AT&T is struggling to remake itself as a high-value IP services vendor, but time may be running out
Golden Boy, a 24-foot, 16-ton bronze statue covered in gold leaf, spent decades sitting atop AT&T's New York headquarters. With lightening bolts in one hand and a coil of wire in the other, the winged youth represented the promise that electronic communications would transform business and society. AT&T and its Bell system delivered on this promise during the 1900s when it grew into the country's biggest company and largest employer by delivering high-quality, low-cost telephone service to much of America.
Today, Golden Boy stands in a remote area of northern New Jersey, about 50 miles from his previous home. He greets visitors to a low-rise building that houses AT&T's global network operations center, the monitoring and management heart of a much smaller company focused on selling business-communications services. The company is still the nation's largest long-distance provider, with about 30 million customers, and the leading provider of business networks and services, with about 3 million business customers. But it's more dependent on those business customers than ever before: Around three-quarters of its $35 billion in revenue last year came from business services.
Golden Boy, which used to sit atop AT&T's New York skyscraper, now greets visitors at a northern New Jersey facility.
Photo by Sacha Lecca
Despite its historical advantages, AT&T is battling for its life in a market characterized by falling prices and aggressive competitors, some of which have more modern networks and leaner operations. The company plans to retain its leadership position by slimming down and deploying a wide range of sophisticated software-based services on a global, application-aware, multiprotocol, label-switching IP network.
The point man for AT&T chairman and CEO David Dorman's business strategy is Hossein Eslambolchi, who serves as the company's CIO, chief technology officer, president of AT&T Labs, and head of its network. Eslambolchi, a serial inventor who has hundreds of patents and awards to his name, is implementing a technology vision based on two fundamental principles: IP-based communications eventually will replace all other forms of communications, and automation and software-based communications services will determine the winner.
"For the past three years, we've had a clear strategy and technology vision," he says. "We're moving from a company that sold pipes and ports to a global, software-based company that sells services. We're going to be the Microsoft of telecommunications. Nobody else can come close to us."
The Iranian-born Eslambolchi may not have much time to pull off that grand vision. AT&T just wrote off more than $11 billion in assets and cut 12,000 jobs, leading analysts to speculate it's prepping itself to be acquired. "You could make a strong case that they're grooming themselves to be purchased," says Jeff Kagan, an independent telecom analyst. In fact, AT&T entered into acquisition discussions with BellSouth Corp. earlier this year, but the effort fell through when the companies couldn't agree on a price.
Competitors don't intend to give AT&T much breathing room, either. Rivals such as MCI (formerly WorldCom), which emerged from bankruptcy this year, and Sprint, which is having success in the wireless market, also are cutting costs, laying off workers, upgrading their networks, and adopting IP. The toughest competition, at least for domestic business customers, may still be on the way. Large regional phone companies such as Verizon Communications and SBC Communications Inc. are building state-of-the-art nationwide networks to compete for business contracts. And there are dozens of smaller competitors selling lower-cost services.
The key to AT&T's future--if it remains independent, that is--is its network and the services it deploys. One of the world's largest networks, with thousands of switches and routers and tens of thousands of miles of optical fiber, it handles more than 300 million long-distance voice calls and carries around 4 petabytes of data a day. AT&T has built high-speed fiber rings around 91 cities, providing direct links into more than 6,700 commercial buildings. It has deployed multiprotocol label-switching IP network nodes in 130 cities in 49 countries. It also provides Web-hosting services from 21 Internet data centers, including new ones in Frankfurt, London, Paris, and Tokyo.
AT&T is so confident in its network's robustness that it's the first carrier to offer end-to-end service availability of 99.999% on its core IP network in the United States. To back up that promise, it gives customers a full day's credit for a one-minute outage. It also offers service-level agreements that guarantee that data traveling within the United States won't take more than 39 milliseconds on average to make a round trip and that data traveling between the United States and the Asia-Pacific region will make that trip on average in less than 90 milliseconds.
"Our strategy is quite simple, and it's one that plays to our historic strengths," CEO Dorman said in an E-mail. "We are the global leader in providing integrated communication services and networking solutions to businesses, and we are going to continue to innovate and develop emerging technologies such as voice and other services over IP." The question for AT&T is whether "there will be enough value in the intelligence that [it] layers on top of its network to either charge a premium, stem churn, or sustain revenue," says Rob Rich, an executive VP at research firm the Yankee Group.
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