AT&Ts Somers Stays on Course

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Three weeks ago, AT&T Corp. handed its critics on Wall Street what they

wanted: a corporate restructuring


plan that included the spin-off of the company's AT&T


Wireless Services and AT & T Broadband units. Last week, AT&T Broadband CEO Dan

Somers talked with

Multichannel News
editor at large Matt Stump about the future of bundling, Excite@Home Corp.'s role inside the MSO and its agenda in the year ahead. Somers believes a strong focus on execution will deliver the bottom-line results the financial community is pining for. An

edited transcript follows:


MCN: There was a lot of talk after the AT&T breakup announcement that the broadband division would be better off with the ability to be more

focused and

execute its mandate without being tied to a corporate parent that at times may

have different agendas for different divisions. Do you feel that way?

Somers:

Our strategic direction that we've been on has been endorsed, supported and applauded by AT&T and that's not going to change with the announcement of two weeks ago. It wasn't intended to change our strategy or our direction. It was intended to allow us to be independent
vis a vis

the ability to access capital markets, to stand alone and have our results measured against our peers rather than be part of a measurement of a company overall, and to provide an opportunity for our employees, much like Wireless' employees, to that have their fortunes directly related to their own activities.

Whether we're part of AT&T or we're AT&T Broadband independently, we're going to continue to aggressively pursue the rollout of our telephony business.


MCN: And you're going to continue to be aggressive in bundling digital video, voice and data?

Somers:

Absolutely correct.

MCN: How long are the contracts for bundling AT&T long-distance and AT&T Wireless products? What happens after you're independent?

Somers:
I don't sell AT&T Long Distance for AT&T Long Distance. We sell a voice product called all-distance telephony, which we brand under AT&T Broadband. The relationship I have with AT&T is that I buy it wholesale from them.

Now, we co-market with Long Distance in some of our markets and use that effectively to help both companies retain or grow customers. Wireless, we're in two markets where we're in their stores and cohabitate with them. We find that very effective. We have not yet launched a bundle that sells a wireless product. We will in the future. But we'll do that in cooperation with AT&T Wireless and nothing changes there, either.


MCN: Do you foresee a day where you'd open it up


and look at an MCI WorldCom or Sprint Corp. in a wire


less or long-distance package?

Somers:
No. Why would I? I should be able to get the best that I get from AT&T.


MCN: Theoretically, you should. But I look at the Lucent spin-off and see


that some analysts attribute


the company's troubles to AT&T spending less with a company that it used to own. When it's truly an open market, if Sprint came in with a better deal, I'd think you'd look at it,


although I think AT&T would also come back with a strong deal.

Somers:
Absolutely. AT&T even this year is still Lucent's biggest customer. But you don't just buy from one company. We buy from a multiplicity of sources. But right now, I get the greatest scale buying from AT&T. By far, they are the largest operator of networks globally. I love the relationship and their brand is pretty spectacular.


MCN: What's your sense today of where [Internet-protocol] telephony

stands?

Somers:

IP is not a next-year phenomenon. IP is in the early stages of development. We'll be doing some trials with equipment manufacturers, testing it next year. But I think it's 2002 and 2003 before we actually see it applied in markets in any scale. Remember, we're providing a broad-based local-voice product line. It features multiple lines, etc., which competes directly against the RBOC [regional Bell operating company]. In order to be able to do that, IP's got a way to go.


MCN: Are you going to continue to pursue local cable-telephony deals with operators?

Somers:

Our focus is to imbed within our company an offering of voice, video and data services to our customers. That's the No. 1 priority. As we pursue that and are successful with it, others will want to sit down at the table and more clearly understand what we're doing and that's the direction we'll proceed.


MCN: How much debt are you willing to carry on the Broadband side of the house? Obviously, a lot of


the corporate debt is related


to cable acquisitions and rebuilds. If the company gets too much laid on it, however, it won't be able to efficiently roll out new services.

Somers:
The only comments that have been made publicly, as these companies are restructured to be taken public, is that their debt levels will match those of their peer group. That's what we'll do. That's adequate. That's the right way to capitalize the company and that puts us at no distinct advantage or disadvantage against our peers.


MCN: What happens to the Microsoft Corp. investment?

Somers:
Right now, that's an investment in AT&T. Under that agreement, they have some options in terms of the way in which they can convert that security in shares of offspring of AT&T, but that's their choice.


MCN: How do you see Excite@Home's role inside
AT&T Broadband over the next two years?
Somers:

They're an important and fundamental part of our launch of data services. And I assume we'll continue to have a very positive strategic relationship with them. However, we'll also have relationships with others.


MCN: One of things


Excite@Home CEO George


Bell projected for his company in an open-access world

is that it would serve as a middleman between outside ISPs and MSOs. Is that a view you generally agree with?

Somers:
I think the way to best explain what I think that relationship has to be is that they provide a capability to us to bridge delivering our service to our customers. That's a very important and critical capability. It plays a very important role in the long-term development of the high-speed-data services that we give to our customers. I don't see that relationship changing.


MCN: Do you have a sense, when all is said and done with open access, that because of the economics in any given system, you'll only have two or three or four ISPs?

Somers:
I think it's too early to really say that. We'll have open access. We'll have multiple ISPs that our customers can access. But it's too early to say whether it's three or four or seven or eight. We're just starting our test with Broadband Choice in Boulder.


MCN: How about the


interactive-TV interface Excite@Home is working on? How might that fit in with what you put together?

Somers:
As you know, we've been working with a variety of vendors. We're very much in the early stages. We principally have been working near-term with Microsoft and with Liberate [Technologies Inc.]. We'll continue to do that. They are the two principal groups today that supply us.

We've had lots of discussions with others, including Excite@Home, as to various aspects of the interactive world. But we haven't at this stage reached any agreement beyond the two that we're working on, because that's about all we can handle right now.


MCN: Has America

Online Inc been in to visit you about AOL TV?

Somers:

You can assume that everybody and their uncle have been in to visit us. We've talked with everybody and look at every potential aspect of that business. And the only time one can speculate is when we announce something.


MCN: When the AT&T


restructuring was announced,


chairman Michael Armstrong


talked about selling digital-subscriber line service in various


markets. Obviously, AT&T has fixed wireless as a technology. Heretofore, AT&T was going to stay away from selling DSL or fixed wireless in AT&T Broadband markets. But they could launch those services in competition with you. Do you envision that happening?

Somers:
If we take DSL, the Consumer business would have an opportunity to look at delivering a DSL product, but they can't do it in our footprint with the AT&T brand. And fixed wireless is not in any of our markets and, again, they cannot use the AT&T brand in our markets to offer services competitive to us. So I don't think it's a significant issue.


MCN: What's the timing of a permanent CEO or chairman being named for AT&T Broadband and do you want the job?

Somers:

[Laughs.] I've no idea [on the timing]. Right now I'm president and CEO of AT&T Broadband. And I'm trucking forward. In terms of what the ultimate structure looks like, first off it's going to be a tracking stock at its launch and that means the chairman is the chairman of AT&T.

Longer-term, it's not what I'm focused on, nor what I think anybody else should really focus on. I sort of look at this in a fashion of, we take it one day at a time and our heads are down trying to deliver our business plan, and that's what my job is. And I'm enjoying it and am happy to do that.


MCN: Does anyone Wall Street ever pull you aside and say: "I know we're trashing the stock but we really do like this [revenue-generating unit] growth"?

Somers:
Yes. Some have. I think we had good response to our third-quarter results particularly our RGU growth, and had some very favorable comments about it.


MCN: How's morale?

Somers:
I think it's fine. This is the broadband business. This isn't the cable business anymore. We're into data in a major way. We're into voice communications. We're looking at interactivity on our television set. Our employees have broad-based skill sets. They view themselves as being part of a new wave of broadband technology and they're happy to be part of it. I think they're happy to see the AT&T brand outside on our trucks.

And yes, they're happy that they'll be somewhat independent, which means that if we crank a good quarter our stock ought to go up by that virtue alone and not be affected if another part of AT&T has a tough period. That's the bottom line of it. They're not saying: "Wow, this is a victory for cable." That's the old part of the world that's changed.


MCN: What will be your message at the Western Show?

Somers:
I think the industry has huge upside potential by just doing what we're doing. We can very strongly positioning ourselves
vis a vis

our competitors. We're seeing this year that we are very much, as an industry, aggressively launching our data product and delivering it more effectively than our competitors. We've made huge digital-TV inroads and that's a big plus. It will improve the market's view of us, and it will improve the customer's view of us, because it's a much better product.

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