AT&T Analysis via the Value Framework(tm).

Excerpted from the April 2002 issue of VMS3.info (http://vms3.info)

Summary:

Over the last 120 years the telecommunications industry has witnessed many world-changing events-the deployment of telephones (which surpassed telegraph in terms of business impact) then radio, television, and now the Internet. During this timeframe, AT&T-the oldest telecommunications firm still in business today- was reorganized following the break up of the Bell System, and has since re-risen to become one of the top three global telecommunications firms.

AT&T is transitioning from phone to data to managed networks in a progression that increasingly adds value to communication transactions. It has not been an easy road, especially the last five years, which proved investment in Internet properties, including Excite@Home, to be costly mistakes. None-the-less, AT&T has kept focus on providing first class consumer and business communications services, extending and leveraging Internet, wireless, and broadband technologies into managed personal and business communication services.

In strategy evolved, AT&T has created a vision of the next 25 years as a provider of global telecommunications networks, delivering voice, data, broadband, and horizon technologies to both consumers and businesses. With businesses requiring secure dedicated channels and data becoming increasingly more complex, AT&T is currently focusing its efforts on building robust business networks for SME and Fortune 5000 firms. As the telecommunications vertical remains the most impacted by disruptive and innovative technologies, AT&T remains competitive through key alliances with value-added and managed service providers (MSPs), including data center and hosting services that extend the business benefit of the network.

The rumors of AT&T's death have been greatly exaggerated, and more likely the opposite has been predicted to come true. Analysts suggest we will witness the rebirth of a better, stronger, but more compact AT&T. In strategy evolved, AT&T balances investment in, and management of, 21st century innovation with alliances in network born business service providers, to increasingly extend wireless and broadband into sophisticated consumer products.

Strategy Evolved:

The challenge for AT&T is to create a vision of the next 5, 10 and 25 years in markets where advances in telecommunications, computation, and services continue to converge. A vision to locate servers and managed applications along the network (Forrester's eXt model) easing "edge of network" congestion allows customers to specify speed, access, and choice of business applications, in addition to quality of service.

Service Level Agreements (SLAs) evolved to support choice of communications protocols, and how business customers require their communication transactions to occur. Businesses will use these applications long enough to talk to their business partners, dismantle the application, come back, and use another type of application and communication with another business partner, while paying only for the amount that they're using. Network born Managed Service Providers (MSPs) facilitate both "build" and "use on demand" as these applications are located "on the network" today instead of "at the network edge" where it is cost prohibitive for the business customer.

As a strategy, AT&T must walk a delicate edge of managed high value networks for traditional and commerce enabled applications on the one side, and alliances with application vendors, data centers, and managed service providers on the other. Being careful to avoid the investment temptation that was just as appealing with Excite@Home. AT&T can provide dedicated network infrastructure to key ASPs, thus competing with Digex and Qwest, where the latter have already begun to offer specialized premium and value added network services.

Bundling will be key, as businesses in the short term look to aggregate local and long distance costs with one-rate offering, and move to IP based fax. In the longer term, complete outsourcing of large LAN and WAN infrastructure will be very appealing to SMEs, which need to control both rising voice communication and exponential growth of wireless access from mobile users and legacy.

As the middle market (SMEs) move to the ASP model, AT&T alliances with network based MSPs will forge new opportunities as those networks begin to resemble IP VANs, with VPN being the norm. As a middle term strategy, AT&T strategy to support trading network infrastructure, following the lead of General Electric's exchange services (GXS) and IBM's trading network would create the scaffolding for global trading networks, keeping AT&T well within their core competency of secure WANs with VPN security. AT&T's unfair competitive advantage is it's relationship with small business, and as a brand that small business can trust, enabling Web based EDI or simple supply chain management at a fraction of the cost of larger providers. Here an alliance with UPS, a provider of logistics and supply chain management systems, would be a logical step in managing strategy towards business networks, especially from the lower market upwards, where it has no immediate competition.

AT&T's vision:

* Create global business networks

* Increase overall MSP capabilities

* Build alliances with MSPs along network, some of those alliances may be with trading networks (compete against GSX)

* Become a global brand and compete against Qwest / Level 3

* Create a "one pipe" strategy for business voice, data, and application services 

* Blend service offerings with multi-protocol support so that business, not AT&T, design transport options

* Offer consumers more evolved and high value services

* Be a player in B2B, B2M, and M2M transaction networks

* Facilitate "build and use on demand" B2B applications

* Wireless markets may be most lucrative with the 1 billion worldwide wireless consumers

Strategy Managed:

Metrics for success are key to AT&T's managing both tactics and strategy during the difficult period of 2000 to 2005. This will arguably be the hardest single time period for telecommunications firms in the 21st Century. The strategy during this period required managing metrics of data service revenue, which exceeded voice revenue.

In early 2000, AT&T chose to concentrate their business focus on four key market segments; consumers, businesses, wireless, and broadband technologies. Competition from within the marketplace, and external innovative pressure itself, has never been greater. Ironically, technology itself was not the major driver in managing strategy, as the Internet brought diversionary investments into bloated valuations for properties, typified by their investment error in broadband provider Excite@Home.

AT&T manages strategy by wisely focusing on the metrics of service revenue and market penetration in the consumer, business, broadband and wireless markets. The overlap between target markets and pure technology is at first confusing, yet managing through these lenses makes sense. Services are the discrete cipher through which product development, market focus, and business metrics create the measure of success.

AT&T leverages both-strong brand and technology core competency- in each target market, and more importantly, deploys and promotes new services as products fall neatly into these channels.

Consumer markets required a focus on the home, but requires a separate focus from broadband, which has regional and deployment restrictions. Consumers looked to AT&T to derive value from "one- rate" local and long distance pricing, services including voice mail, message forwarding, and integration of home and mobile accounts.

Wireless technologies reinforced consumer accounts by integrating local, long distance, and cellular access into product bundles. This also allowed AT&T to develop longer lasting relationships from deeper service penetration.

In business markets, AT&T focused on three strategies for market penetration:

1. One rate pricing on local and long distance, easing business communication costs in both voice and fax.

2. Secure VPN and WAN networks as an outsourcing product, where their geographic reach served as a strong base for wide area services.

3. Offering a combination of DSL and broadband connectivity options to both small and large business, and again, geographic reach was a key competitive strength.

As wireless technologies grew in importance for business, cellular, text to email, email to text, and IP based fax allow AT&T to offer small businesses a one stop comprehensive shopping option for complete and affordable communications needs.

An additional strategy metric is to focus on the consumer as both an individual, shopping for cellular, long distance, DSL, and broadband services; and a parallel path to "own the home". This is a critical strategy focus and metric for success, as technology innovation was escalating at an ever-expanding rate. Owning households provides a key channel for marketing exposure and managing services as bundled products-the same strategy that worked so well in the business market.

With consumer and business markets clearly identified for bundled services, AT&T put its technology emphasis on the competitive and rapidly changing wireless and broadband markets. This allows technology to drive new product development and sales of these highly competitive services in head-to-head markets, and additionally channel sales to clearly defined consumer and business markets, where each new technology advance could be transparently promoted or simply bundled to existing customers.

AT&T's focus:

* Long term, restructuring the company into the four business segments below was critical to defining the product mix and nurturing each of these delivery channels.

1. Consumer channel

2. Business channel

3. Wireless channel

4. Broadband channel

* Deploying services and new technology in each category

* "Current tactics", near-term acquisition and alliances, and strategic horizon investments

* Leveraging brand and new product technology across channels where appropriate

AT&T's Advantages:

* AT&T had the strongest brand in the consumer business.

* AT&T offers local phone service and DSL services in addition to long distance.

* The combination of AT&T's consumer base, trusted brand, and its ability to offer new services to that base is a foundation to more carefully deploy wireless and data services.

Key point to consider:

* The core long distance business is shrinking, and consumer data services are not growing quickly enough.

AT&T needs to:

* Transform the consumer business would be necessary before growing that business

* Treat the consumer as a data service buyer, just like business

* Successfully leverage its enormous customer base, strong brand relationship with consumers and households, for its consumer business to once again thrive and grow.

* "Grow" its consumers into more sophisticated service customers, who would then purchase local and long-distance with wireless, then grow into DSL and other data services.

* Don't compete head-to-head with AOL/Time-Warner, instead compete with Qwest, Genuity and Digex.

* Build 18-month business plans (Moore's generation) three at a time and manages them as AT&T's consumer business is estimated to be around 60 million customers.

Statistics quoted above were first reported by Newsbytes.com, http://www.newsbytes.com Newsbytes ATLANTA, GEORGIA, U.S.A., 26 Dec 2001, 8:44 AM CST by Jeff Kagan is an Atlanta-based telecom industry analyst, commentator, and self-described "provocateur".

Strategy Deployed:

AT&T's original deployment of telecommunication services in the last decade of the 20th century started out with separating long distance, Internet, wireless, and late,r broadband services. This made sense when voice communications and data were seen as totally separate entities. However, the mid 1990s saw convergence of voice and data on major telecommunications backbones, and increasingly, businesses treated networks as a single expense. However, the peripheral devices-phone, fax, and computers-were changing demand on the networks in radically different loads. Data traffic was doubling every year, while voice traffic was actually starting to decrease, as email became a widely adopted method of correspondence.

AT&T, like most telecommunications firms, was trying to understand how to package local and long distance services, as utility regulations still prohibited direct competition in these markets. An explosion of demand for DSL, cable modems, and later broadband services led to many ill-conceived investments, as the Excite@Home debacle showed. Worse still, many providers could not provision services in reasonable time, service did not live deliver specified transmission rates, and in early 2000, major providers of DSL went out of business as cash flow dwindled. When Excite@Home closed its doors in late 2001, many thought that the promise of broadband was dead-less than 10 million homes in the US had high speed Internet. AT&T was able to purchase some of Excite@Home's accounts, and then Comcast made a take over bid for the high-speed portion of AT&T's business.

With the Internet economy in disarray, telecommunications from around the globe were saddled with enormous debt, shrinking cash flow, and the potential of hostile bids for battered stocks loomed on the horizon. AT&T stayed firm with a strategy to segment the market and their company into four divisions: consumer, business, wireless, and broadband.

But that was the beginning of the story, as the application of strategy and metrics to manage these divisions is where AT&T continues the ride to remain one of the top three global telecommunications firms.

AT&T's strategy:

* Global company in a global economy

* Strong brand in consumer and business

* Growing from a telecommunications company to a networking company

* Focus on business data networks that provide WAN, LAN fax, VPN, and high value add

* Focus on consumer wireless and integrated messaging formats plus (one distance pricing)

* Own the household (local, distance, wireless) and grow them into high vale add data services

* Be cautious in broadband, and ride rather than lead the content curve

* Telco with long distance services

* Newcomer to local-launch one-rate service

* Wireless provider / Cellular one acquisition

* Broadband investor (avoid Excite@Home)

* Watch international markets carefully

About the Authors:

Mitchell Levy is President and CEO of ECnow.com (http://ecnow.com), an e-commerce management consulting company helping individuals and companies transition from the industrial age to the Internet age through strategy, marketing, and off-the- shelf and customized on-line and on-ground training. He is the author of E-Volve-or-Die.com (http://e-volve-or-die.com), Executive Producer of VMS3.info (http://VMS3.info), an on-line E- Commerce Management (ECM) eZine, the Founder and Program Consultant of the premier San Jose State E-Commerce Management Certificate Program (http://ecmtraining.com/sjsu), the former Chair of comdex.biz at Comdex Fall, and the Chairman of the Pay- per-Performance PR Agency Media Attention Now TM (http://ecnow.com/mediaattention), the on-line learning content production company Transition Learning (http://transitionlearning.com), and the CEO Networking company CEOnetworking (http://CEOnetworking.com). Mitchell was at Sun Microsystems for 9 years, the last 4 of which he managed the e- commerce component of Sun's $3.5 billion supply chain. Mitchell is a popular speaker, lecturing on ECM issues throughout the U.S. and around the world.

Read more about:

Mr. Levy: http://ecnow.com/ml_bio.htm
Public speaking appearances given: http://ecnow.com/speaking.htm
ECnow.com's media coverage: http://ecnow.com/media

Bob Cormia, is an Internet technologist and e-business consultant. Working at SuperBusiness NET, Bob developed strategic positioning, product definition, and account management. Bob developed the e-commerce curriculum at Foothill College while working as a market analyst for G2R, specializing in IT strategy development for Fortune 5000 enterprises. Bob joined eCongo.com in Fall 1998, developing corporate strategy, product development, and launching FreeCommerce on the Internet. In March 2000, Bob joined Calkey.com as an advisor in training and education development in using UML (Unified Modeling Language). In Fall 2001, Bob will join Foothill College as a full-time instructor in the Computer Technology Information Systems division, where he will teach e-commerce, Web strategy, Internet projects, and XML.

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