AT&T's Dorman Weighs In on WorldCom
In an interview Wednesday with Light Reading, Dorman, who was just named AT&T's next CEO, sounds as if he's ready to move in for the kill in the shadow of the WorldCom bankruptcy. He also believes that AT&T is well positioned in growing areas of telecom, such as data services.
Dorman had some scathing words for the WorldCom team (see WorldCom's Customer Service: Fictional?).
"When you look at WorldCom, restated for the fraud that they've admitted to, this is a sick puppy," he says. "They are about three times the size of Sprint Corp. (NYSE: FON) [in sales] and they are basically earning about what Sprint is.
"What that tells you is that they never did really integrate all of those acquisitions. They just papered it over with the various accounting maneuvers; and many of the people that brought this to you -- with the exception of Bernie [Ebbers, WorldCom's former CEO] and Scott [Sullivan, former CFO] -- are still there.
"[WorldCom's] management team at this point is obviously shell-shocked from what they've been through. They're getting ready to have a whole bunch of help running the company, and my guess is that between litigation and other distractions, [WorldCom] customers are not going to have [the company's] full attention."
WorldCom didn't comment for this article. However, WorldCom CEO John Sidgmore wrote an open letter to the company's customers this week pledging that the company will "work every day to provide the industry's best service to [its] customers."
Dorman tees off again. "If you eliminate workers, you'd better eliminate the work. In this case, whacking 17,000 people -- I mean, they weren't all around clipping coupons and hiding out in the back room, were they?
"Most of the people in a long-distance company are either in customer service, sales, or they're [working on the] network. It's hard to imagine that if you've got 80,000 employees and you shoot 17,000, that all of those people came from the back room. It would be improbable that the trickle-down effect to customers would be zero."
Of course, AT&T, has just nailed up some boards on its own glass house, announcing some hefty losses (see Earnings News Batters LR Index). Though AT&T's core businesses slowed right along with the rest of the economy, Dorman says its numbers are reflecting a shift in mix away from long distance and toward managed data services, such as virtual private networks (VPNs).
"A lot of people have characterized the long-distance business as going away, but in fact it's just changing," says Dorman, noting that price erosion, increased competition from the Bell companies, and increased cell phone usage have all worn on his company's long-distance margins.
"The Bell companies are not going to take 100 percent of the long-distance business. Many customers will choose to use someone else, and there's a brand preference for AT&T."
That said, Dorman explains that, where it can, AT&T will offer bundles of local voice service and data services to consumers in order to stabilize the long-distance business.
Regarding AT&T's overall business, Dorman highlights an important change in revenue mix. "Our data services and managed services are now more than 50 percent of the business. In 1997, long distance was more than 70 percent of the business. Those businesses are all growing in a market where no one else is growing, or growth is flat."
Of course, data services are also dropping in price, and the revenue per bit of data that carriers transport continues to fall. Dorman acknowledges the data pricing pressures, but says the cost to carry data is also falling as well.
For example, Dorman says it costs AT&T $20 million to build and light a 125-mile segment of its fiber network, but it only costs $50,000 to light each incremental OC192 (10 Gbit/s) wavelength on that same network segment.
"That's the reason there are so many of these [bandwidth] suppliers that are going to scrap." That's also why Dorman says AT&T is focusing on services such as VPNs, which are more profitable than just a bandwidth connection.
In addition not being embroiled in a financial scandal, Dorman says he has another advantage as he moves into the CEO role. After the sale of AT&T's cable unit to Comcast Corp. (Nasdaq: CMCSA, CMCSK) is complete, Dorman can focus on a few key businesses, as opposed to the AT&T of the 90s that chased the wireless and cable markets in addition to phone and data services.
"We won't be holding a broadband auction or doing a wireless IPO or spinning it off. I'll be the beneficiary of being able to be focused."
But will AT&T benefit from WorldCom's troubles? Yes, says Dorman, but not all at once. "We've assessed our ability to take on more traffic. Their customers have contracts that mature at different times for different services... so that will modulate this to some degree."
And would AT&T buy any of WorldCom's network in the future? "It's too early to tell."
The same might be said for Dorman's stewardship at AT&T. He's had a good run so far, but some say his stints at PointCast, a failed Internet startup, and Concert, a failed joint venture between British Telecom (BT) (NYSE: BTY) and AT&T, may have put a hitch in his homerun swing.
Dorman says he'll let the results speak for themselves. "I've been in this business 25 years. I'm a telecom guy. That's what I know and what I do... We've had six consecutive quarters now of meeting or beating our guidance, and we feel like we're just beginning to see the results of what was put into place months ago.
"I don't see any wholesale changes as to what I've been doing."
— Phil Harvey, Senior Editor, Light Reading