Shipped out

The story of how AT&T moved 3,500 workers to a new 'career' at IBM -- knowing it wouldn't last

Sunday, August 25, 2002



BY JEFF MAY
Star-Ledger Staff In his short, unhappy career at IBM Corp., James Fusco never imagined anything could be worse than the day this spring when he learned he was being laid off.

Then his boss asked him to work weekends during his final month on the payroll.


"That was the last straw," the 48-year-old East Brunswick man said. "It told me a lot about the state of things there."

The Armonk, N.Y.-based computer giant was supposed to be a soft landing spot for Fusco and 3,500 other software developers AT&T had shipped there in two waves beginning in 1999.

The workers were a key part of a $4 billion deal in which IBM would handle systems supporting AT&T's business customers, such as billing and data processing, and AT&T would manage Big Blue's phone systems.

The 3,500 software developers were told they would keep their seniority. They would have roughly the same benefits. Many would work in the same offices. The change would amount to little more than jumping from AT&T's payroll to IBM's, a swap of employee ID cards between two of the most important companies in the world.

In theory, it was a compassionate twist in the cold world of outsourcing, where big companies shed sideline work such as payroll or information technology -- and the mass of jobs associated with them -- to outside firms who can do it cheaper.

It did not work out that way.

AT&T programmers said they were left in the dark about one of the most important details of the plan: from the start, the two companies planned to farm out much of their work to Canada and India. And when push came to shove, they said, the deal provided perfect cover to dispatch them quietly.

Or, as Fusco put it: "AT&T essentially hired IBM to be the hit man so they would be the bad guys."

Fusco and several other software developers interviewed for this report say hundreds of former AT&T workers have lost their jobs, but it is impossible to know how many are now out of work. IBM will not discuss customers' contracts, said Nancy Kaplan, a company spokeswoman.

Until this week, neither AT&T nor IBM has publicly acknowledged the second wave of their outsourcing deal, in which 1,500 of the 3,500 programmers moved to IBM in mid-2000.

For its part, AT&T said it couldn't have predicted the dot-com bust or economic downturn that now makes it difficult for IBM to find work for the former AT&T technicians. AT&T hasn't been the most secure spot to work, either -- the company cut 5,000 jobs last year and plans to eliminate an equal number this year.

"It pains us to hear that anyone has lost a job," AT&T spokesman James Byrnes said. "But, as you know, the situation in our industry and indeed other industries has been that cutbacks in jobs have been an unfortunate fact of life."

One thing not in dispute is the importance of IBM's task: running the vast hub of information systems that support AT&T Business Services, which serves 4 million corporate customers and collects the most revenue of any operating unit in the company.

Software developers for the unit write code for systems that enable service representatives to place customer orders or fix billing errors. They also oversee systems that crunch marketing data, track payroll or monitor network performance.

At one point, the 3,500 workers represented 2.3 percent of the company's 150,000-member workforce. But by the end of the 1990s, AT&T already was buckling under pressures that would force it to cut 35,000 jobs and break up the company.

With sales slowing, company executives decided they were simply spending too much on information technology.

Enter IBM.

Fusco and other developers said they were leery when the outsourcing deal was announced but were repeatedly reassured by both companies. Since IBM's business was so tightly focused on computers, their skills would open more doors than at AT&T, they were told.

Just before most of the first group moved over, AT&T spokesman Burke Stinson compared the swaps by the two blue-chip companies to a Harvard student transferring to Princeton. "It's not going to be exactly the same," he said. "But you're going to class outfits."

There were orientation programs and soothing words from management. Three months before the second wave of programmers moved over in 2000, AT&T Vice Presidents Rino Bergonzi and Pete D'Amato sent an in-house e-mail, which read in part: "IBM is a leader in the outsourcing industry, and we believe our people will have good career opportunities there."

Bergonzi did not mention that AT&T was committed to moving some of the programmers' work overseas as part of the deal. The company initially considered moving the work offshore on its own for maximum savings, but it enlisted IBM because of its expertise abroad, Bergonzi told CIO magazine this April.

"If I went (offshore) directly, I wouldn't have the same comfort level," Bergonzi, now retired, told the magazine.

Yet AT&T and IBM continued to minimize the prospect of offshoring in informational sessions with employees, even though the contract called for it, software developers said.

"They told us we'd be doing the same job at the same location and that things would be fine," said Bob Strong, who worked for AT&T for 26 years and was outsourced to IBM in 2000. The 50-year-old Long Branch man was laid off last December.

In many ways, the move to IBM was an offer AT&T employees couldn't refuse.

The choice boiled down to taking a position with Big Blue or being fired. And AT&T maintained that employees who turned down the job wouldn't be eligible for severance because they were offered a job.

Sweeteners were added to smooth the transition: a $2,500 signing bonus, and a 5 percent retention bonus after a year at IBM. Programmers can earn from $50,000 to $150,000, depending on the responsibilities of the job and the worker's level of seniority. $80.000 to $90,000 is a good average, according to Strong.

Strong said the incentives were put in for a reason: IBM desperately needed the AT&T code writers to stay on until other workers could be trained on the complex systems.

And that's exactly what IBM did.

Almost immediately after the first wave of employees switched payrolls, IBM started shifting some of their jobs to Canada and India, where costs were as much as 30 percent lower than the United States.

Many of the fomer AT&T employees were asked to train the foreign workers who would replace them at IBM, a process known as "executing the knowledge transfer" in the language of Big Blue.

"They could have never done this without us," Strong said. "Everything was done to entice you to stay for a year."

Some of the software developers said they quickly realized there would be no future with IBM. One woman in the first group that went to IBM in 1999 said her unit began training Canadian workers to take over its duties two months into the switch.

Training classes were set up on a schedule, just like in school. And job evaluations were based in part on how well technicians taught their charges.

"If you didn't want to do it, your only option was to resign. You really had no other choice," the woman, a 20-year AT&T veteran, said. "The people who came were very nice people, and it wasn't their fault personally. But it was hard to put on a happy face and do this knowing you were putting yourself out of a job."

Still, IBM was reassuring workers there would be other jobs for them, and many did find temporary assignments. But as more work went to spots such as Moncton, Canada, or Bangalore, India, work became scarce. Strong said some postings required employees to relocate but only guaranteed work for six months.

Byrnes, the AT&T spokesman, blamed the slowdown in corporate spending for information technology as the economy soured.

"When we did this deal in mid-2000, we believed that IBM would have more than enough work for its U.S. employees," he said.

To save money, IBM began consolidating office space. Fusco and a group of other former AT&T workers were assigned to a former warehouse in Piscataway.

"It was pretty depressing," Fusco said. "For that and a lot of other intangible reasons, we got the feeling that IBM just didn't care. They didn't make us feel like valued employees."

The rift between the former AT&T workers and their bosses at IBM boiled over at an all-employee meeting in Middletown last summer. After IBM executives outlined their success in meeting AT&T's goals for moving work offshore, some employees demanded to know if they would be sent packing.

"People knew they were digging their own graves," Fusco said. "The people who stuck with it out of loyalty to either AT&T or IBM were eventually just let go. That's probably what bugs me the most about it."

Many of the former AT&T employees who were laid off in the past year have yet to find work because of the slowdown in IT. It's a crowded field for jobseekers: There have been 186,000 layoffs in telecommunications this year and 66,400 layoffs in the computer industry, according to a recent survey by the outplacement firm Challenger Gray & Christmas.

Strong, who was laid off Dec. 31 last year, was able to collect a severance package that was better than most because he was fired within 18 months of his shift from AT&T. But he said it still rankles that he lost all his seniority and is adrift in what should be his prime pension-building years.

"They say your job has been eliminated, but it hasn't been," he said. "The work is still being done. They just won't let me do it because I'm an American citizen."

Fusco and others from the 1999 group fared worse because they worked for IBM longer than 18 months and no longer had severance guarantees that carried over from AT&T. Most wound up with eight weeks' pay as severance -- one 17-year veteran of AT&T called it "a kick in the teeth" -- but to get it they had to sign an agreement not to sue IBM.

Some of the former AT&T employees have talked about taking legal action anyway. Fusco filed an age-discrimination claim this summer with the Equal Employment Opportunity Commission.

But many are concentrating on finding new jobs. Several have vowed not to work for large corporations again.