AT&T undergoing positive rebirth, but bold moves to bring challenges

The Outlook

TCI acquisition provides differentiated platform

February 07, 1999|By Mark Ribbing

AFTER American Telephone & Telegraph Co. was broken up in 1984, it struggled to redefine itself. The nation's largest long-distance company was challenged by new rivals, stymied by rapid technological change and haunted by its own poor strategic decisions.

Now, under Chairman and Chief Executive Officer C. Michael Armstrong, AT&T Corp. is waging a comeback, entering new markets through partnerships with such firms as British Telecommunications PLC and through acquisitions of companies like local telephone provider Teleport Communications Group Inc. (TCG).

Last week, the staff of the Federal Communications Commission recommended the approval of AT&T's $48 billion purchase of cable giant Tele-Communications Inc. (TCI), a move that could turn AT&T into a major provider of local telephone and high-speed Internet service as well as cable television.

Is AT&T undergoing a genuine revival? What challenges does Ma Bell face in an ever-changing telecommunications industry?

David Goodtree

Telecommunications analyst, Forrester Research Inc., Cambridge, Mass.

There no doubt in my mind that they're going through a rebirth. [Armstrong] shed underperforming assets like the under-utilized paging frequency while targeting winner opportunities like cable modems into the home.

AT&T gets a double benefit in that it can use cable for telephony and it allows it to bypass the local telephone systems. It makes them the provider of choice.

The likely pitfall for them is that they're trying to be all things to all people and are unlikely to be able to chew all that they are biting off.

They really have two challenges. One is radically changing their culture so that Armstrong's quick-footed actions trickle down to the people who actually sell and build products. That hasn't happened yet.

Second, they're still laboring under 20- and 30-year-old systems that don't talk together. This isn't unique to them, but in trying to be all things to all people, they experience difficulties more acutely.

Marjorie Saint-Aime

Analyst, Goldis-Pittsburg Institutional Services Inc., Garden City, N.Y.

About two years ago, everyone was so skeptical about the company. It took them months to find Mike Armstrong; since he's been there, they've gone through many changes, and that has been reflected in the stock price.

The TCG merger was a major step into local, and you also had the cutbacks, which have improved margins. The British Telecom deal moved AT&T into the international market, and they were very weak in that. Right now, British Telecom is doing very well and is giving some real reach to AT&T.

The cable thing is going to take time. I don't think they're going to start offering local service until 2000. They're still working to upgrade TCI's network.

I like the fact that they are going to focus on regions other than long distance, because long distance is becoming highly competitive.

Stuart P. Conrad

Analyst, Deutsche Bank Securities, Atlanta

There has clearly been a revitalization of the company with Armstrong at the helm. They have filled many strategic holes, whether you're talking local business connections or whether you're talking about a more viable wireless platform or even a global platform. Most important of all is the earnings growth.

[Buying TCI] was the best move they could possibly make, a move that could give them a differentiated platform. The biggest challenge will be the point in time in the next couple years when the Bell companies will be in the long-distance business.

[AT&T] clearly wants to extend its cable reach. Look for additional new alliances on the cable front to reach new chunks of the country.

Pub Date: 2/07/99

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.