Can AT&T Stand Alone?
Poor Ma Bell. Now that she has shed her consumer business -- the business she invented -- some are saying her days are numbered (see AT&T Reports Q2, Scales Back Services).
“I don’t see any big growth areas for AT&T,” says Eli Noam, director of the Columbia Institute for Tele-Information. “It’s really a sad situation. I think its future is to be acquired, but if it hasn’t so far it's because of the price.”
The viability of AT&T Corp. (NYSE: T) as a standalone company has come into question. The company now says it is considering a writedown of the value of its network assets, a move that will make it more of an acquisition target. Also, its long-term financial picture took a turn for the worse as its debt was recently downgraded to “junk” status by Standard & Poor’s.
But does this old lady have anything going for her?
With three million global business customers in 149 countries, AT&T is the number one provider of business voice and data services, and it has a strong brand name. But along with those positives, AT&T has made more missteps than a tightrope walker with three left feet. It tried to penetrate the personal computer business. It tried to dominate the cable industry. It tried to become everybody's local phone company. And, finally, it took a swing at the wireless sector, only to succumb to Cingular Wireless.
But now that it has shed all those parts, AT&T is a smaller, leaner, more focused company, says Argus Research analyst Kevin Calabrese, who has a Hold rating on the company. “They’ve taken a lot of drastic steps and gone back to their core operation,” he says. Calabrese and others believe that AT&T can survive for the long haul without being swallowed.
Analysts say that for AT&T to stand alone and survive, it must do five things:
- Keep the wolves away from its engineers: One of the new AT&T ads airing during the Athens Olympics features product development engineers talking about the technology behind the CallAdvantage service. Those engineers are AT&T’s big advantage over its competition, Calabrese says. That technical -- not bureaucratic -- talent is required to deliver ever complicated bundles of voice and data products and to customize these for enterprises (see Is AT&T Top Heavy?).
- Keep the sales force happy: Besides AT&T, only Sprint Corp. (NYSE: FON) and MCI Inc. (Nasdaq: MCIP) have a sales force big enough, trained enough, and experienced enough to sell to Fortune 1000 companies, says James Breen, an analyst with Thomas Weisel Partners. “The ILECs don’t have that now,” he says. When the company experienced massive layoffs years ago, morale was low. Now, AT&T's biggest vulnerability will be losing its remaining talent to carrier competitors.
- Protect its reputation for quality: New competitors will find it hard to persuade big companies to switch from the market leader. “AT&T is the leader and has the biggest market share,” says Nicholas Economides, an economics professor at the Stern School of Business at New York University. “It won’t be displaced easily.” That could change if AT&T stumbles and the quality of its products and services drops. With MCI, Sprint, and the ILECs just waiting to steal business, AT&T can afford no missteps, such as service interruptions or buggy programs.
- Keep the price right: Big customers won’t switch from the market leader, unless the price of loyalty is too high. Though AT&T’s success will depend upon rising above commodity by offering bundled services and higher line products like 800-dialing, price will still be an issue (see The Softer Side of Convergence). “It’s got an array of sophisticated services,” Economides says. “But it needs to do it better than its competitors and at a lower price.”
- Stay focused: AT&T needs to convince the world that it has learned from its past and has put crazy plans for expansion and diversification behind it. The company's impressive network assets are a huge differentiator for AT&T, Calabrese says. But to become profitable and stay that way, AT&T will have to stay lean, mean, and focused.
And some feel poor Ma Bell has shed so much, no one's sure what AT&T the brand means anymore. “They got rid of wireless [and] before that Lucent, then NCR,” Eli Noam says. “It’s like peeling the layers of an onion. Maybe that’s the wrong analogy. You reach the pit, not the essence.”
— Marcy Burstiner, special to Light Reading