AT&T Going for Miracle Merger

Communications giant is trying to grab a big chunk of computer industry by `marrying' NCR

WHEN two of the most significant inventions of the 20th century join forces, the surge of innovation can be impressive. That is what is happening with the marriage of the computer and telephone. Computermakers are producing machines that can communicate, giving rise to computer networks and other new products. Computerized telephone switches have enabled portable, cellular telephones to take off.

So, when the giant telecommunications concern American Telephone & Telegraph Company announced last week it wanted to acquire NCR Corporation, the fifth-largest United States computermaker, it seemed a good technological fit - on paper. The real world of business, however, is littered with computer-telecommunications mergers that did not work out.

Computer giant IBM acquired Rolm several years ago but failed to make a success of the telecommunications company. Since British Telecom acquired Mitel in 1986, the Canadian manufacturer of computerized telephone switches has lost money. AT&T itself has struggled as a maker of computers.

NCR resists overtures

For the moment, NCR is resisting AT&T's overtures - at least for the $6 billion price that AT&T has offered. The biggest obstacle to the success of these computer-telecommunications mergers is not technological. It's the human end of the business. The corporate cultures do not mix easily. And though technology increasingly has blurred the lines between the two fields, the educational structure of universities keeps them apart.

``The businesses are very different - and the habits of mind,'' says Marvin Sirbu, a professor of engineering and public policy at Carnegie Mellon University here in Pittsburgh.

For example, he says: Telecommunications companies rely heavily on common standards that enable everyone to communicate. Computer companies until recently have emphasized their own proprietary standards, he says. Thus, ``you can make a telephone call anywhere around the world, but you can't take your word-processor [program] across the hall to a different computer.''

Computer companies tend to be entrepreneurial. Telecommunications concerns can be downright stodgy.

``We create these artificial barriers,'' says Tim Pratt, a professor of electrical engineering at Virginia Tech in Blacksburg, Va.

Students who go into electrical engineering spend much of their time programming software, but their training is so specialized that it is difficult even to talk with computer-science students, Professor Pratt says.

These cultural and education gaps are so large that several analysts suggest AT&T should not pursue NCR.

``I would prefer not to see the company grow its computer business,'' says William N. Deatherage, telecommunications analyst with Dean Witter Reynolds Inc. ``What they have done is make an all or nothing bet on NCR.'' If the telecommunications giant has to stay in the extremely competitive and volatile computer business, Mr. Deatherage says, it ought instead to form strategic alliances with a range of computer companies.

In fact, AT&T already markets its own personal computers through an alliance with Intel Corporation and has equity shares in the Italian computermaker Olivetti and US-based Sun Microsystems. None of these has yet provided a big payoff.

NCR has harshly criticized the idea of a takeover. ``We want AT&T to go away and leave us alone so that we can get on with our new product programs,'' NCR chairman Charles Exleysaid in a statement Friday. But if AT&T offered to buy NCR for $125 a share instead of $90 per share - a total of about $8.5 billion instead of $6 billion - NCR's board has said it would hold merger talks.

Now that the two companies have traded offers, several analysts say that some kind of deal appears likely.

``At this point the two principals are simply arguing over price,'' says Philip L. Cooley, a business professor at Trinity University in San Antonio. ``NCR shareholders have to be laughing all the way to the bank.''

Stock price surges

On the last trading day before the AT&T bid was disclosed Dec. 2, NCR stock stood at 56 3/4; on Friday, it closed at 91 3/4 - a 62 percent jump in just one week. That's twice the premium that companies typically offer in a buyout, Professor Cooley adds.

Technologically speaking, an AT&T-NCR marriage would be a strategic fit, analysts say. NCR has embraced a software operating system known as UNIX, which was invented by AT&T's Bell Laboratories (Operating systems, such as UNIX or DOS, are basic software that enables a computer to operate other software.)

NCR also is a big seller of computers to retailers and banks, industries that rely heavily on the movement of information along networks. This computer networking is one area in which AT&T's computer business has excelled.

Not all computer-telecommunications marriages have turned sour, Professor Sirbu points out. NEC Corporation and Fujitsu Ltd. - two giant Japanese computermakers - are major suppliers to Japan's huge telephone company, Nippon Telegraph & Telephone. Fujitsu recently bought a majority stake in the computer division of Canada's Northern Telecom.

But such moves have to prove themselves before skeptics will believe that the time is ripe for telecommunications-computer marriages.