AT & T Unglued

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AT&T's plan to unravel itself into four different entities generated a din of critical media coverage, namely, that chairman C. Michael Armstrong's convergence strategy was a hands-down dud, with the company's stock still trading at roughly 50 percent of its value from a year ago.

After pouring through dozens of articles about this amazing dissassemblage of what was a titan of American industry, you have to wonder, if Armstrong did what he did to appease an increasingly ticked off investment community, and, if AT&T customers will ever seen any benefits.

While many in cable applaud the obvious that AT&T Broadband will now look more like a cable company, many rued the unremitting reality that Wall Street can bring a company to its knees in a New York minute. They find it alarming that Wall Street does not give companies like AT&T time to execute, what in today's competitive landscape, tends to be complicated business strategies that take time to seed and germinate.

But that's not the case with AT&T which got more bloated, lazy and arrogant for decades until, finally, in 1984 the sleeping giant was forced to spin off its local phone companies. And AT&T hardly had the muscle to compete in the telecommunications wars that have been raging since 1996.

Now the tout on Armstrong is that he sure has the "vision," but lacks the operational skills to execute the strategy, which was to create new revenue streams to shore up the utterly flailing long distance business. But playing Monday morning quarterback is easy for those who now say that Armstrong should have concentrated more on long distance.

Frankly, the company-and don't forget the baggage of that old, ingrained corporate culture-just became too big to move with anything resembling agility.

And this new plan, to split AT&T into four different companies might just be the answer, as incomprehensible as it now appears right after the announcement. Look at the mess AT & T has created just with its acquisitions of Tele-Communications Inc and MediaOne.

The fallout, in terms of brain power was huge, with many executives from both cable camps bolting for the door because they detested the decision making process emanating from AT&T's corporate campus-like headquarters in Basking Ridge, N.J.

The defection of AT&T Broadband's chief technology officer Tony Werner, was just the latest example of the frustration so many talented executives chafed under in such a stifling environment. Clearly for AT&T Broadband president Dan Somers, remember, all of the heads of the four new companies are "acting," the challenges ahead are more than daunting.

For starters, he's hardly a seasoned cable executive. And it must be kind of lonely at the top, given how thin the executive wing has become. None of the pressures from Wall Street are going to go away. Instead they could become more heightened as each of these newly created companies may get saddled with more debt to shore up the bleeding long distance arm, as some on Wall Street are already suggesting.

So the pressure is on for Somers to improve AT&T Broadband's performance. There are, indeed, many bright spots. The MSO's third quarter video operations showed customer counts for cable telephony were up 126,000 units in the quarter, following a jump of 86,000 units in the second quarter. That's good.

High-speed data numbers are on the rise too, with 197,000 new customers, following 124,000 new units in the second quarters. That's good growth.

And digital video, the star, grew by 273,000 in the quarter, following 214,000 new units in the second quarter. And that is very good.

But is it enough? There's a very real fear right now among some AT&T Broadbanders that the MSO is going to do something really dumb. Will it be OK to grow by just adding new units? Or, as there is already talk underway, will the MSO raise its rates?

There is presently a movement afoot to get MediaOne and TCI rate increases on the same schedule. MediaOne customers got a rate increase last January. But TCI customer just had one in June 2000. Now the MSO is talking about, but has not yet decided, whether to raise all rates again in January to help shore up the bottom line.

Internally, some inside think that is a very risky move and one, they hope, Somers won't make during what are likely to be tumultuous times ahead.

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