How Sharp Is A.T. &T.?

For all its celebrated troubles with broken equipment, overloaded circuits, inept operators and backlogged demands for service, American Telephone & Telegraph has retained the admiration of most businessman for its managerial skill. Now the flaws in performance are prompting the Bell System's critics to question management's ability to plan ahead. Last week Federal Communications Commissioner Nicholas Johnson, one of A.T. & T.'s most outspoken detractors, charged that, instead of finding innovative ways to increase telephone usage and company revenues, A.T. & T.'s managers have adopted policies that "simultaneously produce higher prices and worse service for the public, and lower profits for its shareholders." He added: "You all recall the telephone company. You have to recall the telephone company. You lose your dime on the first try."

"There is no one whom I have ever been able to discover within A.T. & T.," continued Johnson, "who has a sense of the social-political-economic role of the telephone in a modern industrial society. They can design, promote, distribute and install a Princess telephone that will transmit the human voice. But they are seemingly incapable of thinking about the ways in which people might use that instrument in their lives. What would be the social impact of universal availability of a low-price long-distance service without a per-call charge? They don't know.

"There is a significant peak in telephone usage during the four or five hours around noon every workday. During many of the 20 other hours of the day, the telephone system is almost idle. But the Bell System and the FCC have had great difficulty in responding to this obvious problem. This is especially tragic for Bell's shareholders because, with a $41 billion investment in plant, any minute when it is not being used to peak capacity is costing them a great deal in lost profits.

"Bell is afraid of anything that has not received its papal imprimatur being plugged into its system. This is like an electric company trying to discourage the installation of air conditioners and washer-dryer combinations. If the phone company would only encourage the use of its system by innovative equipment manufacturers, it would suddenly find 200 million Americans working for Bell on their own time, rather than working against it. The increase in communications traffic would jump enormously because 200 million people can think of a lot more things to do with a communications network than one corporation can think up for them--particularly if it's not thinking."

Astute Financing. As a social critic of the phone company, Lawyer Johnson has a plausible-sounding but debatable case. Though charges for local service have risen considerably, A.T. & T. has reduced long-distance rates nine times in the past decade. To lure off-hours traffic, the company offers bargain rates after 5 p.m. Johnson missed the mark by a wide margin when he also accused A.T. & T. of financial blunders. He complained that, to raise the huge sums that it needs, the company had diluted shareholders' equity by depending too much on issuing new stock and too little on borrowing through the bond market while interest rates were low in years past. Replies A.T. & T. Treasurer John Scanlon: "I think he was speaking outside his area of competence."

In fact, Bell began to step up its borrowing five years ago. Despite tight money, the company this year expects to float a record $4 billion worth of bonds, using many remarkably astute innovations. One idea is to sell $100 "Ma Bell savings bonds," bearing interest of 6 1/2% or more at phone company offices throughout the U.S. Savings and loan men and Treasury officials, who sell U.S. savings bonds, are afraid of the competition that this would bring to them. Mindful of such fears, A.T. & T. officials last week decided to turn as usual to the ordinary channels of the bond market for their next $500 million borrowing. Though investors appear to have lost their former appetite for A.T. & T. stock, which fell this year to its lowest level in two decades, institutions and individuals still seem eager to buy the company's highly rated bonds.

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