AT&T: Where to Now?

AT&T has cut the cord, letting go cherished dreams and schemes, in hopes of salvaging shareholder value.

AT&T has cut the cord, letting go cherished dreams and schemes, in hopes of salvaging shareholder value.

With its cable unit up for grabs, AT&T bids farewell to Dan Somers, CEO of the Broadband unit, who guided AT&T in its plan to reinvent itself as a high-speed network operator. Replacing him is William Schleyer, a financier and former cable executive whos expected to steer the nations largest cable operator through a merger, most likely with Cox Communications or Comcast.

With its newly independent Wireless unit spinning ever further from the Ma Bell mother ship, AT&T is also parting with Project Angel, a fabled effort to deliver high-speed data over fixed wireless connections.

"Weve made a strategic decision about a nonstrategic business," said John Zeglis, chairman and CEO of AT&T Wireless. AT&T Wireless will shut down its fixed data and voice network and transition its 47,000 customers to other service providers.

With its core business battling to stay afloat on an economic ebb tide, AT&T cut capital outlays by 20 percent amid declining long-distance revenue. At the same time, it waved goodbye to British Telecommunications and 2,300 employees involved in a joint venture known as Concert. Ending Concert cost AT&T a $3.5 billion charge against its third-quarter earnings.

And AT&T may end up losing its entire identity if, as some observers predicted, it merges the rest of the company — its long-distance telephone and data operations — with another player, such as BellSouth.

The end of chairman Michael Armstrongs grand cable dreams is likely to come before the end of the year, with the merger announcement. Cable insider John Malone last week hinted Cox has the inside track because of Schleyers ties to Cox executives. Comcast started the pursuit and recently signed a confidentiality agreement.

Determined to dominate cable and expand its value through telephone and Internet services, Armstrong invested more than $100 billion to create AT&T Broadband.

Now, Comcast is offering less than half that amount for the entire business.

Armstrong also moved to acquire the key operations of Broadbands bankrupt ISP, [email protected] That has allowed the cable unit to continue adding subscribers to its cable Internet service, according to Armstrong.

AT&T set a November deadline for Broadband bids so that it can either accept one or proceed with plans to spin off the cable unit as an independent company. But with the economy in a severe slump, the financial markets are hardly receptive.

To run Broadband in the interim, AT&T replaced Somers with Schleyer. Acknowledging ongoing merger talks and spin-off plans, Armstrong said that Schleyers appointment will "neither deter nor defer that process."

Once president of MediaOne Group — formed largely from his old company, Continental Cablevision — Schleyer represents a link to the former cable operators that now make up AT&T Broadband.

Schleyer, a principal at venture capital firm Pilot House Ventures, brings with him former colleagues from MediaOne and Continental Cablevision to serve as AT&T Broadbands chief operating officer and chief technology officer. AT&T board member Amos Hostetter, who helped engineer AT&Ts successful bid for MediaOne in 1999, beating out Comcast, is closely linked with Schleyer and his team.

Senior Writer Nancy Gohring contributed to this report.