January 14, 1996

A Crack in the Bedrock

By ABBY GOODNOUGH

ASKING RIDGE--Since it laid the first telephone wires across New Jersey in 1885, AT&T has carved out a presence felt in hundreds of thousands of homes and businesses. As the largest employer in New Jersey, after the state itself, it has provided enviable jobs and benefits to people in all 21 counties.

As the state's wealthiest company, it has pumped billions of dollars into the economy through taxes, purchases and charitable donations. With its world headquarters here and 282 other offices around the state, it has bolstered the real estate market year after year.

For a long time, AT&T's sheer size and wealth made it seem invincible -- bedrock supporting a frequently unpredictable state economy. But in September, when AT&T announced it would split into three smaller companies to stay competitive in the rough-and-tumble telecommunications market, its future in New Jersey suddenly seemed less clear. A widespread sense of unease was justified this month, when AT&T's chairman, Robert E. Allen, announced that up to 7,000 employees in New Jersey would be among 40,000 to lose their jobs during the restructuring.

Although AT&T has shed 70,000 jobs since the breakup of the gargantuan Bell System in 1984, the cuts have been staggered and the impact in New Jersey has not been especially harsh. This time, 70 percent of the layoffs will come within the year, with the rest following through 1998. As the company prepares to deliver the first pink slips on Tuesday, economists are trying to predict the repercussions in a state where AT&T still seems like Ma Bell.

"The immediate effects will be on housing markets and the spending practices of the people losing their jobs," said Joseph J. Seneca, a Rutgers University professor who heads the state's Council of Economic Advisers. "But there will also be a ripple effect in terms of consumer confidence. This throws out a cautionary signal that downsizing and restructuring are still very much a part of corporate America, not least in New Jersey."

The restructuring, which is to be completed by 1997, will break AT&T into three separate entities: a long-distance company with 110,000 employees and assets of $49 billion; an equipment company with 108,000 employees and assets of $20 billion, and a computer company with 35,000 employees and assets of $8 billion.

For now, two of the companies will remain in New Jersey. The telephone unit will take over the Basking Ridge headquarters, and the equipment concern will be based in Murray Hill, in Union County. AT&T Bell Laboratories, where scientists invented the transistor, the laser and the communications satellite, will keep its offices in Murray Hill and Holmdel, with most of its 26,000 researchers working for the equipment company. But AT&T officials say that other New Jersey offices will probably close as the new companies reach into local markets around the country.

"The basic strategic planning jobs are still going to be here," said Ritch Blasi, an AT&T spokesman. "But when you get to the regional level, it might make more sense to have the strategy coming from New Jersey, but the implementation coming from regional offices around the country."

The layoffs will surely be hard on New Jersey, where job growth slowed in 1995 and is expected to remain sluggish this year. Most of the jobs that have opened up recently are in the lower-wage retail and service sectors, economists say, while the telecommunications, pharmaceutical and manufacturing industries keep shrinking their payrolls. Last year, the Lockheed Martin Corporation, the Mobil Corporation and several other companies eliminated 5,000 jobs in Mercer County alone, sending even well-educated, highly skilled workers to unemployment lines.

In a sense, the AT&T layoffs are even more jarring because they are taking place within a corporation that is still highly profitable. In the old days, the phone company offered lifelong jobs and generous pensions. But as the telecommunications market evolves, even those who are promised jobs at the new companies will have no guarantee of stability.

"These people losing their jobs are managers in a company that had a record of lifetime employment," Mr. Seneca said. "The new business climate is uncertain; it's entrepreneurial; it requires a lot of flexibility and adjustment. That will be a difficult transition for some workers to make."

THE PAST
Moving to the Suburbs

Twenty years have passed since AT&T opened an enormous office in Basking Ridge, a Somerset County village whose previous claim to fame was a 400-year-old oak tree. Rural and sparsely populated, it must have seemed an odd location for what was then the world's largest corporation.

But apparently, AT&T executives believed that Somerset County, an expanse of rolling hills and farmland, was the best place for the company to expand and prosper. Bell Laboratories had moved from Manhattan to Murray Hill, not far from Basking Ridge, in 1941.

Hundreds of AT&T employees already lived in New Jersey, and a suburban location would be more convenient and less expensive than the corporate headquarters at 195 Broadway, Mr. Blasi said.

Although its official headquarters remained in Manhattan, AT&T continued its expansion into the suburbs. In 1977, a year after the Basking Ridge office opened, AT&T moved its Long Lines division to Bedminster, also in Somerset County. Other offices followed, with close to 60,000 employees working in New Jersey by 1983. (The number has dropped since then to about 48,000.)

"It was simply a matter of needing additional space, because there was no longer room in the Manhattan building," said Sheldon Hochheiser, AT&T's resident historian. "It was a gradual process of building offices here to hold overflow rather than a conscious decision to pick up stakes and put them down somewhere else."

For the 3,300 people who were transferred to Basking Ridge in the 1970's, the incentives were sweet. To lure employees out of Manhattan, AT&T offered to pay for house-hunting and driving lessons. If the cost of living in New Jersey proved more expensive than in New York, the company would make up the difference for several years.

Meanwhile, Somerset County was reaping its own benefits. Real estate values soared, and property taxes fell. Thanks to the company, local rescue squads could buy new rigs, hospitals could expand and museums could present special exhibits.

More urban companies were following AT&T to the suburbs, and the economy of central New Jersey was changing forever.

"What AT&T did in was legitimize that area around Route 287 as an acceptable place for industry, a viable market," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. "That set the stage for the 80's, when we really saw a real estate surge in the suburban corridors."

Many of the employees transferred to Basking Ridge were middle managers, people who took orders from the higher-ups and passed them down to technicians and office clerks.

In many cases, they had already devoted years to the company, and expected to be rewarded by more promotions and raises. And at the time, their expectations were usually met. Until the Federal Government forced AT&T to divest itself of its seven regional telephone companies in 1984, the company had virtually no competition in the telecommunications market. It could spend however much time and money it needed to get things right, and mergers and reorganizations were unheard of. Employees bought homes in New Jersey and stayed put, remaining loyal to a company that promised them a comfortable retirement

After the 1984 breakup, AT&T's payroll went from 1,009,000 to 373,000, and its assets dropped from $149 billion to $34 billion. But most jobs in New Jersey remained intact -- only several thousand were lost, because the planning and research operations here remained vital to the trimmed-down company, said Mr. Blasi, the spokesman.

Meanwhile, Bell Labs was more productive than ever, with scientists inventing an opitical digital processor in 1990 and making advances with fiber-optic cable systems. Perhaps the most prominent symbol of AT&T's presence in New Jersey came in 1992, when the company moved its "Golden Boy" statue, a 10-ton figure clutching lightning bolts and telephone cables, from Manhattan to Basking Ridge.

"Symbolically, this had been company headquarters for a while," Mr. Blasi said. "Bob Allen spent most of his time out here, so they moved the statue out here, too."

THE PRESENT
Finding Its Way

When AT&T announced that it would eliminate 13 percent of its work force as part of the restructuring plan, not everyone was surprised. Downsizing has been a popular trend for the largest corporations, and some -- including General Motors and IBM -- have eliminated even more jobs.

But the AT&T cuts are unusual, economists say, because they are taking place at a time when the company is healthy and profitable. Its total earnings in 1994 were $4.7 billion, and through September of 1995, the last month for which figures are available, they were $2.8 billion. Just two years ago, AT&T was intent on expanding, acquiring McCaw Cellular Communications for $12 billion.

Yet on Tuesday, as many as 24,000 employees will learn that they are being shut out. (Not all will be leaving against their will. About 7,300 employees, including about 2,630 in New Jersey, have accepted voluntary severance packages that were offered in September. Another round of buyouts may be offered within a month.) The company's career outplacement office is scrambling to help men and women who thought they had mailed out their last resume. AT&T officials say the layoffs will trim billions of dollars in annual costs, helping the three new companies stay competitive.

The long-distance telephone market is already highly competitive, with more than 400 companies vying for customers. The rivalries will grow even more fierce if Congress passes legislation that would allow the seven regional Bell companies -- including Bell Atlantic -- to compete with AT&T for long-distance phone customers. Meanwhile, the $700 million local telephone market in New Jersey is expected to open to competition in the next few years, and AT&T will try to break into local markets long dominated by the Bell companies.

"The long-run objective is to position the company in an industry subjected to enormous change," Mr. Seneca said. "With the staggering technological advances and the Government regulations still being worked out, the company is trying to place itself strategically."

About 10,000 of the job cuts will be in information systems, human resources and financial operations that were needed to manage AT&T as a sprawling corporation and support its various units, Mr. Blasi said. Other layoffs will include about 6,000 administrative and support jobs, he said. The telephone company will shed a total of 17,000 jobs, while the equipment unit will eliminate 23,000. The computer company, which will be based in Dayton, Ohio, will reduce its work force by 8,500, a plan announced in September.

To help workers find new jobs, AT&T is beefing up its job bank and providing re-training to anyone who needs it. Although most job opportunities in New Jersey right now are in the service and retail sectors, there are also a growing number of positions in biotechnology research and small-business services like consulting. Mr. Hughes said many of the laid-off employees -- particularly older people who are likely not to uproot themselves -- could end up taking lower-paying jobs. Although the layoffs will be difficult for them, he said, it is important to remember that they represent only a tiny fraction of the state's 3.6 million jobs.

"We add about 50,000 jobs a year, or 4,200 a month," he said. "If these cuts take place over a two-year period, each year we will lose the equivalent of one month's employment growth. Statewide, that's difficult to discern."

THE FUTURE
Learning to Compete

Over the years, AT&T has accumulated 151,000 management-level employees, thousands of whom work in New Jersey. The typical manager is 42 years old, with 16 years at the company and an annual salary of $55,000. The job used to be highly coveted, since it was prestigious and often led to more promotions and raises.

But of the 40,000 jobs the company plans to eliminate, 60 percent are in the middle-management ranks. Lately, managers at AT&T must feel a bit like moving targets trying to guess which direction leads to the prize.

"The function of middle managers in the past was to communicate between the levels above them and below them," Mr. Hughes said. "Those jobs are just not necessary anymore."

In the future, Mr. Hughes and others who follow the economy say, the most promising jobs in the telecommunications industry will be tailored to the newest, most competitive markets, like local telephone service, wireless communications and on-line services. Instead of settling into comfortable management positions, AT&T employees might have to jump from one job to the next. People who lose jobs at AT&T will probably have to follow a similar course if they stay in the business, Mr. Hughes said, working as short-term consultants for more than one company.

"People will have to refashion themselves and adapt to a different culture," he said. "The people who may be in demand now are the ones who didn't have a good fit with corporations in the 60's and 70's. Back then, they wanted people who could take orders.

"What is really going to determine the impact in New Jersey is how successful the goals of the restructuring are," Mr. Hughes went on. "If these companies flourish in a competitive environment, that's going to be positive for New Jersey in the long run. It means they will be expanding employment sometime in the future."

Only time will tell, but Daniel Briere, president of Telechoice, a telecommunications consulting firm in Verona, says the changes will almost certainly be highly profitable for the new telephone company, based in Basking Ridge.

"The communications services group will be positioned fabulously in terms of employee efficiency," he said. "They will be far leaner than MCI, which was the lean one in the past."

For its part, New Jersey probably cannot prevent job loss in the telecommunications industry as the drama continues to unfold, Mr. Seneca said.

"We've been at ground zero in terms of downsizing and restructuring, and that's going to remain," he said. "Where New Jersey can make a difference is an attractive business climate, good infrastructure, worker training and education"

The state should also continue to support Bell Laboratories and other telecommunications researchers, Mr. Seneca said, in order to keep the heartbeat of the industry in New Jersey.

"It's very important that the basic research that was the hallmark of Bell Labs remain alive and thrive, because it fuels the industries of tomorrow," he said. "And these days, tomorrow comes real quick."

Keeping in Touch: AT&T in New Jersey

1879: New Jersey's telephone exchange opens in Camden. It consisted of a few local telephone customers connected to a central office with a manual switchboard.

1885: AT&T lays the first telephone line across New Jersey -- it stretches between New York City and Philadelphia.

1927: Delaware and Atlantic Telephone & Telegraph becomes New Jersey Bell. 1931: Nation's first transmitting station for ship-shore telephone service opens in Oceangate.

1941: Bell Labs moves from Manhattan to Murray Hill.

1947: Scientists at Bell Labs invent the transistor.

1949: First customer toll dialing from New Jersey (Cranford, to be exact) to N.Y.C.

1951: Trial of long-distance customer dialing takes place in Englewood. Mayor of Englewood dials the first call, to the mayor of Alameda, California.

1958: Scientists at Bell Labs invent the laser.

1961: N.J. Bell installs its 3-millionth telephone in the state.

1964: New Jersey gets its second area code, 609. About 465,000 lines in South Jersey are assigned to the new code.

1975: AT&T moves into its new office building in Basking Ridge. (Construction continues until 1977, when more employees move in, bringing the total to 3,300.)

1977: AT&T opens its network operations center, which now routes millions of phone calls around the world each day, in Bedminster.

1984: AT&T breakup creates 7 regional phone companies overseeing 22 local companies, including New Jersey Bell. (In 1994, the company changed its name to Bell Atlantic-N.J.)

1990: New Jersey gets its third area code, 908. About 1.5 million lines in North and Central Jersey are assigned to this code.

1994: Bell Labs receives its 25,000th patent.