Assuming that regulators agree, AT&T as an independent entity is no more, and that’s pretty shocking. What’s even more shocking is that this didn’t have to happen. Since SBC’s planned acquisition of AT&T was announced, AT&T has portrayed itself as a victim of events, when it is really a victim of itself.
AT&T’s problems started with the Modified Final Judgment in 1984, the decision that spun off the RBOCs as independent companies. In a stroke, AT&T lost its most critical asset: direct access to the customer. AT&T could have fought the decision, but apparently concluded, in the words of its council at the time, “The physical cost of keeping the Bell System together would be greater than the cost of taking it apart.” Mistake No. 1.
The Telecommunications Act of 1996 was an attempt to create an industry that could sell something other than consumer voice. Because the RBOCs had to pay for any modernization to the access network (such as DSL deployment) and because the 1984 settlement locked them out of national data service completely, there was an impasse to correct. The telecom act did that by letting the RBOCs into long-distance, conditioned on their sharing local access infrastructure with their competitors – unbundling. There’s where AT&T made its second mistake.
Instead of using unbundled loops to create consumer broadband connections to customers, AT&T focused on buying local voice services – unbundled network element-platforms (UNE-P) – at deep discounts and reselling them in competition with the RBOCs that created them in the first place. AT&T promoted the idea that it was the champion of competition, both publicly and in regulatory discussions. Apparently, AT&T came to believe that it could survive reselling someone else’s network assets, and that was a very bad decision.
The sad thing is that AT&T had customer access assets of its own. Remember AT&T Broadband? Remember AT&T Wireless? These days, everyone agrees that the competition of the future is between the cable companies and the RBOCs. Everyone knows wireless is hot. Well, AT&T used to be both a wireless and a cable company, but decided to spin off the former and later merge it with Cingular, and sell off the latter to Comcast. Comcast, you’ll recall, now plans to get into the consumer voice services market, the market that AT&T couldn’t make a go of. Here was AT&T, with a cable business and wireless, with broadband access to the customer via both cable broadband and potentially 3G. AT&T was in a position to be the leader in wireless/wireline convergence, but instead decided to focus on its core business. Mistake No. 3.
But even without access, AT&T might have made it as an independent. What AT&T needed to do was modernize its infrastructure around a converged IP core to control operations costs and maintain a consumer broadband position with a solid VoIP offering. It also needed to move its enterprise clients up the service value chain to managed service and application services, with particular focus on Web services. AT&T articulated this very story in 2003. The carrier created a Web service alliance with Grand Central and for a while it looked like AT&T really might be trying to execute its plan to stem its revenue losses by 2006. Didn’t happen, obviously. Instead, AT&T got conservative with capital expenditures and delayed full execution of Concept of One, its converged core. The carrier made little progress to move up the food chain. AT&T stopped investment in its CallVantage VoIP development, which was never really promoted well to begin with. Mistake No. 4.
It took three AT&T CEOs to make all these mistakes. While it’s not true that AT&T was a victim of the market, it is true that the market, and regulators in particular, created and perpetuated the climate that created the mistakes. Somewhere between 10,000 and 20,000 people will pay with their jobs in the consolidation, and that pretty well shows who the victims in this sad story really are.
