A lot of Wall Street sentiment favors a new breakup of AT&T, which is a terrible idea at the moment because the big telecommunications company's stock is near its low. By one estimate, AT&T's many assets could bring a total of only $43 a share in public spinoffs, an uninteresting premium over today's stock price.
But it's an idea with possibilities for AT&T's future.
In fact, management at AT&T's New York headquarters is committed to spinning off the company's $8-billion wireless business to give it greater visibility for public markets and flexibility for business operations.
And management is contemplating a spinoff of AT&T's consumer long-distance division, with revenue of roughly $20 billion a year, to remove the drag of declining long-distance business from AT&T's accounts.
The giant company, which has more than $62 billion in annual revenue, has reached a critical testing time. In the last three years, AT&T has invested more than $120 billion in stock and cash to acquire cable companies and build the U.S.' largest, most advanced fiber network for broadband communications over the Internet.
But AT&T's stock price has slipped to $30.25 a share from $61 late last year because Wall Street is impatient to see results from AT&T's massive investments.
Sure, the stock market is normally impatient--and investors are turning away from almost all telecommunications companies right now.
But Wall Street aside, AT&T needs to demonstrate that a big, technologically powerful company can operate efficiently to satisfy customers and keep costs in line.
In AT&T's challenge to prove itself in a new age, we can see lessons for all business and for all investors. This company, after all, still has 5 million shareholders and was once considered the safe holding for "widows and orphans."
What AT&T must do, in a word, is execute on the strategy outlined by Chief Executive C. Michael Armstrong that AT&T is to be the supercarrier of communications for business and consumers, over the Internet or by conventional phone, cable and wireless systems.
It's a strategy rooted in AT&T's long history, which dates to the formation of the national telephone system that AT&T ran as a regulated monopoly for more than eight decades until antitrust pressure forced its breakup in 1984.
Armstrong, 62, a former top executive at IBM and Hughes Electronics, a division of General Motors, doesn't want to reintroduce monopoly but to achieve leadership in a competitive market. "If there's one thing AT&T knows how to do, it's manage communications," Armstrong has said--meaning the company should be the natural choice for business to turn to.
The company's technological prowess is remarkable. Its newest fiber network, now being built to connect 30 U.S. cities at a cost of $1 billion, will be able to put 160 wavelengths on a single, hair-thin strand of glass fiber. That kind of capacity will make possible whole new dimensions of communications within this decade.
Yet AT&T hasn't been able to attract business customers to its services fast enough. And in fact the company stumbled badly and lost corporate customers early this year through sheer mismanagement.
The consumer long-distance business has been declining faster than Armstrong would have liked--he wants to use long distance's $5-billion-a-year cash flow to invest in the newer businesses. But competition will get tougher as former regional Bells Verizon and SBC Communications get into long-distance.
AT&T's broadband Internet services--$5 billion in revenue last year--is growing 65% a year. But achieving returns on the investment needed to connect customers takes time. And AT&T doesn't have good control of its costs. "We're trying to get the payoff period down to four to five years from nine to 10," says William Davidson, of Redrock Capital, a communications investor who often consults for AT&T.
So what should this big, old company do to succeed in the new age? A restructuring, even a breakup into separate companies, makes sense if carried out artfully.
Long-distance can be spun off. Armstrong reportedly favors this step, and it's a good idea.
Even though long-distance is a fading business--Internet telephony will replace cents-per-minute phone calls in the next 10 years, experts say--today's long-distance business could be distributed to shareholders or sold as a depleting asset, throwing off a dividend each year.
Or it could be revitalized under managers who would treat it as a business to develop--offer consumers different services, be entrepreneurial about adjusting rates. "Managers of the long-distance business by itself could give it new life," says Douglas Christopher, head of research at Crowell Weedon, a Los Angeles brokerage firm.