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Phone giants' grand plans come unbundled

As some of the nation's biggest telecommunications companies tear themselves apart, their once-unquestioned strategic goal of offering all things to all people is under fire.

As some of the nation's biggest telecommunications companies tear themselves apart, their once-unquestioned strategic goal of offering all things to all people is under fire.

From AT&T to BellSouth, communications companies had at one time set themselves on a path toward providing bundles of services to consumers with as much breadth as possible, ideally offering voice, TV and Internet service together through a single network connection.

AT&T, with a cable strategy designed to add local phone and high-speed Internet service to the bundle of services it could offer subscribers, was the most ambitious. The company is now falling the hardest, splitting itself into four pieces. WorldCom's decision to isolate and cut funding for its consumer businesses, and Sprint's expected refocus on data services, to be announced Friday, further underline the strategic shifts.

Analysts say the bundling dream isn't dead. But the carnage in the sector--and the response from the stalwarts of the industry--does show that the one-stop-shopping strategy may have stepped well ahead of actual consumer interest, driven more by ambition and expectations than demand, some say.

"It's not that you have a bunch of consumers calling up their telephone company and asking them to put all their services on the same bill," said Jeffrey Kagan, an independent telecommunications analyst based in Atlanta. "This has been a Wall Street-driven thing,"

The drive to blur the lines between local and long-distance phone companies, cable TV, and Internet companies was spurred by landmark telecommunications policy reform in 1996, passed with the intention of forcing each of these types of companies to compete in one another's markets.

That led many of the companies to develop merger and geographic expansion strategies. But as competition drove prices of individual services down, the companies settled on the bundling strategy to win a bigger percentage of a consumer's total communications spending.

Mixed success
Most of the largest companies have been offering some version of these local and long-distance, or telephone and TV, or telephone and Internet packages, for some time, if not everywhere. These have had mixed success, however.

According to a new Yankee Group survey, about 24 percent of consumers say they get local and long-distance service from the same company. Meredith Rosenberg, the analyst who led the research, says that number is probably unrealistically high. But "if they think they do, that's almost as important as actually having it," she says. "Perception is everything in this."

In the same survey, Yankee found that just 3 percent of people say they have telephone and cable service from the same company, and just 1 percent have a bundle of telephone, cable and Internet service. see roundup: AT&T breaks up

Interest in the bundles remains somewhat higher, according to the survey. An additional 40 percent of people say they are "very" or "somewhat" interested in getting local and long-distance service from the same company. About 39 percent say having cable and telephone, or cable, telephone and Internet on the same bill is an attractive idea.

Those statistics seem to show that there is still fertile ground for bundling services. Why, then, are the companies pulling themselves apart so rapidly?

The answer seems to lie in another round of consumer opinions, in an over-stimulated stock market, and in some basic issues of execution.

Yankee also asked consumers whom they would prefer to buy their bundle of services from. About 55 percent of people named their local phone company, compared with 33 percent for a long-distance company and just 24 percent from the cable company.

Those statistics track what is actually happening in the market fairly well. It's the local phone companies, see story: Telecom downturn led by SBC Communications and Verizon Communications, that are still pursuing the local and long-distance strategy most aggressively, along with high-speed Internet service.

Effective delivery?
The ability of the companies to deliver effectively has also played a role. Rosenberg notes that AT&T has certainly offered bundles, but has not done so in a particularly streamlined way. Some of these packages came out of the cable TV side of the company, while others stemmed from the long-distance telephone or even the wireless division.

"The truth is, there was not a lot of coordination between units," Rosenberg said.

AT&T chief executive C. Michael Armstrong has said that the company would continue to offer packages of services after the breakup. But the lack of coordination there is likely to be even worse, as AT&T Broadband offers packages that compete directly with AT&T's telephone division, or AT&T Wireless, analysts say.

Some analysts point further to the reflex actions of the stock market and to companies' need to make quarterly numbers as a corrosive force. The long-distance business is declining, but tearing the companies apart before the one-stop strategies have had time to take root is an example of short-term thinking, critics say.

see story: Weak business tracks spun off But whatever is causing today's gloom, most analysts say companies will continue to offer packages of services, even if demand is slow to emerge and if strategies have to change over time. As they compete more directly with each other, each new service is a valuable way to win incremental new revenues.

A model that others might want to examine more closely, some analysts say, is one in which the company offering the package doesn't actually own all the services. Sprint already does this with Internet service, and in its relationship with EarthLink, while many of the local phone companies offer a satellite-TV service through DirecTV.

Some analysts call even these interim steps, however. Five or 10 years from now, consumers will see little or no distinction between their various communications services as the technological lines merge further, analysts said. At that point, having a "bundle" will be a meaningless statement, they say.

"As an interim step, bundling may not be warmly received. Change rarely is," Kagen said. "But 10 years down the road, we're not going to be talking about local or long-distance service. It's just going to be communications."