Didn't see this posted here today:
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WSJ: AT&T Sees Wireless Unit's Growth Ebbing
By Stephanie N. Mehta
Staff Reporter of The Wall Street Journal
AT&T Wireless Services, the nation's largest wireless phone operator, is expecting a slowdown in growth as it shifts its focus to big-spending corporate cellular phone users.
Faced with increasing competition from new wireless carriers such as Sprint Corp.'s Sprint PCS unit and Nextel Communications Inc., the AT&T Corp. wireless unit is turning its attention to the highly profitable business user. AT&T is promoting aggressively its "wireless office" product for corporate campuses and plans to move 20% of its work force into AT&T's larger business-services division to boost wireless sales to companies. Last month, the carrier said it is exploring plans to shed its lower-margin paging operation.
The strategy will come at a cost. In an interview, Daniel R. Hesse, chief executive officer of the wireless unit, said the group "will pay a slight penalty in subscriber and revenue growth for a short period of time as we become more selective about the subscribers we bring on board."
Mr. Hesse said he expects the wireless unit to post 1997 revenue "north of $4 billion." In 1996 the unit reported revenue of $3.48 billion, up 19% from a year earlier.
Analysts said AT&T will continue to be the dominant wireless player by virtue of its size, marketing prowess and ability to bundle cellular service with long-distance and other services. When the company bought McCaw Cellular Communications Inc. for $11.5 billion in 1994, it acquired a national cellular system with millions of existing customers. Today the carrier has some 7.8 million subscribers. But competitors said AT&T has been slow to build systems to offer highfrequency digital service. By the end of the year, AT&T will offer service at the 1,900megahertz frequency in 10 markets. Sprint PCS said it offers such service in 40 of the top 50 markets; PrimeCo Personal Communications, a PCS carrier owned by two Baby Bells and AirTouch Communications Inc., said it offers service in 20 markets; Nextel, which offers a low-frequency digital service aimed at businesses, said it operates in 75 markets. AT&T will not say how many new markets it plans to enter in 1998.
At the same time, AT&T experienced quality problems with its low-frequency digital service, offered in cities such as New York and Dallas. "It sounds like you've got marbles in your mouth," one customer recently complained.
Mr. Hesse conceded that the carrier initially experienced sound-quality problems and has moved to fix them. It nearly has completed a national upgrade of service that will improve sound. One catch: The upgrade works only on phones that have been shipped in the last several months with a special voice encoder that improves sound quality. And AT&T said it hasn't decided on whether it will allow its existing digital-service customers to get upgraded phones at a discount.
But Mr. Hesse said he does not believe the carrier has moved slowly in building out its digital markets. Besides the 10 high-frequency markets, AT&T offers lower-frequency digital service in an additional 122 markets, giving the carrier almost 1.5 million digital subscribers, Mr. Hesse said. "If you look at our competitors, they're entering all these markets for the first time," Mr. Hesse said.
Other questions remain for the wireless unit. Mr. Hesse said the group continues to test wireless local loop, a system for offering local telephone service via antennas and receivers mounted on the sides of homes instead of through traditional copper wires. The company is testing such a product with employees in Chicago, and Mr. Hesse said AT&T plans other tests, including possibly another neighborhood trial and a test on a college campus.
AT&T continues to be reticent about its plans to enter the $105 billion local-phone market by using its wireless system to connect homes and businesses directly to the AT&T long-distance network. Since the arrival of new chief Michael Armstrong, AT&T is looking at a number of ways to invade the Baby Bells' territories -- and using a wireless unit that can be placed on the side of customers' premises is one option under consideration.
First AT&T will have to figure out how to deploy the system inexpensively. Tests planned for the Chicago area next year should tell AT&T what its costs would be using the network. Currently, "the wireless local loop business does not appear to be justified by the capital expenditures to get into it," noted John Bensche, a wireless analyst for Lehman Brothers.
Even as Mr. Hesse, a 20-year AT&T veteran, tries to further integrate wireless services into the AT&T mainstream, the unit has displayed a little entrepreneurial edginess. Last year, the wireless unit stunned many in the industry by marketing its low-frequency digital wireless service as "digital PCS," a term previously reserved for higher-frequency, 1,900-mhz service.
"It was quite a marketing coup" on AT&T's part to beat its rivals to market, said Steven Yanis, a telecommunications analyst at BancAmerica Robertson Stephens. "Many people don't know what PCS is, but they think it is better."
"Dow Jones News Service"
"Copyright(c) 1997, Dow Jones & Company, Inc."
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