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INNOVATION / MICHAEL SCHRAGE

AT&T Is Hedging Its Bets on Investing in the Digital Future

June 03, 1993|MICHAEL SCHRAGE

BASKING RIDGE, N.J. — Robert Allen--who runs the world's most successful telecommunications company--displays zero apparent desire to become the Jack Welch, John Sculley or Bill Gates of AT&T. He neither preens with charisma nor makes pithy quips about multimedia dial tones. Deliberately low-key, he very graciously declines to predict the future.

"I certainly wouldn't call myself a visionary," AT&T Chairman Allen says. "The industries--computer, communications and entertainment--are all moving so fast that I can't personally be knowledgeable as to where they are all going or where they'll all converge. . . . I don't think we know all the answers to this."

That is not false modesty. So many visions of the digital future are jostling, bumping, bashing, blurring and blending into each other that Allen's AT&T has effectively abandoned the idea of a grand, overarching strategy in favor of a series of tactical technological investments. In fact, the company has been building an intriguing portfolio of new media technologies around its professed ignorance.

HDTV? AT&T is helping set new industry standards. Interactive cable television? There is now a joint market test of new technologies with Viacom International. Consumer multimedia? AT&T owns pieces of video computer maker 3D0 and software start-up PF Magic. Portable personal telecommunications? AT&T has invested billions in McCaw Cellular and has significant equity stakes in General Magic and EO, both personal communicator companies.

Pick any facet of digital communication, computers or entertainment anywhere in the world, and if AT&T does not already have a sprinkling of investments there, it is probably negotiating them now.

That approach has turned AT&T's traditional innovation perspective inside out. Where AT&T was once a top-down monopolist that literally dictated how its markets would evolve, it is now becoming a cagey speculator betting that the best way to manage technical risk and market opportunities is from the bottom up. So it is fine that Allen is less the high-voltage visionary than the quiet, cigar smoking bookie who is going to determine the size and placement of the bets.

"We are placing bets in a number of areas," Allen agrees. "Because we don't know exactly what the future looks like, we want to learn about it in joint ventures, investments, partnerships and trials. While we may admit what we don't know, we are prepared to learn and try to patch it all together as we learn more. . . . Given our position, we have the luxury and financial ability to do so."

Ironically--but perhaps appropriately--AT&T is organizationally coming to resemble the very business it is in: global networking. Just as AT&T's global networks are designed and built to handle any mixture of voice fax, video or digital data, AT&T is turning itself into an organizational network that handles any mixture of consumer electronics companies, wireless communications companies and software companies. AT&T becomes a giant corporate "switch" that can interconnect these companies in value-added ways or simply use them to generate more traffic for the core business. Communications remains the key technology competence.

"Even John Sculley says the future of this business is communications and not computing," Allen points out, "and we know more about designing, building and managing communication networks than anyone in the world."

While that may be open to debate, there is no question that AT&T's multiple investments, its dominant position as the nation's long-distance networker and its almost promiscuous willingness to forge business partnerships virtually guarantees that it will have access to any opportunity that might catch fire.

In financial terms, AT&T is managing both its technical risks and opportunities by purchasing options on the new media future.

But exercising an option is not the same as owning one.

"The key is to convert all this capability into things customers want," Allen says.

One thing AT&T does not want, Allen asserts, is to be in the cable television business--which is surprising because cable access into the home offers a way for AT&T to bypass the local telephone companies and cut the huge $14-billion annual access fee it pays.

Nevertheless, Allen dismisses rumors about an equity relationship with cable systems giant TCI. He also looks with bemusement at that $2.5-billion Time-Warner investment by US West--a deal AT&T looked at.

"It will spur some shotgun marriages that may not be well conceived," he observes. "I'm satisfied to sit on the sidelines and watch all these cable partnerships form."

Similarly, AT&T is unlikely to pull a Sony or a Matsushita and buy a Hollywood studio. "We don't have any need to be in Hollywood," Allen says. "I'm not sure our culture is compatible with the entertainment industry, anyway."

On the other hand, Allen says, AT&T is extremely interested in the on-line information business--the sort that Reuters and Dow Jones are in. "We may well want to be owners--if not participants--in the on-line business," he notes.

But guess what? Many of those on-line services are now negotiating to be carried on interactive cable TV networks. Those industries are converging too.

In other words, it may soon be time for AT&T to place a few more bets. That prospect does not seem to make Allen uncomfortable at all.

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