Shades of '84: Busting up AT&T yet again

AT&T's decision to bust itself into four pieces doesn't come as much of a shock given recent news accounts, but it is nonetheless surprising.

AT&T has been shouting about end-to-end this and integrated that for a long while, and it's hard to look at the decision to spin off the wireless and broadband businesses as anything but an abandonment of those ambitions.

Does it make sense? For a public company that lives and dies by its stock price, the only alternative was to replace the CEO with someone who could sell Wall Street on the merits of the integrated vision. While C. Michael Armstrong was capable of that in the beginning, the company's stock has been in a nose dive since April.

If anything, the completion of the $58 billion merger with MediaOne in June just contributed to the slide. It was becoming clear that investors were balking at AT&T's bold cable plan.

Sadly, that was hardly enough time to make that ambitious plan work. Armstrong's failing was he couldn't sell the promise long enough for the reality to catch up.

Now AT&T proper will consist of the roughly $28 billion AT&T Business unit, which sells voice and data/IP services, and a $19 billion subsidiary called AT&T Consumer, which sells long-distance service, calling cards and the WorldNet Internet access service.

The bottom line, however, is that Armstrong lost his $110 billion cable bet. That makes predecessor Robert Allen's multibillion-dollar NCR gaffe look like child's play. Allen was at the helm in 1991 when AT&T bought NCR, only to unload it in 1996 for a fraction of that.

It is also interesting to note that the wireless assets AT&T is spinning off were also largely acquired - the company jumped into the business by spending more than $11 billion to buy McCaw Cellular in 1994.

AT&T, it seems, has a problem following through on bold initiatives.

Where to from here? There is some sense in what Armstrong says about these companies being able to move faster as separate entities. For example, AT&T Consumer can now freely promote DSL in competition with the cable services hawked by AT&T Broadband.

But by the time these transactions are complete, AT&T will be a lot smaller - not much bigger than WorldCom. With any luck, that will increase competitive pressures and ultimately benefit you.

-John Dix, Editor in chief
jdix@nww.com

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