The smile is long gone

AT&T has been fading in front of our eyes like Alice's Cheshire Cat for quite a while now, at least since the big break-up 20 years ago. Now AT&T management has announced that it is giving up another chunk of the old cat. It's hard to imagine that there will be anything left of "The Phone Company" by 2010.

AT&T has been fading in front of our eyes like Alice's Cheshire Cat for quite a while now, at least since the big break-up 20 years ago. Now AT&T management has announced that it is giving up another chunk of the old cat. It's hard to imagine that there will be anything left of "The Phone Company" by 2010.

AT&T recently announced that it had decided to stop trying to market its services to consumers and instead would concentrate on its business customers. The carrier said that it would continue to provide service to current consumer customers and would welcome anyone who wanted to buy service from it, but it will curtail advertising for new consumer customers and will stop all attempts to hold onto its 35 million consumer customers. (In the silver lining department, maybe this means we will be spared the further adventures of the embarrassing Carrot Top.)

AT&T did this because it's not making much money from consumers and would rather focus on the business world, where it can make more of a return. This is an almost perfect example of author Clay Christensen's corporate-death scenario. A company abandons the field represented by its lowest-margin customers because competition is too strong from other companies selling the same product or from companies selling new products. Soon the competition starts to invade the next-higher tier of the company's customers, and the company abandons that field because competing gets too hard. Then the company runs out of fields to abandon. AT&T is well along that path.

The carrier used to be one of the biggest companies in the U.S. and thus in the world. In the late 1950s and early '60s it got as high as No. 9 on the Fortune 500. At that time AT&T, U.S. Steel and General Electric were the only non-energy or automotive companies in the top 10 U.S. companies. AT&T shares once were the "widows and orphans" stock, a holding that would be safe through all kinds of bad times. That time is long gone.

The stock that carries the label of AT&T is not one that I'd recommend these days. (Holders of pre-divestiture AT&T stock might have quite a pile if they kept all of the stock in the various spinoffs, but not nearly as big a pile as they would have if they knew when to unload it along the road.) Few AT&T stockholders, particularly AT&T retirees, are all that happy. In this case, unlike with the Cheshire Cat, the smile faded early.

At least for a while, we seem to have come full circle. The old Baby Bell components of AT&T are poised to take over most of the consumer wired and wireless phone business, and maybe later the business customers as well.

So we are on the way back to a handful of local monopolies running the phone business. But I'd caution these new winners to take care. Unless they can get the regulators to help them by restricting VoIP, they soon might find themselves abandoning their bottom tier of customers to less-expensive VoIP providers. What goes around comes around.

Disclaimer: No monopolies in the higher-education business - you can always go to the trade school down the river. But the above is my opinion, not Harvard's.

Bradner is a consultant with Harvard University's University Information Systems. He can be reached at sob@sob.com.

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