d justify it, were painfully slow. Third, as Armstrong put it, he had not seen such a bloated cost structure since the heyday of the mainframe computer business. The company's sales, general, and administrative expenses were nearly 30 percent of revenue compared to an average of 22 percent for our competitors. And AT&T's biggest single cost was simply reimbursing the local telephone companies for originating and completing long- distance calls. In 1996, the last full year before Armstrong arrived, that amounted to $16 billion in so-called access charges-an average of more than five cents on every minute of every long-distance call. Long-distance competition was forcing the price of calls down, but the cost of access had changed little because its provision was still a monopoly and it accounted for much of the local telephone compa- nies' profits. Fourth, no one knew what the Internet really meant for the tele- phone business, but the pundits claimed that it would "change every- thing," making phone calls free. We knew that, at minimum, its underlying digital technologies would have a profound affect on our biggest customers and not only were we stuck in an analog world, but Tough Calls we were spending $4 billion in capital every year to cement our posi- tion there. Finally, while international calls represented only IO percent of the traffic on AT&T's network, they accounted for about 20 percent of the company's revenue and nearly 30 percent of its profits. Yet the company's international strategy was a confusing amalgam of loose alliances with foreign phone companies that spent most of their time arguing about account control rather than signing up and serving cus- tomers. Furthermore, international prices were coming down even faster than domestic prices as small entrepreneurial companies found ways to game the system that was supposed to compensate foreign companies for completing calls. For example, some companies routed calls over private lines to their own switches in a foreign country avoid- ing the local