The Analyst's Corner: Who let the dogs out?

As they like to say on Wall Street, “Let the trend be your friend.” 

Thus, given the pervasiveness of the Baha Men’s, “Who Let the Dogs Out,” in all things related to sports competition, I wanted to be the first to use it as context for what is going on in the telecommunications industry.

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It's interesting that letting the dogs out is now a good thing. Without going into the semantic analysis, suffice it to say that we all understand the pejorative meanings of calling something other than your pet “a dog.” We also know the meaning of “dogging it.” Whether it be this new world view of letting the dogs out as a good, or the old world view of it being bad, there can be little doubt that the telecommunications dogs are definitely on the loose.

Let’s start with the bad dogs. The dissolution of AT&T is going to turn some dogs loose in the market with this interesting question: “Who is going to invest in the consumer tracking stock or the remaining AT&T business services business?”

These are the assets that the company has mismanaged the most. Yet, these same assets will ultimately be the ones that bear the AT&T logo. This is not a pretty picture. The resuscitation of the brand with the cute new commercials that, after almost 15 years, finally leverage the logo is clearly a case of too little, too late. Indeed, the brand awareness of all of AT&T, with the exception of AT&T Wireless, has been too little, too late.

AT&T's problem is not its assets. It is the managers of these assets that are performing poorly. How AT&T Chairman C. Michael Armstrong could have pursued his mad rush into the cable industry without even reading the massive internal AT&T brief against such a folly is one of those things business school case studies will ponder for years to come. It will dog him for the rest of his career.

A “sharper focus” from the same people who brought us this debacle isn’t going to make them any smarter. It certainly isn’t going to build investor confidence. At issue for AT&T is where to find the smart people to manage these assets so the company has a remote chance of creating shareholder value.

I have a suggestion. Why not initiate a friendly takeover by Yahoo!, with the proviso that it gets its own stock to reverse its recent precipitous slide so that it has a currency with some value to use in such a takeover?

The media has done of wonderful job of chronicling AT&T’s missteps during the Armstrong years–a woeful tale of the combustible nature of mixing arrogance and ignorance. If there is a silver lining, it is that two very good lessons should have been learned:

• One-stop shopping is a niche market--and it is neither a large or profitable one. The proof is in the now well-documented fact that the best bundle for AT&T was not one combining AT&T services, but rather the one that offered an affinity relationship with Jiffy Lube. Most people want what they want--the way they want it, when they want it, where they want it, etc. The Internet, by providing us ease-of-choice, has actually made this idea more true, not less. 
• What most people seem to want is a one-stop view of their billing environment, not multiple services from one vendor. Bell companies beware. Despite the time of the year, this is not a case of trick or treat. I really hate to be an “I told you so,” but for five years, this column has consistently made the point that in the Internet age, owning facilities does not necessarily mean that you own customers. Owning the experience/controlling the profile, and owning the billing relationship is what counts.

The proof of the last statement can be seen in the new releases from two of the three most dangerous companies to telecom incumbents on the same day this past month. AOL 6.0 with its voice navigation and broadband capabilities hit the screens on the same day as Microsoft released its MSN browser and committed $1 billion to make the portal the “first-look” destination of choice of consumers. 

This gives heightened meaning to Microsoft's slogan, “Where Do You Want To Go Today?” The answer is, “It had better be MSN.” And that is why AOL is asking to file additional comments in the Microsoft antitrust case.

This is no laughing matter. These two companies have the tenacity of bulldogs, and the stakes are huge. Against the AOL/Time Warner machine with its 25 million subscribers is Microsoft with less than 4 million MSN subscribers--but 74 million Hotmail users and over 100 NetMeeting clients deployed.It doesn’t take a rocket scientist to figure out who the phone companies are going to be, especially when a call is nothing more than an IP-based session in an always on, all ways connected world.

That brings us back to Yahoo!, the third dangerous big dog.  AT&T has 60 million residential customers, and all of that business stuff. It also has WorldNet, which ironically is rated as the best Internet service provider, and, as you can see from my e-mail address, is the one I trust enough to use for my business. In other words, it has what Yahoo! needs, a real world network. Put the network of AT&T together with Yahoo!’s understanding of content and managing people’s experience on-line, mix liberally a touch of Excite@Home, and it sounds like a Doberman to me.

Who let the dogs out? Woof! Woof!
Peter Bernstein is President of infonautics Consulting, Ramsey, N.J. His e-mail address is pabernstein@worldnet.att.net
This column originally appeared on the internetTelephony.com website..

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