thousands of redundant positions.

While neither company will discuss impending layoffs because the deal
hasn't yet been finalized, typically it is the seller whose employees see
the majority of pink slips. Experts predicted that AT&T Wireless will bear
the brunt of the layoffs, though the companies said they'll retain the
best-qualified employees at whichever company they work. Cingular has
pledged no layoffs will occur this year.

Current employees expressed anxiety over the pending sale, and even those
who left the company long ago expressed regret.

Former McCaw Cellular executive Bill Malloy remembered that around 1992,
when the company got into the discussions with AT&T Corp. about some form
of cooperation, McCaw employees' excitement at that prospect revolved
around AT&T's "revered" brand.

"We just saw this great opportunity that if you ever took on this brand of
AT&T and attached it to wireless, you'd just live out the dream: to become
absolutely the wireless company that customers stayed with and trusted,"
he said.

"So when you ask, are you disappointed (with this outcome), well,
absolutely, you are, because I never wanted to see AT&T Wireless go away.
That's just not the way you would have wanted to end the movie."

P-I reporter Dan Richman can be reached at 206-448-8032 or




 




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