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Chapter 366 Seeking Bell Labs

Michael Armstrong and the executives of Telephone & Telegraph Corporation never expected that Ernst's donation of Continental Telecom shares was actually a ploy to gain Bell Labs' favor.

"As you know, Bell Labs' significance and importance to Telephone & Telegraph Corporation is self-evident, and we cannot sell Bell Labs."

Michael Armstrong was quite puzzled. Could Ernst's real purpose in coming to the Telegraph and Telegraph Corporation be Bell Labs?

In fact, he was not against selling Bell Labs.

Under Lucent's control, Bell Labs has become a heavy burden with a bleak future.

What was the core element of Bell Labs' past glory? It was the continuous flow of research and development funds.

In the past, AT&T was a super-large monopoly in the United States, but monopolies also face many restrictions, such as limited profits.

To limit the profits of monopolistic enterprises, the U.S. government stipulates that their profits cannot exceed 12%.

However, this regulation is difficult to calculate precisely in practice. Capitalists will inevitably make many considerations and calculations when considering profits, which leads to AT&T's annual profits far exceeding the limit set by the government.

To meet the regulatory requirements, AT&T established Bell Telephone Laboratories, Inc. in 1925, which is now Bell Laboratories.

At that time, AT&T did not value the profit returns of the laboratory. Bell Labs' core mission was to help AT&T allocate funds rationally, that is, to spend the extra money.

This provided Bell Labs with ample funding in its early stages, and coupled with AT&T's minimal interference in its research and development activities, researchers were able to freely conduct research and innovation, thus ushering in a golden age.

With a constant stream of groundbreaking inventions, AT&T has expanded and upgraded its business through its R&D projects, resulting in increasing revenue and profits. As an institution that helps AT&T manage its finances, Bell Labs has naturally become more and more well-funded in its R&D.

In the 60s, Bell Labs' annual research and development budget reached $40 billion, which is an astonishing figure.

However, in the 80s, the U.S. Department of Justice broke up AT&T under antitrust laws, and Bell Labs was not spared and was spun off separately.

With the breakup of AT&T and the adjustment of its own business structure, the overall operating strategy and resource allocation of the Telephone and Telegraph Group underwent significant changes.

With the profit cap removed, AT&T no longer needs to make additional capital expenditures due to profit limits.

This is precisely what Wall Street aimed to achieve by pushing for the breakup of AT&T. Under these circumstances, it is naturally impossible to support Bell Labs as strongly as in the past.

Therefore, in 1996, AT&T’s equipment manufacturing division separated from AT&T to form Lucent Technologies, and Bell Labs was also transferred to Lucent’s portfolio, with the aim of further reducing investment in Bell Labs.

However, Lucent's profits were simply insufficient to support the operating costs of this giant laboratory with 20,000 employees, and they would not support this bottomless pit. Therefore, they demanded that scientists and engineers shift their focus to research projects that could bring economic benefits as soon as possible, and they often blocked Bell Labs' funding applications.

As a result, Bell Labs' innovative capabilities were greatly affected, and it was no longer the research mecca it once was, primarily focused on pure research.

The restriction of capital on scientific research and innovation ultimately led to a negative backlash, causing Bell Labs' research and development capabilities to decline again.

This led to a further decline in Lucent's focus on Bell Labs, with annual R&D funding allocated to Bell Labs falling below $300 million.

With over 20,000 scientists and only $300 million in R&D funding, averaging just over $10,000 per person, it would be difficult to achieve significant research results; it would be strange if any results were even produced.

The issue is no longer whether or not to conduct research; the huge salary expenditures have become a massive burden for Lucent.

It's important to know that Lucent had virtually monopolized the manufacturing of telecommunications equipment in the past, previously manufacturing exclusively for Telephone and Telegraph Corporation and not selling to other companies.

After being spun off, Lucent now faces a global sales market, and its revenue has multiplied.

Lucent's market capitalization now exceeds $932 billion, more than five times its IPO value two years ago.

If Lucent can shed the huge expense burden of Bell Labs, its stock price could rise by at least 50%.

Wall Street has been pushing for this, and there are even voices of support within TT Group and Lucent.

As stock prices rise, the value of their shares also increases, allowing their personal wealth to grow significantly in a short period.

Although Michael spoke in a grand and respectable manner, he actually did not mind selling Bell Labs.

However, despite the sale, Michael clearly hopes to get more profit in terms of price.

Most importantly, it's about the other party's motives—why would they be interested in Bell Labs?

Was it this technological sanctuary that caught his eye, or was there some technology within that he saw that could generate enormous wealth?

Ernst could easily see through the other party's ulterior motives, but he didn't bring up Bell Labs.

He nodded, not denying the importance of Bell Labs, but what he said next made Michael and the executives at TT Group tense.

"I think the Telephone and Telegraph Corporation should be focusing more on Verizon, Comcast, WorldCom, and..."

Companies like MFS.

Every name Ernst uttered irritated Michael and the other executives.

"No one knows better than me about the future potential of the internet industry. I think the Telephone and Telegraph Corporation acquired the remote broadcasting company for a huge sum of money precisely because they are optimistic about the importance of the internet in the future."

Michael and others do not deny Ernst's achievements in the internet industry and the wealth he has accumulated rapidly. It is no exaggeration to say that he is one of the people who knows the internet industry best.

Telephone and Telegraph Group's acquisition of MCI was also aimed at entering the Internet industry and getting a share of the pie.

"However, after acquiring MCI, TT has become the largest internet TV provider in the United States, and now it is entering the broadband industry through China Telecom. How do you think its competitors will react?"

How should we react?

Even a fool could figure out what those companies would do.

By transforming itself from a telephone operator into an internet provider, the Telephone and Telegraph Corporation, with its strength and deep-rooted foundation, undoubtedly posed a huge threat to all internet providers in the United States.

Here comes the wolf.

Everyone was worried that Telephone & Telegraph Corporation would create another monopoly like AT&T in the broadband business.

Driven by profit and crisis, these competitors will inevitably unite to launch a joint attack on Telephone and Telegraph Corporation.

Even now, Lucent faces constant antitrust concerns because its competitors need its equipment; how much more so with Telephone & Telegraph, whose business conflicts with Lucent's?

Ernst's voice rang in their ears again like the whisper of a demon: "So, instead of Bell Labs, I think you should invest a lot of money in public relations."

"If they can influence Congress, it's not impossible for AT&T to create another AT&T in the broadband industry."

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"Moreover, selling Bell Labs is also a good thing for you. Not only will it reduce your investment, but it will also lull your competitors into a false sense of security."

The thought made Michael and his executives' hearts race.

However, the group remained clear-headed, knowing that there is no such thing as a free lunch.

Would Ernst be so kind as to help Lucent take over the huge burden of Bell Labs?

There must be something there that appeals to him.

"I can't make this decision on my own. Lucent is now operating independently, and we can't interfere with their opinions. However, I can convey your thoughts to you."

Ernst curled his lip. Although Lucent operates independently, who is its major shareholder?

However, he was not in a hurry; finalizing the deal with mainland China Telecom today was the key.

Although the cooperation has not yet been finalized, both sides understand that regardless of whether they agree to exchange Bell Labs for shares in China Telecom, both sides will strive to facilitate the Telephone and Telegraph Group's investment in China Telecom.

China Telecom currently has $4.5 million in funds from Lehman Brothers, and the Telephone and Telegraph Corporation will certainly provide China Telecom with many conveniences and give it the green light all the way, so related businesses can already begin to be carried out.

Before leaving, Ernst still pressed him, saying, "I hope to get a reply as soon as possible, otherwise I'll have to set up my own laboratory."