WHAT WENT WRONG

I joined AT&T on Jan. 10, 1983-10 days after the government-mandated breakup of the phone company. Allegedly, I was recruited to help the company retain residential customers as it moved to unbundled services. Within 30 minutes of my arrival, AT&T's vice chairman informed me Congress had decided that the business unit established to manage residential customers was unnecessary. It wasn't until later in my career at AT&T that I understood that this decision was a harbinger of things to come.

The government's naiveté about regulating competitiveness for a regulated monopoly was exceeded only by AT&T's belief that it could become competitive overnight. I was charged with making the services division into a profit center. When I asked what had been done to establish customers' need for service, I was told they would pay whatever was required to keep their phone systems working. Research proved that hypothesis wrong: Customers valued AT&T service at less than 50% of what providing the service cost.

AT&T leveraged Bell Labs to create technologies that would change the world, but it never had to generate a sustainable return on the investment. That disregard for the fundamental profit focus ultimately caused the failure of the “new” AT&T and set the stage for the debacle that has followed in the telecom industry at large.

What made AT&T succeed was its focus on providing a single service: telephony. It failed because it underestimated what it means to be competitive and assumed it could expand its focus to include lines of business where it had no prior experience.

And did the government learn its lesson? Absolutely not. Witness the Telecom Act of 1996.

Ask any telecom executive what the driving force behind consolidation and service expansion has been during the past six years, and the answer is likely to be “responding to customer needs.” But the customer benefits are not easy to measure. High-speed Internet access is terrific but not necessary. Downloading files via dial-up modem can tax the patience of a saint, but that doesn't justify the expense of DSL or cable modems — especially when the mainstream market fails to pounce on broadband.

So who's to blame? The actions company executives took were consistent with the blueprint created by the government but were not always motivated by customer focus — only by a belief that customers would be romanced by product capability.

Have there been any winners? Lawyers and investment bankers, to be sure. Not investors. Not telco employees. And especially not consumers. What happened during divestiture continues to happen today: Customer focus gets lip service and little more.

DOSSIER PETER B. YUNICH

Occupation: Managing Partner of private equity firm Metropolitan Venture Partners

Location: New York

Current reading: Plato's Socratic Dialogues (in Greek); “A Fish Caught in Time: The Search for the Ceolacanth” by Samantha Weinberg; and “Jack: Straight from the Gut” by Jack Welch

Favorite Web site: www.monteleone.net, because John Monteleone is one of the great American luthiers (guitar makers), and I love his instruments

Next projects: Businesswise, it's the business. Personally, it's building a large vegetable garden and reading “The Iliad” and “The Odyssey” in modern Greek