AT&T: How do you spell breakup? C-H-A-O-S

By David Rohde
Network World Fusion, 10/25/00

Editor's note: This is a special edition of "Eye on the Carriers."

Quick: What's the point of spinning off a business unit into a separate company?

Both as users yourselves and in dealing with vendors, you probably have seen enough of these to know the answer: to focus better on a specific opportunity. If indeed that's the right answer, AT&T CEO Mike Armstrong and his entire board of directors need a crash course in Spinoffs and Breakups 101.

In an almost ludicrously complex transaction announced this morning, AT&T announced it would split itself into four companies -- business, consumer, cable and wireless. Well, sort of. Maybe. Kind of.

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They'll all still be called AT&T, but they'll all be separate companies (huh?). They'll have separate boards of directors -- no, wait a minute, the consumer-markets business will be technically a subsidiary of the business-markets business, though it will be a tracking stock. They'll all be independently managed -- no, wait a minute, they all have to start with contracts with each other for network services that Armstrong insists will be "arms-length" (but yet somehow still sort of mandatory -- well, kind of).

There's more: The cable business will suddenly be different than the long-distance business, yet Armstrong guarantees that there will be cable and long-distance bundles (but if they're separately managed, how does he know that? Because they're both still called AT&T?).

As Yogi Berra once said in comparing himself with his ball-playing son: "Our similarities are different." Is Yogi secretly advising Armstrong?

Now here's my question: Exactly what problem is this solving? (Besides all this yap from Wall Street for Armstrong to do something, resulting , of course, in huge fees for the investment bankers.) All Wednesday morning analysts and journalists asked Armstrong about AT&T's real challenges, such as: What the heck's going on with Concert? Today's announcement has an answer for that: "AT&T (which AT&T? I might ask) will continue to hold a 50% interest in Concert, its international communications services joint venture with British Telecom." So who has control of that puppy?

I mean, all this fancy financial footwork and AT&T's hugely important international enterprise-services venture is still a 50-50 tug-of-war with yet another old-line carrier? What's clarified there?

Pressed on Concert's integration with other AT&T assets such as the former IBM Global Network and AT&T's domestic network, Armstrong had basically no answer, claiming there were "a lot of options" and saying that he had only been "interacting for a short time with BT." At which point a public relations official happily piped up to say more details would likely come "in a press conference like this one," to go with his introductory remark that today is "a very exciting day" for AT&T.

No sir! Here's what would be really exciting for AT&T: If Armstrong got up to announce the opening of five new Internet hosting centers, right now. Or if he announced completion of the next-generation IP network they're promising. Or if he announced that AT&T's packet data network was so efficient they were cutting frame relay prices in half. Or if he announced that AT&T had solved its local provisioning problems, or was offering 1 million minutes of long distance to corporations for a flat fee, or you name it.

What do you think Armstrong's fellow telecom and Internet CEOs are doing today? Is Ellen Hancock of Exodus fumbling with weird organizational schemes or focusing right now on obtaining huge new hosting and transport capacity? Is Rick Ellenberger of Broadwing moving around his business units on a chessboard or cheering his people on to build the first all-optical national network? For crying out loud, even Bernie Ebbers is probably busy bringing managed-hosting kingpin Digex into WorldCom's IP kingdom rather than throwing around balance sheet figures.

AT&T says it will take through 2002 to complete the scheme. So what do you think AT&T's managers will be focused on till then? And after it's over, will they be able to focus on running their businesses independently or still have to go through yet more AT&T interorganizational committees announced today? One prominent Wall Street analyst is already out with a report telling her clients to sell AT&T stock because Armstrong's plan creates organizational "chaos." That sure sounds like the opposite of "focus" to me.