FOR YEARS, IT LOOKED LIKE POOR old Ma Bell was ready for the rest home. Once a mighty monopoly with wires snaking into almost every American home, AT&T has been besieged by competition ever since its court-ordered breakup 15 years ago. Its rivals have steadily swiped its core long-distance business; its offspring, the Baby Bells, have brutally elbowed it away from their local-calling turf, and its fumbling attempts to enter new businesses have repeatedly flopped. But in the scant 15 months he’s been in charge, AT&T’s new chairman, C. Michael Armstrong, seems to have revived the phone matron. In fact, the old dear is looking pretty hot these days, thanks to some major plastic surgery and some really stunning accessorizing. Last week Armstrong unveiled the latest bauble he’d bought for her: a joint venture with media powerhouse Time Warner that would allow AT&T to offer telephone service over the same coaxial cable that pumps MTV and CNN to 12 million customers. That comes just months after AT&T announced plans to acquire cable-TV giant Tele-Communications, Inc. Together with some smaller cable deals, the moves will give AT&T pipelines that reach into nearly 50 percent of U.S. households, potentially restoring a big chunk of what it lost in the breakup.
Ask Armstrong if he’s trying to reconstitute the old AT&T, and he says no. In the new world of increasingly high-tech and highly complicated telecommunications, his game plan is to pitch sweet simplicity. To the consumer who may get local service from one carrier, long distance from another, wireless from a third, cable TV from a fourth and Internet service from yet another provider–paying five bills and chasing after any one of five different customer-service departments when something goes wrong–AT&T wants to offer all those services itself, bundled together in one tidy package. The customer gets ease of use and, AT&T vows, savings of as much as 25 percent for local calling, for example. For its part, AT&T gets a loyal customer–or at least one who would find it awfully inconvenient to sever all those ties–and a chance to push into industries that together ring up well over $200 billion in annual revenue. Says Armstrong: ““The only choice consumers have to make is AT&T.''
That’s exactly what has rivals worried. They fret that the monopoly is indeed coming back, this time creeping through the cable wire. And where the old Ma Bell dominated just local and long distance, critics say, the newfangled Ma is poised to control the growing world of ultrafast Internet access to the home. That could be bad for consumers, critics argue, because a new monopoly might restrict choice and ultimately raise prices. Competitors who little more than a year ago dismissed AT&T as a fumbling, sclerotic has-been are suddenly squawking. Only days after the Time Warner deal was announced last week, an ““OpenNet’’ coalition of 18 companies including AOL, Bertelsmann and MCI WorldCom formed to press federal and state regulators to scrutinize AT&T’s plans for those zippy cable pipes. The companies charge that AT&T plans to exert tight control over what goes through those cables, and will force subscribers to sign up for AT&T’s high-speed Internet service, AtHome, in order to get to their existing Internet providers. ““It’s the start of Ma Net,’’ says Greg Simon, codirector of the coalition. To demonstrate AT&T’s impact on the Internet industry, Simon brandished a frying pan and proceeded to smash a half-dozen eggs in a debate with a cable- industry lawyer.
But don’t start worrying about AT&T’s frying-pan power just yet. For starters, the company is still years away from offering local phone service in more than a smattering of markets. Even if it sews up every cable system in the country, AT&T will still reach just roughly 65 percent of households. And it still must meet massive technical and management challenges if it is to make its daring strategy work. Competitors like MCI WorldCom and Sprint have already proved that they can eat the phone giant’s lunch; the Baby Bells are likely to further chop away at AT&T’s market share in long distance once they’re allowed to compete for that business. And for all the seductiveness of AT&T’s siren song of simplicity, luring customers to its new offerings will also be a huge marketing task. Telecom customers, it turns out, are a pretty rigid lot. Despite years of frenzied blandishments by long-distance companies, for example, roughly two thirds of U.S. households have never switched carriers. Ever. So why would they jump for AT&T’s local phone service?
For his part, Armstrong says a resurgent AT&T spells nothing but good news for consumers. If anything, he argues, AT&T is bringing more competition to the telecommunications arena by helping unlock the $100 billion local-phone monopoly of the Baby Bells. And critics like AOL, he says, are just trying to use government regulators to win better positioning on AT&T’s new cable pipes than they could get at the negotiating table. AT&T will spend well over $50 billion to buy and upgrade cable systems for phone service, and he’s hardly about to give rivals a free ride down that expensive new data highway.
But such concerns are far in the future, and Armstrong has more pressing problems in the short term. Having worked at a breakneck pace to strike one megadeal after another, he has to get down to the business of making them work–something that hasn’t always been easy for AT&T. ““It’s the basic blocking and tackling,’’ says Brian Adamik, senior vice president of the Yankee Group, a market-research firm. ““Everybody buys into the strategy. Now they have to execute it.’’ That fact isn’t lost on Armstrong–or his wife, who, he says, recently told him: ““You may be doing all the right things, but you can still screw this up.''
Screwing things up is something AT&T knows plenty about. The company’s history over the last decade has been a litany of blunders. Topping the list: its $7 billion acquisition of computer maker NCR, which was finally spun off in 1996. But AT&T also made repeated efforts to push into exactly the businesses that are now at the heart of Armstrong’s vision of the future. Besides various false starts in the local phone market, the company poured millions into online shopping and game services that went nowhere. After three years, AT&T’s WorldNet Internet still has just 1.4 million subscribers (AOL adds nearly that many subscribers every three months).
Enter Armstrong, a Harley-riding 60-year-old who was lured to AT&T in 1997 from his post as CEO of Hughes Electronics. From afar, he had always figured AT&T for a sluggish company–a view that ““was frankly confirmed when I got on the inside,’’ he says. ““They could absorb any good idea and push it around for months.’’ Not anymore. Armstrong quickly bought out 18,000 employees, while signaling more cuts to come. He’s sold off businesses and spent tens of billions on others to patch holes in AT&T’s offerings. He’s struck major marketing relationships with big Internet sites. More deals with the cable industry are said to be in the works, including a potential investment in Time Warner’s own high-speed Internet service. And Wall Street particularly likes Mike: the company’s stock has nearly doubled during his tenure.
For a glimpse of what Armstrong has in mind for AT&T’s future, look at what he’s done with the company’s cellular offerings. Last year the company shocked the wireless world when it announced its so-called Digital One Rate plan–a cellular-phone offering that eliminated long-distance and roaming charges. The simple, flat-rate plan swept away the grotesque calculus of U.S. cell-phone billing–and, for heavier users, offered a better deal. And less than two weeks ago AT&T went a step further, offering users a rate of 10 cents per minute on their cellular and long-distance service, further blurring the lines between the once distinct and separately billed offerings. The catch: takers have to sign up for a full year. But surveys show that consumers like the one-provider idea. Yankee Group says that two thirds of American households want to get their various flavors of phone service from a single source. (Conscious of that, MCI WorldCom last week unveiled new consumer Internet service priced at a low-ball $16.95 per month for those who use the company’s long-distance service, too.)
As eye-catching as Armstrong’s cellular moves have been, he’s also trying to pull off a daunting transformation of AT&T’s calcified corporate culture. The executive limos are gone, and the many-layered management ranks have been collapsed to speed decision making. In a recent pep talk to 60,000 employees, he urged staffers to view Mondays as their favorite day of the week (is he nuts?) and implored top executives to pound the table about potential new projects. In the past, outsiders have complained that dealing with AT&T was ““like trying to line up worms.’’ But Armstrong is clearly making progress. ““He has the attention of those AT&T executives,’’ says one business partner. ““Much of the institutional arrogance is either gone or under control.''
Ma Bell’s makeover has just begun. Although Armstrong has finally articulated a vision for AT&T, it has barely been put into practice. But in one respect, at least, he already represents huge change at the long-flummoxed giant: ““Armstrong wants to be the hitter and not the battered,’’ says Scott Cleland, an analyst at the Legg Mason Precursor Group. Even if he doesn’t knock one out of the park right away, at least Armstrong is swinging for the fences.
