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Commentary: AT&T offspring likely to toddle their separate ways

Now that AT&T has determined to split itself into four parts, the question becomes, what will happen to those parts?

By Jay Pultz, Gartner Analyst

Now that AT&T has determined to split itself into four parts, the question becomes, what will happen to those parts?

See news story:
AT&T eager to exchange control for capital
Will they work together as a coordinated group, or if they go their separate ways, will they remain viable? The four units have different prospects and challenges.

The future looks cloudiest for AT&T Consumer, which will become a tracking stock under AT&T Business. AT&T counted on revenue from consumer operations to fund the development of higher-growth businesses. Investor sentiment about a greater-than-expected slowing in revenue growth forced AT&T to break itself apart. Gartner believes that by 2006, the consumer long-distance voice business will no longer be part of AT&T. AT&T will likely continue to provide wholesale network services to the ultimate buyer of AT&T Consumer.

AT&T Broadband will likely prove the biggest winner in the restructuring. This unit could become an e-commerce powerhouse, offering an array of services to consumers--including content, entertainment, portals and e-commerce. The broadband company, however, must grow its voice-over-cable business to complete its service complement. AT&T Broadband will likely not be acquired, for the following reasons:

• U.S. regulations do not allow another cable operation to acquire it.

• AT&T paid $110 billion to put it together.

• It does not readily fit into the portfolio of other network service providers.

The move to spin off Liberty Media will help AT&T Broadband adjust its portfolio of businesses, raise capital and pare down the debt (mainly from AT&T's $110 billion outlay).

AT&T Wireless will likely benefit from the restructuring as well. The November announcement that NTT DoCoMo will buy 16 percent of AT&T Wireless for about $10 billion makes this unit's acquisition by another player (e.g., WorldCom) less likely. Gartner believes the pending deal will be approved by the Federal Trade Commission based on precedents. Stakes purchased by foreign government-owned companies typically have won approval when they amounted to 25 percent ownership or less.

With the NTT agreement, AT&T Wireless plans to move much more aggressively into next-generation wireless data services, including likely adoption of NTT's i-mode service. Rollout of such new services through 2003 could make AT&T Wireless a global wireless contender again.

In Gartner's opinion, AT&T Business could suffer from the restructuring. This unit will remain a huge company that still must transform itself into a fast-moving, flexible entity. AT&T Consumer will remain a financial drag and require significant executive attention. AT&T Business will likely succeed in retaining its Fortune 1000 customers, but hopes for faster growth lie with small and midsize enterprises. The unit will have to do a better job of developing services for that market.

Achieving integrated offerings with AT&T Wireless or AT&T Broadband will be much more difficult across the separate companies. The chance for the new companies to forge an "ecosystem" in which they share network facilities and offer bundled services across the companies--and attract other partners--requires AT&T Solutions to serve as the integrator.

Gartner views this scenario as having a 40 percent chance of occurring. More likely in Gartner's view is that the revenue generated from cooperation between these companies will be insignificant, thus making it more likely that they will go their separate ways.

(For related commentary on AT&T and its potential to merge with another company, see TechRepublic.com--free registration required.)

Entire contents, Copyright ? 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.