(AT&T) Hanging Up?
AT&T's telephone market share, AT&T sales slipping, AT&T's customers
Hanging up?
Some analysts think AT&T's quitting the long-distance market is a sign that the company is preparing itself for sale
By Bobby White
Star-Telegram Staff Writer
Sun, Aug. 01, 2004
AT&T's recent announcement that it will stop selling new long-distance service shut the lid on an era and opened the door to a torrent of questions.
Chief among them: What's next for the century-old company?
Some experts believe that AT&T is preparing itself for sale to the highest bidder, retreating from a challenging regulatory environment and a troubled wire-line industry. Others believe that the company, nearly synonymous with the country's phone system, will stay in the fight.
"Obviously, this is a historical shift that has broad-reaching implications not only for AT&T, but the industry at large," said David Dorman, chief executive and chairman of AT&T, during a recent conference call with reporters and analysts.
AT&T has undergone a succession of changes since the early 1980s, when its monopoly was broken and it was divided into seven regional companies, the Baby Bells. It has tried wireless and cable service and sold those ventures; both markets turned out to be strong engines of growth.
AT&T sold its broadband unit to Comcast in 2001, boosting the once-regional cable company to national prominence. AT&T spun off AT&T Wireless in the same year; Cingular bought that company this year for $41 billion.
During the conference call, Dorman noted that the residential telecommunications market has been transformed to a market of bundles. More than 40 percent of American households buy some form of a bundle service, he said. Bundles package services -- including local phone service, long-distance phone service, Internet service, video and wireless service -- together on one bill.
But AT&T faces a considerable challenge to offering bundled service: Like smaller telecom companies, it does not offer local service through its own infrastructure. Instead, it leases portions of competitors' networks.
"American households are buying bundles, and these bundles are getting more complex and sophisticated, and we have to face the fact that without a local component, a basic voice component, we're at a disadvantage," Dorman said.
As part of the 1996 Telecommunications Act, which was designed to foster competition, regional phone companies were ordered to open their networks to rival phone companies for a price. AT&T, like its rivals, persevered.
But the D.C. Circuit Court of Appeals has authorized companies like SBC to decide what to charge companies that lease portions of their networks, which would allow SBC and others to raise the prices they charge. And Solicitor General Ted Olson decided against appealing the ruling in June.
Olson's decision was the basis for AT&T's move to stop selling new long-distance service.
AT&T was thought to have received "the better end of the deal" after it was divided in 1982, said Andy Lipman, who handles telecom issues for Swidler Berlin Shereff Friedman, a Washington-based law firm.
"The Bells were relegated to [local service]," which was thought to have "no growth potential," Lipman said. "AT&T was considered the big winner. ... However, it's become that having the local connection was much more important than long-distance" because local service allows a company to offer bundled services.
So as AT&T backs out of local and long-distance services, it is refocusing its attention on Voice over Internet Protocol and large businesses.
AT&T has served businesses for years but is planning to step up its marketing and advertising efforts. Its business services consist of data networking, high-speed Internet and phone.
AT&T also expects to offer its VoIP service, CallVantage, in 100 major markets by the end of the year and to have a million business and residential customers using the service by the end of 2005.
Given the company's setbacks and disadvantage, analysts agreed with AT&T's decision to stop selling long-distance service. Yet some have begun to speculate that the once-monolithic company is preparing itself for sale.
"I thought it was a little too convenient for them to get out on the consumer space," said Patrick Comack, an analyst with Florida-based Guzman & Co., an investment banking company. "Rates are only going to go up a couple of bucks, and there were still plenty of new local customers to attract. Sure, the business would be less profitable, but it still would be profitable."
Comack said Dorman "has decided to wash away consumers from the income statements." It's a strategy to be more attractive for takeover, he said: no private or small-business customers, just midsize and large businesses.
Comack speculated that BellSouth might approach AT&T and that technology-services company Accenture may make a move. The company, which operates in 48 countries, has partnered with AT&T on a number of ventures.
AT&T said it would not comment on takeover or merger rumors.
Pricing competition in the long-distance sector, where AT&T claims the top spot with 30 million customers, is brutal, leaving little room for profit.
Pricing competition within the VoIP sector is also tough, with many small companies taking on industry stalwarts like SBC and Verizon.
New Jersey-based Vonage seems to have set the bar for VoIP pricing; the company offers the service for $29.95. Verizon will offer its VoiceWing VoIP service at the same price as Vonage for the first six months. After that, the monthly price will rise to $34.95.
As volatile as the VoIP scrap is, cable companies are hastily moving into the sector.
The large independent phone companies -- AT&T, MCI and Sprint -- are feeling the effects of tremendous competition. AT&T and MCI are subject to buyout speculation, while Sprint has been able to take advantage of its wireless sector to remain relevant.
David Parks, a senior analyst with Boston-based Yankee Group, agrees with Comack about the possibility of an AT&T takeover and thinks the same is possible for MCI. However, he said he wonders whether the Justice Department or FCC would allow a union of AT&T and one of the Baby Bells.
Given the current situation, Parks endorsed AT&T's decision.
"They had to make a change and figured, after weighing all their options, this was the best decision," he said. |
