6

P> Total Contracts $628,297,000

http://www.att.com/

Headlines screamed "trivestiture" and "Bell System Breakup, Part Two" when AT&ampT announced its plan last fall to restructure into three separate companies. It was the biggest news for the old Ma Bell since the government forced the first breakup more than a decade ago.

The new AT&ampT will focus on traditional telecommunications business, as well as on-line services. AT&ampT Solutions, the commercial systems integration arm based in Washington, D.C., will remain part of the main company. A second company, Lucent Technologies, will manufacture equipment and is the umbrella organization for Bell Laboratories. NCR, formerly known as AT&ampT Global Information Solutions, a computer company that has been a glaring spot on AT&ampT's otherwise unblemished record in recent years, will be spun off as the third company.

So where does Ma Bell's government business fit into all of this? This year, AT&ampT dropped to No. 6 in WT's annual Top 100 Federal Prime Contractors from No. 3 last year -- and from the top spot the year before. And the spin-off of NCR and its Teradata unit will eliminate one significant source of AT&ampT's computer-oriented government revenues.

Still, the company snared several important federal contracts.

Under the 15-month, $270 million Defense Information Systems Network transition contract, AT&ampT will provide communications services to defense organizations as the Defense Department eases into its new worldwide network, which consolidates hundreds of existing networks and will be launched in mid-1997. Also look for AT&ampT this year to lead the fray of companies pursuing other DISN-related contracts, which total $7.5 billion.

The General Services Administration also awarded AT&ampT 76 percent of the business for the remaining three years of the federal government's competitive, $15 billion FTS 2000 contract. That contract is called the price redetermination/service reallocation contract. FTS 2000, which began in 1988 and is up for renewal in 1998, allows for two recompetitions in which AT&ampT and Sprint compete for market share.

The big question that remains is how AT&ampT's government focus will change as a result of the larger opportunities the company is pursuing.

"Our decision to go this route reflects our determination to shape and lead the dramatic changes that have already begun in the worldwide market for communications and information services -- a market that promises to double in size before we ring in the new century," said Robert Allen, chairman and CEO, in a letter to shareholders. "It was, as well, a determination to act while our position is strong."

As if trivestiture weren't enough change, Congress voted earlier this year to pass the Telecommunications Act of 1996, the most wide-sweeping reform in the industry since the 1930s. The legislation allows AT&ampT to enter the $90 billion local phone market that it was banned from by the divestiture consent decree. The reform also allows local companies, including GTE and the Baby Bells, to move into the long distance market. While no one is sure how the competition will shake out, the playing field has undeniably been turned upside down. And that means the federal government, in all its geographic diversity, now has a number of new companies that can provide telecom services.

More recently, AT&ampT made a big splash by announcing its Internet strategy. The company promises its phone customers five hours of free Internet access a month through the dial-up service, AT&ampT WorldNet. Unlimited monthly use costs $19.95.

Since the announcement, AT&ampT has received one inquiry call every four seconds, and it has signed up hundreds of thousands of customers. The response was so overwhelming that MCI Communications Corp. recently copied the offer.

The 1994 acquisition of McCaw Cellular also is starting to pay off for AT&ampT Wireless, which saw a 39 percent increase in cellular customers in 1995. AT&ampT also bought the rights to a chunk of personal communications services spectrum, which will be used to launch a digital wireless service.

But life hasn't been all good. Layoffs announced as part of the restructuring turned into a public relations disaster. It is the biggest example yet of what people around the country are calling "the downsizing of America." AT&ampT said it must reduce its work force by 40,000, or about 13 percent.

Still, it's tough to beat the AT&ampT brand name. The company is betting on that, and hopes customers will want one bill from AT&ampT for local and long distance charges, wireless, Internet and other services.

1995 The New AT&ampT*

Revenues$51 billion

Assets$56 billion

Employees127,000

1995 Lucent Technologies*

Revenues$21 billion

Assets$20 billion

Employees131,000

1995 NCR*

Revenues$8 billion

Assets$5 billion

Employees38,000

* Revenues, assets and employees represent those the company would have shown at year's end had it existed as a separate company. The number of employees listed does not reflect the total impact of previously announced work force reductions.