IBD article. AT&T Gives Bigger Role To Its Tiny Internet Unit
[No specific ASND references]
Date: 4/29/98
Author: Reinhardt Krause
AT&T Corp.'s WorldNet Internet unit could
spark the telecom giant's anemic sales
growth.
AT&T last week reported first-quarter sales
of $12.6 billion, up just 1% from the
year-ago quarter. WorldNet's sales, though,
almost doubled to $79 million.
Although WorldNet's sales were a drop in
the corporate bucket, analysts say Chairman
C. Michael Armstrong is giving the unit a
more prominent role. He was hired last year
to remold AT&T.
''WorldNet is carrying the baton for a lot of
other things that will happen at AT&T,'' said
Dan Taylor, an analyst at Aberdeen Group
Inc. in Boston. WorldNet can set the pace
for the rest of the company, he says.
But the Internet unit will have to adapt to
market shifts faster than its usually plodding
parent, analysts say.
WorldNet executives agree, saying they're
primed to compete against small, nimble
Internet start-ups as well as big
telecommunications rivals.
''We work in Internet time,'' WorldNet
President Daniel Schulman said.
WorldNet gets high marks for signing up
more than 1.1 million consumers for Internet
access. It's the No. 1 Internet service
provider of strictly dial-up services.
The unit sparked a big change in the market
two years ago by being the first major player
to offer unlimited service for $19.95 a month.
Most other ISPs followed.
In March, WorldNet started what could be a
new trend. It set higher pricing for the
heaviest users of its network. It will charge
another 99 cents an hour after consumers log
150 hours of access in a month.
WorldNet is trying to lower average usage
time to better manage the cost of running its
network, says Erik Paulak, an analyst at
Gartner Group Inc. in Stamford, Conn.
''Higher pricing isn't a move to gain new
revenue. It's a cost-control mechanism,''
Paulak said.
Also, the company has eliminated almost all
free-trial offers, Schulman says.
With such moves, WorldNet is showing a
knack for keeping an eye on profits as the
Internet evolves, analysts say.
''The economics of the Internet keep
changing,'' said Jeffrey Kagan, president of
consulting firm Kagan Telecom Associates in
Atlanta. ''AT&T hasn't really been good at
sensing subtle market changes and reacting
quickly before.''
Schulman wants WorldNet to take advantage
of an emerging market called Internet
telephony - phone calls that travel over the
Internet instead of regular phone networks.
The calls usually are made with telephony
software loaded onto PCs.
By July, WorldNet will unveil a new service
that will let users on a multiparty conference
call browse the same Web sites
simultaneously.
''WorldNet is pioneering (Internet) services
for the rest of the company,'' Aberdeen's
Taylor said.
By June, AT&T plans to start offering
Internet telephone service on a trial basis in
three cities. It says the service will be
available in 16 cities by year-end. It plans to
charge 7.5 cents to 9 cents a minute for calls
over the Internet, less than the lowest
conventional phone service rates.
Still, some analysts question how serious
AT&T is about Internet telephony. They
wonder if AT&T is prepared to risk
endangering its core long-distance revenue by
making a big push into Internet telephony.
Schulman says AT&T has no choice.
''Internet protocol communication is critical to
the future growth of AT&T. It's going to open
the door to new forms of revenue growth,'' he
said. ''Yes, there will be some cannibalization
(of traditional telephone service), but we fully
expect to lead in IP communications. Sitting
back isn't an option.''
WorldNet faces big rivals, such as
WorldCom Inc., as well as feisty Internet
start-ups like Qwest Communications Inc. of
Denver.
And WorldNet's subscriber growth has
slowed.
''They moved quickly out of the box two
years ago, but have been in a kind of steady
state since then,'' said Kate Delhagen, an
analyst at Forrester Research Inc. in
Cambridge, Mass.
Delhagen adds that WorldNet faces more
competition. ''MCI Communications Corp.
and Sprint Corp. have ratcheted up their
consumer Internet access marketing over the
last two months,'' she said.
MCI formed a marketing alliance with Yahoo
Inc. of Sunnyvale, Calif., while Sprint has
taken an equity stake in Internet service
provider EarthLink Network Inc. of
Pasadena, Calif.
Another WorldNet rival, GTE Corp., this
month bought the online-directory business of
BigBook Inc. of San Francisco.
Schulman agrees WorldNet can't rest. He
says WorldNet plans to forge more
distribution partnerships. Acquisitions also are
possible.
Always strong with consumers, AT&T faces
an uphill battle in attracting more business
customers for Internet access and related
services, analysts say. WorldCom's UUNet
subsidiary and GTE Internetworking both
have a strong presence there.
AT&T lags GTE Internetworking in offering
services to design and manage complex Web
sites for companies, says Rebecca Wetzel, an
analyst at market researcher TeleChoice Inc.
in Verona, N.J. GTE has been helped by last
year's $616 million acquisition of ISP BBN
Corp.
But AT&T could get a boost from its planned
$11.2 billion acquisition of Teleport
Communications Group Inc.
As part of that deal, AT&T will acquire
Teleport subsidiary CERFnet, a San
Diego-based ISP that focuses on high-end
Web-hosting businesses.
The WorldNet brand name is used by
AT&T's networked commerce services unit,
which offers Internet access and other
services to businesses.
''We have about 8,000 Web-hosting
customers,'' said Gary Hickox, the unit's vice
president. ''The biggest block is in the middle
-above the vanilla hosting and below the
(complex) custom sites. We believe we're
one of the top three providers in that (middle)
space.''
(C) Copyright 1998 Investors Business Daily,
Inc.
Metadata: T GART WCOM QWST FORR MCIC
FON YHOO ELNK GTE TCGI I/4891 I/7392 I/1001
I/3241 I/4811 E/IBD E/SN1 E/TECH |
