AT&T president shares outlook

AT&T is still the big dog in the telecom world, but it is one tough business, says President William Hannigan.

AT&T is still the big dog in the telecom world, but it is one tough business, says President William Hannigan.

Hannigan spoke with a small group of IDG editors and analysts last week, sharing his view on everything from competition to technology directions. He joined the company as president in December after four years as CEO of Sabre Holdings. But telecom is not new to him. Hannigan spent 13 years at Sprint and then went on to hold many titles at SBC, including president of global markets.

While he says the telecom industry will recover, Hannigan says it will be different. “It’s a very difficult business right now. I’ve been saying we’re a great company in a lousy industry,” he says. “There are way too many folks in the game pricing below costs.”

But change is coming. “Industry consolidation is coming, even before the year is out,” Hannigan says. “Will the consolidation be horizontal or vertical? I don’t know. But there are too many players.”

Although he wouldn’t predict how many interexchange carriers (IXC) or local providers would be left standing, he did question MCI’s health, referencing the company’s deteriorating financials while it was in bankruptcy, and he questioned how much MCI and Sprint are spending on their networks.

AT&T’s capital expenditures are a fraction of what they once were, but Hannigan says the company will plow about $2.5 billion into the network this year.

Some of that money will be poured into programs that have helped see the company through these tough times, such as efforts to automate processes, standardize platforms and simplify the business.

Four years ago the company had 120,000 employees (including AT&T Wireless) and today it has 55,000. “Employee reduction is no fun, but it talks to how we can automate and improve the customer experience” at the same time, Hannigan says.

Besides striving to reduce the complexity of the network, the company has streamlined service offerings to make the company more efficient. He says AT&T now generates 90% of its revenue with less than 10% of its products.

It’s all paying off. Even as AT&T’s business service revenue has fallen, “over the last three years, business services has generated $4 billion in cash year over year,” Hannigan says.

Big business continues to be AT&T’s strong suit. Of AT&T’s $34 billion in revenue, $24 billion comes from business services, Hannigan says, “more than any other IXC or RBOC.”

But everyone is knocking on the door, and the RBOCs represent a fiery new breed of competition. “Qwest and Verizon are getting quite aggressive on pricing,” Hannigan says.

While some of the RBOCs have won deals based on pricing, he says the big companies lack AT&T’s experience as a global network provider.

“The RBOCs can’t spell global,” Hannigan says. “That’s not a cheap shot. Some have made good investments offshore, but not as far as operating a business offshore where users depend on a single point of contact. AT&T has 5,000 people offshore taking care of customers.” Those employees include account managers, program managers, customer service representatives and network engineers.

Besides competing with the RBOCs, Hannigan likes to point out that he is their largest customer. AT&T spends $8.5 billion annually on local access. That figure likely will rise this year after the U.S. Office of the Solicitor General earlier this month decided not to appeal a court ruling overturning much of the FCC’s rules governing network sharing.

“We were definitely disappointed in the administration’s decision,” Hannigan says. He wryly adds that clearly the money the incumbent local exchange carriers spent in lobbying efforts “made a difference in terms of the administration’s interpretation of the [1996] Telecom Act.”

If the RBOCs raise their access rates, AT&T says it will affect consumer pricing, might force it to pull out of certain markets and could force it to raise small-business rates.

But Hannigan says the ruling does provide some clarity in how AT&T will go to market from a technology perspective. It’s all about VoIP and wireless, he says. “We’re pivoting the whole company on all things wireless and all things VoIP.”

Wireless wannabes

When asked why AT&T sold AT&T Wireless in 2001 when that is the future, Hannigan says, “we had to because of balance sheet necessity.” AT&T had spent dearly to acquire a stable of cable TV companies, thinking that was the future, but in the process its debt ballooned to an all-time high of $65 billion. Selling off AT&T Wireless returned $19.2 billion to shareholders.

“Looking back on the decision, which was made before my time [at AT&T], we would not have done that if we didn’t have to,” he says. “We would prefer to own that wireless business, yes.”

To fill the gap, in May AT&T signed a five-year, non-exclusive deal to resell Sprint wireless services.

AT&T expects to offer wireless services by year-end as a so-called mobile virtual network operator. Under the deal, AT&T will provide customer service, billing and landline network support. All wireless long-distance voice calls will be handed off to AT&T’s landline network with the exception of any call destined for the Sprint PCS network.

“Our plan was to, Day One, change the way companies buy wireless. And Day Two, leverage the heck out of data,” Hannigan says. AT&T is talking with Sprint about how it can bolt equipment onto the Sprint network to add data-networking capabilities that will only be available to AT&T customers, he says.

In addition to cellular wireless, AT&T also has a network of 2,200 Wi-Fi hot spots that customers use to access the Internet or corporate networks. And the company is looking into new technologies such as WiMAX.

“We can’t put a bet on one type of access technology,” Hannigan says.