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    Home Latest News

      Falling Leaves and Fading Dreams for AT&T

      By
      eWEEK EDITORS
      -
      October 8, 2001
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        If AT&T Chairman and CEO C. Michael Armstrongs plans had worked out, the Broadband cable unit would be spinning away from the mother company as an independent operator this winter, freeing the core telephone and long-distance business from a competing in-house technology.

        Armstrongs goal of partitioning of AT&T was to create four strong companies — cable, wireless, business and consumer services — from the patchwork of AT&T units struggling to reveal their true value.

        As the autumn leaves begin to turn color, however, Armstrong looks like a chairman attempting to find new homes for his offspring in a harsh environment. Instead of launching Broadband, Armstrong is quickly sizing up offers in a bid to sell the nations largest cable operator at a deeply discounted price. At the same time, hes soliciting merger offers from the original AT&T offspring in hopes of salvaging the remaining core business.

        In a dramatic role reversal never dreamed of in the original 1984 breakup, BellSouth could acquire former parent AT&T. Although sources quote Armstrong as pitching a “merger of equals,” BellSouths much greater market value puts the regional Bell in the drivers seat.

        Meanwhile, Armstrong announced a dramatic 20 percent drop in capital spending next year, while seeking to unravel a relationship with British Telecommunications in a joint venture called Concert.

        What makes these moves so urgent, analysts say, is a telecom recession deepened by the Sept. 11 terrorist attacks on the United States. Without some form of rescue, AT&Ts partition could be stuck in limbo, allowing more focused competitors to consume its declining market share.

        Despite the turmoil, the cable unit, managed by a more experienced player such as Comcast, could rapidly rise in value should Armstrong strike a deal. Often described as recession-proof, the cable industry has weathered the first month after the terrorist attacks by outperforming the overall market and sticking to slow-but-steady growth projections. Operating cash flow, the most common measure of cable operators, is expected to grow at midteen percentage rates industrywide.

        While potential suitor Disney has dropped out of the picture, AOL Time Warner, Cox Communications and others appear still interested in AT&T Broadband. Comcast remains on the inside track, however, with a confidentiality agreement in the works that would allow it access to AT&Ts sensitive financial information.

        Should Comcast win out, the Philadelphia-based company will face a challenge in sorting out AT&Ts cable telephone and high-speed Internet business, which are snarled by the bankruptcy of Excite@Home, the Internet service provider controlled by AT&T.

        The telephone business could end up in limbo with Comcast, which has vowed to avoid selling primary service in a traditional switched network.

        eWEEK EDITORS
        eWeek editors publish top thought leaders and leading experts in emerging technology across a wide variety of Enterprise B2B sectors. Our focus is providing actionable information for today’s technology decision makers.
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