Looking back

A brief review of 1998 highlights:

Armstrong's AT&T. After a short warm-up period in 1997, AT&T Chairman C. Michael Armstrong didn't fail to disappoint observers who yearned for an activist leader after the last few years of his predecessor, Robert Allen.

Armstrong recently poured an estimated $5 billion into an acquisition of IBM's Global Network business. This huge investment followed an earlier 1998 investment of $48 billion in TCI. In between, AT&T entered into a major joint effort with BT.

Before Armstrong, AT&T utterly lacked direction. So his early bravura performance has drawn applause from analysts hungry for action. But people who remember Bob Allen during his sad last years, when he played a role that combined the worst characteristics of Mr. Rogers and Machiavelli, forget that Allen once played Napoleon at Waterloo. The spectacular failure of Allen's NCR acquisition led directly to the aimless strategic drift of the mid-'90s and the pathetic, years-long search for a "successor."

Armstrong paid a ton for the IBM network. But that network works, fits well with AT&T's strategic needs and brings a proven revenue stream.

The same can't be said for TCI's network. AT&T is betting that promising but unproven technology can create a multiservice business on top of the existing one-way video entertainment business.

Even if AT&T can technologically transform TCI's network, maybe the most backward large cable network, the deal still may not pan out for AT&T. AT&T will also have to fix TCI's manifold service and customer relations problems. Just wrapping TCI in the solid-gold AT&T brand won't be enough. TCI has worked for years to create its service problems. Time and hard work will be needed to correct them.

The luster of AT&T's brand may be seriously eroded while it attacks TCI's problems. If the new cable technology doesn't immediately work as well as anticipated and if AT&T finds itself mired in attacking service problems it inherits from TCI, it may also find that it overpaid terribly for TCI. In fact, Armstrong one day may well conclude that TCI is a bad buy at any price, the same stomach-churning conclusion Allen eventually had to reach about NCR.

Remodeling the business. This past autumn Networld + InterOp, Inter@ctiveWeek and Telephony conducted unique research on market trends in the service provider industry (Telephony, Oct. 26, page 80).

The research distinguished among six categories of service providers: RBOCs and GTE, other incumbent LECs, CLECs, IXCs, ISPs and cable companies.

One question asked respondents to rank strategic factors in the business by the degree to which they would be more (or less) important in two years. There was a fascinating pattern across all six categories of respondents: They all said their current core business was not going to become more important in the next two years. If anything, respondents expected some decline. Key growth areas in all categories were anticipated outside current core businesses.

For instance, RBOCs are most bullish about the growing importance of IP voice and most bearish about the declining importance of traditional circuit voice services. Cable companies were most bullish about Internet services and see current video services as flat.

These results don't mean that SBC won't be interested in traditional voice services in the autumn of 2000 anymore than they mean that Comcast won't be focused on video entertainment.

But the whole industry is about to enter an unprecedented period of strategic rethinking. The research strongly suggests this will be an intense, fairly brief period that will produce very different strategies for the next century from those that companies are pursuing now.

Thanks. This is the last page of the last Telephony issue of the year. We're excited about our editorial plans for 1999.

As always, our goal will be to bring you the freshest, best information about the service provider industry we can.

Our readership scores are better than ever. We've worked hard to earn your attention. We realize your responsibilities are growing and your time is precious.

Thanks very much for spending some of it with us.

See you around the corner.