By Network World Staff
Network World, 12/25/00

No one ever said maintaining power was an easy job. AT&T, inarguably a telecommunications powerhouse despite its recent troubles, knows that all too well. It is fighting an uphill battle to retain its position as the market leader for long-distance and business data services. Simply put, it must change or die.

AT&T is trying to adapt to the reality that the majority of its revenue will no longer come from consumer voice. While AT&T will derive 60% to 65% of its 2000 revenue from voice services, that figure is expected to plummet in the wake of increased competition from local carriers that are stealing away the business and driving down prices. Voice revenue is going to drop to 50% by the end of 2001 and to 35% or lower by the end of 2002, AT&T estimates.

AT&T&'s voice struggle, compounded by slower-than-expected growth in business service revenue and difficulty getting its cable business in order, culminated in the restructuring plan announced in late October, following dismal third-quarter results. For that quarter, AT&T reported a 10.9% decline in consumer voice business compared with the same quarter in 1999. While AT&T's overall revenue is still growing, the company's third quarter revenue of $17 billion compared with the same quarter last year shows only an additional $1 billion in revenue.

Under the restructuring plan, AT&T is divided into four companies: AT&T Business, AT&T Broadband, AT&T Consumer and AT&T Wireless. The consumer unit is the only one that won't offer business services.

It's obviously too soon to tell how successful the new AT&T will be, but so far Wall Street hasn't been receptive. The company's stock started falling almost immediately after the restructuring announcement. It hit its lowest point in late November, trading at around $18 per share compared with $61 per share in March. What's more, at the time of the restructuring, AT&T's market valuation was down $70 billion since January.

When AT&T wasn't busy reinventing itself this year, it worked on getting its Concert joint venture with British Telecom in line, on issuing a trading stock for its AT&T Wireless division in April and on signing on customers for its Integrated Network Connect Services. In 2001, it will focus on winning over business customers with innovative new services. On tap, for instance, are IP VPN services that support public-key-infrastructure security and span AT&T's access networks.

Behemoths typically don't move quickly or gracefully. AT&T's restructuring better be anything but typical if it expects to keep its networking power.

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