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Can AT&T Stand Alone?

Light Reading
News Analysis
Light Reading
8/13/2004
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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.

Experts say there are other, less-flattering reasons AT&T may want to stand alone. For one thing, it may not be the most desirable of buys at any price. “It’s not clear who would need the assets of long distance [carrier],” says Mark Jamison, director of telecommunications studies at the University of Florida. “The Baby Bells are already starting to develop their own networks and customers might not need it.”

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

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Dr.Q
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Dr.Q,
User Rank: Light Beer
12/5/2012 | 1:22:06 AM
re: Can AT&T Stand Alone?
The analysts need to add a sixth item for AT&T's survival: The internal management culture left over from old Ma Bell money-grows-on-trees days.
At a guess (since I left Ma with the Lucent split) they should get rid of half their managers and make sure the ones remaining are running scared because the ship might sink.

- Q
st0
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st0,
User Rank: Light Beer
12/5/2012 | 1:22:05 AM
re: Can AT&T Stand Alone?
since the day one of Ma Ball exist, FCC is somewhat on its tail all the time.... Not sure what gov is up to against the company what used to be the pride and joy of the USA... Sad to see it get beaten up down to its knee with many of best of minds that US used to have in their last lags of retirements... jealousy? or ego clash? Why is always Ma Ball? Sad history of ATT...

-st

falsecut
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falsecut,
User Rank: Light Beer
12/5/2012 | 1:22:02 AM
re: Can AT&T Stand Alone?
The Bells have a lot more people in a lot more states, and they use that to weasel their way into a lot of state commissions.

On a national level, the number of lobbyists and the amount of money spent by the Bells is way more than any of their competitors.

And to some extent the Bells have taken advantage of the old axiom that if you repeat a lie often enough, people think it's the truth, which is what happens with this UNE rates business.

The Bells want to raise rates because they can't cover their costs and yet they have some plans that allow consumers to pay less than the wholesale rates they will/want to be charging. And they see no problem with that, and neither does the government it seems, despite the fact that that kind of predatory pricing is outlawed.
SIVROCX
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SIVROCX,
User Rank: Light Beer
12/5/2012 | 1:21:57 AM
re: Can AT&T Stand Alone?
Thinking back to the old IBM days when they became more interested in themselves instead of the customers which they were supposed to serve, the board of directors took a major step. On came the "Cookie Monster" man from Nibisco, one of IBM's customers. Gerstner was an outsider and a customer so he brough the right kind of experience and unlinked to the IBM politics. While he did bring in some of his own (people that controlled and managed the money) he worked with the existing team to effect a positive change. He got them back to making the main thing the main thing, "It's the Customer Stupid" (couldn't resist in this election year). Wonder if Lou Gerstner has one more good challenge left in him? +£
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