E-Business Commentary -- Breakup No. 2

Making dollars and sense of AT&T's voluntary split.

Once upon a time, there was Ma Bell -- big, monopolistic, and everywhere. If you used a telephone, chances are it was black, indestructible, corded, and built by the Bell System. And -- no surprises here -- it used Bell lines to connect you, whether you were calling around the block or across the continent. Then along came Uncle Sam. Ma Bell was busted up, carved into geographically separate Baby Bells, and AT&T Corp., which kept the highly lucrative long-distance phone business, the phone-manufacturing operation, and Bell Labs, AT&Ts research arm. Oh yes, the government also allowed others to compete for long-distance business, spawning such latter-day giants as MCI Communications Corp. and Sprint Corp. AT&T took a stab at the computer business with its 1991 acquisition of NCR Corp., but later shed the Dayton-based computer manufacturer at a loss and went back to its telecommunications knitting. Oh yes, in 1996 AT&T spun off its systems and technology unit, the phone-making business, and Bell Labs to form Lucent Technologies Inc., but thats another story. AT&T is being chopped up again, but this time the company is taking the knife to itself, without any government prodding. A harbinger of the breakup was the issuance of AT&T Wireless stock last year. Now, as part of its self-induced breakup, AT&T is creating a separate AT&T Wireless company, as well as AT&T Broadband, AT&T Consumer, and AT&T Business. Each of the four companies will be accountable in its own right to shareholders, customers, and employees. C. Michael Armstrong, chairman and CEO of AT&T and the architect of the breakup scheme, stressed that the four companies will continue to collaborate. The quartet of mini-AT&Ts will each operate, according to Armstrong, under the AT&T brand . . . continuing to bundle each others services through intercompany agreements. Were combining the power of a common vision with the focus and flexibility of separate companies. The reason for the breakup -- as often is the case when a large entity is diced into smaller ones -- is to jack up the share price. It seems that ever since the mergers-and-acquisitions binge of the 1980s, the notion of a pure play for investors, i.e., a company that focuses on a single core business, has been in vogue. The theory goes that investors and securities analysts alike have trouble keeping track of more than one kind of business beneath a single corporate umbrella, so the shares of conglomerates tend to be undervalued. Not that AT&T has tried to hide this fact. According to a recent announcement, the restructuring is designed to give greater visibility to the market value of each of AT&Ts individual businesses . . . . While the breakup isnt expected to be final until sometime next year, by taking a peek at www.att.com one can see that its basically a fait accompli, with the four new operating companies laid out in full color on the home page. The old AT&T is almost nonexistent. Nor is CEO Armstrong waiting around for moss to grow on any of the companys fiber-optic lines. The first shoe of the breakup was to be dropped on July 9 when AT&T was to split off its $9.6 billion AT&T Wireless unit. At first glance one might wonder why AT&T would sacrifice its biggest, most sacred cash cow -- the long-distance telephone business. Actually, the remaining principal unit of AT&T, AT&T Business, which specializes in enterprise communications and networking and will continue to own the AT&T Network as well as AT&T Labs, will issue an AT&T Consumer tracking stock, meaning that the actual ownership and control of the $19 billion Consumer company will remain with Pa Bell, at least for the time being. Although the long-distance business continues to erode, AT&T Consumer also is one of the leading Internet service providers through its popular WorldNet service. The bottom line of all this: What can business customers and consumers expect in the way of service? In the short term there may be a few lapses as people drop a ball or two in the confusion of trying to sort out their new roles and the roles of the companies they work for. But over the long haul, expect these four healthy players, each with its own robust business, to do better solo than they did as members of AT&Ts off-key string quartet. That could mean more innovation for customers, and a better return for investors.

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