Phone giant's final knell
AT&T investors OK SBC sale, but many aren't happy about it

By Jeff Smith, Rocky Mountain News
Friday, July 1, 2005

AT&T executives on Thursday came to talk to shareholders about the tumultuous past decade that led to the need to merge with Baby Bell SBC Communications.

But many shareholders at the historic event in Denver - AT&T's 120th and almost certainly final annual meeting - wanted to talk instead about management mistakes over the years, hefty executive compensation, job and benefit cuts, stock price declines . . . and how Ma Bell has ended up a shell of her former self.

"They Built It, They Broke It . . . RIP AT&T," read black T-shirts with gravestones worn by union officials.

About 250 shareholders attended the meeting at the Colorado Convention Center, in which AT&T shareholders soundly approved the $16 billion sale of the company to San Antonio-based SBC.  New Jersey- based AT&T likes to rotate its annual meeting around the country, and CEO David Dorman said there are 20,570 registered AT&T shareholders in Colorado.

Lani Flesch, an AT&T manager for more than 20 years, took three days of vacation to travel from her Chicago wholesale markets job and gave an impassioned criticism of a company that has shrunk in stature from nearly 1 million employees before divestiture in 1984 to fewer than 50,000 today.

She complained about the new breed of CEOs who have widened the pay gap between multimillion-dollar-a-year executives and the average worker.  She bemoaned the decision by AT&T to spin off its cable and wireless operations.  And she contended that since the 1990s, it has been the employees, retirees and shareholders who have suffered the brunt of the pain.

Flesch broke down when she recounted that AT&T's "ruthless" behavior in 1998 personally cost her 65 percent of her pension and 13 years of labor.  She said she won't earn back those benefits until 2011, when she is 60.

She compared that with the millions Dorman will earn in pension benefits for less than five years of service.

"How can shareholders, employees and retirees be expected to share the pain when their own executives take the gain?" Flesch asked.

But Flesch also said after the meeting that she voted for the merger with SBC because AT&T "can't go it alone" any longer.

A majority of AT&T shareholders apparently saw it that way.  More than 70 percent of the shares were cast in favor of the merger.

But another nearly 30 percent were withheld intentionally or not voted.

Dorman remained largely unflappable during the 90-minute meeting, taking in but not responding to the criticism by Flesch and other stockholders.

This exasperated stockholder activist Gerald Armstrong, of Denver.

At one point, Armstrong said he was hoping Dorman would respond to a union official who called it "tragic" that AT&T had come to this and who had urged stockholders to withhold their support for the company's directors.

"I have no response," Dorman said.

"I feel shortchanged," Armstrong countered.

Dorman's presentation also was lacking in any kind of tribute to the early days of AT&T, instead focusing almost entirely on what has transpired since the 1996 Telecommunications Act, which paved the way for the Baby Bells and AT&T to compete in each other's businesses.

Dorman revisited the turbulence of the past decade, talking about how the "irrational exuberance," hyper investment, overcapacity, accounting fraud, competitive technologies and pricing pressures all led to an "inevitable bursting of the bubble."

He told shareholders the deal with SBC is the "greatest opportunity" for increasing shareholder value and ensuring that the company has the financial strength to prosper in an intensely competitive environment.

He said SBC offers as a complement a strong local phone and DSL high-speed Internet business, as well as a nationwide wireless operation through its 60 percent ownership of Cingular, and soon will offer video services.

A video that accompanied Dorman's remarks also revisited the past decade and showed several images of former WorldCom CEO Bernard Ebbers, now convicted of fraud.  The message seemed to be that WorldCom, now known again as MCI, contributed to the downfall of AT&T.

On at least this point, Flesch, the Chicago wholesale markets manager, agreed.

She said after the meeting that she believed AT&T was compelled to match MCI's performance and that MCI's "lies" about its revenues caused AT&T to spin off its broadband and wireless operations.

"We could have had it all, and instead we're being bought," Flesch said, tears still in her eyes.

http://rockymountainnews.com/drmn/business/article/0,1299,DRMN_4_3896267,00.html