Now that AT&T has cut cable

Experts see shedding of debt as key to reorganized company's future.

NEW YORK - AT&T's corporate makeover truly is under way now that it has shed AT&T Broadband, the once coveted but ultimately unwanted weight that the carrier has toted around for the past four years.

Attempting to fulfill the vision of CEO C. Michael Armstrong, AT&T bought its way into the cable network services business by doling out more than $100 billion. The investment was intended to ease AT&T's dependency on incumbent local exchange carriers that carry AT&T customer's last-mile traffic. Instead, AT&T watched its debt load increase exponentially.

Thankfully for AT&T, Comcast has been interested in AT&T's cable business since early 1999. After nearly a year of regulatory review, Comcast officially acquired AT&T Broadband last week for $30 billion and assumed $24 billion in debt. The deal was valued at $47 billion almost a year ago, but sliding stock prices took a toll.

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NEW YORK - AT&T's corporate makeover truly is under way now that it has shed AT&T Broadband, the once coveted but ultimately unwanted weight that the carrier has toted around for the past four years.

Attempting to fulfill the vision of CEO C. Michael Armstrong, AT&T bought its way into the cable network services business by doling out more than $100 billion. The investment was intended to ease AT&T's dependency on incumbent local exchange carriers that carry AT&T customer's last-mile traffic. Instead, AT&T watched its debt load increase exponentially.

Thankfully for AT&T, Comcast has been interested in AT&T's cable business since early 1999. After nearly a year of regulatory review, Comcast officially acquired AT&T Broadband last week for $30 billion and assumed $24 billion in debt. The deal was valued at $47 billion almost a year ago, but sliding stock prices took a toll.

The merger of Comcast and AT&T Broadband includes the departure of Armstrong, who now becomes chairman at Comcast.

AT&T and broadband did not mix well. The combined AT&T Broadband and Comcast are roughly valued at $60 billion - $40 billion less than AT&T's cable investment alone. AT&T didn't seem to see past the fact that cable network services is a slow-growth business with much overhead, experts say. It also didn't seem to realize it was buying a business built around home entertainment and that high-speed data and voices services came much later.

"Broadband stopped being an important part of AT&T the minute Armstrong announced his spin-off plans over two-years ago," says Lisa Pierce, an analyst at Giga Information Group. "That was an implicit admission that his original vision could not succeed. AT&T spent the last two years defending it at every turn, now they can finally admit what many have long said to be true."

AT&T now has only two divisions: AT&T Business and AT&T Consumer. David Dorman has taken over as chairman and CEO.

"Shedding the majority of [its] debt is ultra-important for AT&T," says David Rohde, an analyst at TechCaliber. "AT&T as a company has been maintaining break-even by almost exactly matching any revenue declines with expense cuts."

AT&T Business is charged with increasing its revenue growth rate to offset a continuing slowdown in residential voice. The company is expected to move more nimbly with the weight of AT&T Broadband lifted.

"AT&T has maintained and is pushing product development to market," Rohde says. "Real proposals we see for migrations to either [Multi-protocol Label Switching] or encryption-based VPN services . . .are from AT&T."

Expense cuts have affected how AT&T operates and deals with customers.

"The expense management forced by the double-whammy of price-driven revenue declines and debt burden has been a real bear," Rohde says. Some users have "been getting really frustrated with AT&T." Customers cite account team turnover and account representatives with little experience, he says.

AT&T acknowledged some of this recently by saying it has made changes on the sales side. In the past year, AT&T has hired 700 sales associates because of employee turnover, yet it hasn't increased its salesforce. AT&T says the new employees are "experts in complex data networks."