COMMENTARY -- This is the end result of a cable communications strategy? What a letdown.
AT&T (NYSE: T) bought TCI and MediaOne to get a last mile foothold that would provide an all-in-one communications package for consumers and businesses. Internet-local-long-distance over a single line, with wireless thrown in.
Now AT&T might undo the whole thing. AT&T's board has been mulling over a break-up, according to several new articles, including a New York Times piece this morning that said directors already approved a plan to spin off cable TV and wireless, and create a tracking stock for consumer long-distance. Under the reported plan, AT&T would essentially turn into a network operator and provider of business services.
That Ma Bell would even consider such a plan demonstrates the flaws of CEO C. Michael Armstrong's original vision. Cable was supposed to jumpstart everything. All it did was expose the weakness of AT&T's traditional business.
Consumer communications is just a lousy market to be in, but it also generates the bulk of AT&T's revenue. Slow growth, falling margins, increased competition, intensive service requirements -- who needs the hassle?
Last year I attended a speech by Worldcom (Nasdaq: WCOM) CEO Bernard Ebbers, who said he couldn't blame Armstrong for pursuing the cable strategy, because AT&T was stuck with a large consumer business; but Ebbers also made it clear it wasn't a situation he would want. You can see the same attitude with newer would-communications giants such as Global Crossing (Nasdaq: GBLX) or Qwest Communications (NYSE: Q), which just reported another quarter of impressive growth. Everyone wants the business customer.
Unfortunately, AT&T seems to be discovering its business-only focus a little late. Jettisoning cable TV and breaking out consumer long-distance gets some mediocre business off the books, but a spin-off in and of itself won't give AT&T any advantage over Qwest or Worldcom in the business market.
There's one thing about communications services that few people care to acknowledge: other than price, there's not much to separate providers, because for the most part, all the large players offer similar levels of reliability, at least in the United States. If anything, AT&T's one distinguishing feature was its ability to sell everything together. Now it wants to spin off wireless?
Perhaps the pressure from the stock market is just too strong to resist. But Armstrong was hired with the idea that he could give AT&T not an immediate boost, but a solid long-term plan.
With that in mind, recall that the cable plant overhaul wasn't scheduled for completion until next year. Heck, my block here in San Francisco -- only the second-biggest city in the world's main tech region -- still doesn't have an upgraded cable line. AT&T tells me the adjoining street has already been done, and my strip should be coming soon. Unfortunately for AT&T Broadband, soon is too late; I've had DSL for almost two-and-a-half years, and I live sufficiently close to a Pacific Bell central switching office to enjoy reasonably fast download speeds.
My personal experience notwithstanding, AT&T's board knew Armstrong's vision would take years to complete. So why are directors getting itchy now? If the reports are true, AT&T will break itself up before ever getting a chance to see if the original plan works on a nationwide basis.
Granted, some things have changed. The competition seems to be moving a bit faster than AT&T expected, and the pressure for open access destroyed any hopes AT&T had of monopolizing cable Internet access.
At this point, AT&T would rather make a nice income stream from the pipes and not worry about the services that flow over them. Welcome to the world of Qwest, Global Crossing and Level 3.
Maybe that's a safer vision, but it's a much more modest one, and hardly fulfills the kind of ambition expected when Armstrong replaced Bob Allen a few years ago. It certainly wouldn't differentiate AT&T. Rather the opposite: Ma Bell would be just another player in a league of business communications providers. 22GO
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