Consumers at the core

AT&T to keep consumer side close to home After last week's Big Bang explosion of AT&T, which divided the giant into four separate businesses, the consumer side of the company will go it alone, sort of. Under the umbrella of AT&T Business Services, AT&T Consumer Services will be an AT&T tracking stock by the third quarter of next year.

Falling under AT&T Consumer Services will be its long-distance business, which suffered an 11% decline in revenue during the third quarter; its WorldNet Internet dial-up services; international and domestic calling cards; and residential DSL services, a new undertaking for the company. AT&T will use the cash flow from the long-distance business to roll out high-speed voice and data services and "build a growth curve over time," said C. Michael Armstrong, chairman and CEO of AT&T.

Despite the 11% decline, the consumer side of AT&T generated more than $19 billion in revenue during the last 12 months.

"Our consumer business has been declining because the long-distance business in the voice-switched world is being impacted by pricing, competition and technology changes," Armstrong said. "Third quarter results were just about on the mark with what we expected."

In January 1998, AT&T received 82% of its revenue from long-distance voice, but the company knew it was not going to be a mainstay, Armstrong said. "Long-distance voice we knew was not something that was durable or sustainable. It was an application that was created into business, not out of a marketplace or deregulation, it was created by a judge, Judge Greene, in 1984," Armstrong said. "Our strategy was never to buy assets so we could bundle them with stand-alone long-distance and protect it from its systemic decline."

Instead, the company plans to use its consumer assets of 60 million customers and the cash flow generated by the tracking stock to fuel the deployment of residential DSL,Armstrong said.AT&T already offers DSL to its business customers through well-established reselling relationships with Covad Communications and Rhythms Net-Connections. The new DSL initiative will take advantage of these agreements, Armstrong said.

AT&T will launch an integrated voice and data service using DSL in the second half of next year and will build out the service based on demand and success, said Charles Noski, chief financial officer for AT&T. "This is not going to be an undertaking in which we spend billions of dollars on an infrastructure and then see if anybody takes it on and becomes customers," he said.

But reselling data competitive local exchange carrier services is nothing revolutionary and would not make AT&T unique among DSL providers, said Jeff Moore, senior analyst for network services at Current Analysis.

"It's not big deal. Everybody has reselling agreements. It would hardly differentiate AT&T," he said, adding that DSL is a highly competitive market. But the company could be successful with its DSL service if it were bundled with its other consumer-oriented services, Moore said. "They have had much better success with their cable effort because they are able to bundle those services," he said.

Providing DSL via resale agreements is the fastest way for AT&T to enter the market at this stage, said Claudia Bacco, vice president of DSL consulting for TeleChoice. "But it won't stay that way for long," Bacco said."It makes sense for them to use their own network infrastructure. Most of the IXCs don't offer DSL, so it's an opportunity to move ahead."

AT&T Business Services will own the AT&T network, said an AT&T spokesman. However, all divisions will use the common network, and it will be priced at market conditions. In addition, the divisions will have commercial arrangements for bundling and packaging services, he said.

AT&T could encounter trouble on the customer service side, Bacco said."There's room for customer confusion between AT&T Consumer Service and AT&T Broadband," Bacco said. The company will need to make a concerted effort to coordinate between the four divisions, she added.

Robert Aquilina and Howard McNally will be co-presidents of AT&T Consumer Services; however, AT&T's board of directors has not yet named a CEO for the division.