The Analyst's Corner: Yogi would be proud

It is more popular than ever these days to quote Yogi Berra. As Yogi would say, “It’s deja vu all over again.”

And who can forget Yogi passing a restaurant with friends who asked, “Why aren’t we eating there?”

“Nobody eats there any more, it is too crowded,” Berra responded.

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What is going on in the telecom long-distance consumer market is not quite a match for either saying. Maybe the famous quote from Marx–Groucho not Karl–is more appropriate.

“I’d never be part of a club that wanted me as a member,” Groucho quipped.

How else can one explain AT&T and MCI WorldCom’s kiss-offs of the residential mass market? Both have adopted the same philosophy: “We’d like to help you out, which way did you come in?”

Loathe to keep the millions of customers whose long-distance calling habits barely or don’t justify the costs of billing them (and who are inured to enticements to move to discounted calling plans), AT&T embarrassed itself and the FCC by filing a rate increase request while the commission lowered carrier access charges–a savings that is supposed to be passed on to consumers.

AT&T quickly withdrew in the face of overwhelming public and regulatory outrage. AT&T couldn’t explain why lower access charges and AT&T claims of being a low-cost provider should not equal lower prices.

With egg on its face, AT&T went back to the drawing board. How would it balance customer anger against Wall Street fury over the huge expense of stumbling around in a low-growth, high-churn, low-margin business whose profitability prospects look dimmer than the current abysmal picture?

The answer: Wall Street is more important than Main Street. Balancing is not preferable to leaping when your stock is being trashed. AT&T reformulated the rate increases, took the heat and made noises about tracking stocks, possibly getting out of the business, and so on.

Just to make all long-distance customers feel as if they shouldn’t want to be a part of a club that wants us a members, WorldCom–reeling from regulators on both sides of the pond that rejected all proposals on how to close the acquisition of Sprint–put out word that they may abandon the consumer long-distance market completely. Rumors abound as to who might want the old MCI customer base.

Amazingly, this lack of interest in serving mass-market, long-distance voice customers by the No. 1 and No. 2 carriers comes amid an explosion of interest in voice services.

Every ASP conference is touting voice as the next big application. Websites are frantically enabling themselves to offer voice and speech to create differentiated value. The dash is on for next generation interactive call centers where conferencing and click-to-talk, either over IP or through seamless interconnection with the circuit world, is a “must” instead of a curiosity.

Audio Internet service companies and their technology enablers have taken turns grabbing the headlines. Voice navigation and interaction as the glue for making wireless data services hum, converged call centers more responsive, and driving and talking a “safe” activity are center stage. Voice and speech are cool. Yet, voice customers have become the targets of electronic triage.

We are witnessing the death dance of the dinosaurs. The Justice Department is wrong on at least one important point about the dangers of a Sprint/WorldCom combo: Nobody need worry about concentration in the U.S. long-distance market.

We will soon get it from everyone, everywhere, free. IXCs never owned me the way that AOL owns its customers. I never chose to pay any of them a premium to experience their service. Quite the opposite is true. Most of us choose to shop for the best deal. Quality of experience, or any other measure of quality, was not an issue.

Market disintermediation, created by voice over technologies (DSL, ATM, IP, the Internet), wireless and cable, means voice functionalities are a, if not the, crucial ingredients for converged service providers to attract, maintain, retain and harvest mass market customers.

The problem is that AT&T and WorldCom can’t get there from here. AT&T’s legacy customers are a boat anchor that limits it range of motion.

WorldCom is a few cards short of a full deck on having critical pieces to the equation. It inherited from MCI an inability to have a wireless strategy. The failure to develop a residential Internet business is also big. AT&T is only marginally better off.

The facts are that the mass market is not filled with bad customers waiting to be jettisoned on some unsuspecting over-spending foreigners. “The next biggest fools” for this base don’t exist. Who will pay anything, never mind a premium, for these customers who come without a network? These are customers who don’t fit a desirable profile.

The mass market is filled with buyers who don’t want to buy things the way the dinosaurs want to, or can, sell them. They don’t fit the profile. Customers don’t even segment the way they are supposed to segment.

The answer is not to give up and get out; the answer is rapid reinvention. On this front, AT&T and WorldCom deserve some, but not much, credit.

WorldCom tried to buy Sprint. AT&T invested in Net2Phone, and prospects for an inexpensive, flat-rate, all-you-can-eat voice play as a complement to ISP service is clearly in the offing. At issue is how fast to eat the young without killing the brand and drive what little profitability remains in the business.

Millions of customers may not make many long-distance calls, but they do have cable service, and increasingly, wireless. Hacking them off is dangerous. AT&T must also fret about what the ensuing decimation of the ILECs cash cow, intraLATA toll, could do. Did somebody say, RBOC-accelerated entrance in long-distance with a wireless bundled IP-centric least-cost routing LD offer?

As Yogi said, “It ain’t over ‘til it’s over.”

As the Carpenters crooned, “We’ve only just begun.”
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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The Yogi Book: 'I Really Didn't Say Everything I Said'
by Yogi Berra, Joe Garagiola, Dale Berra (Introduction)
Paperback, 127 pages (April 1998)
$6.36
Order this book.

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