AT&T Outlines Its Latest Breakup - InformationWeek

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AT&T Outlines Its Latest Breakup

AT&T has laid out a blueprint for its plan to quarter itself into independent companies responsible for their own customer growth and financial performance.

AT&T Business will dominate the litter, taking AT&T's most profitable customers--businesses. As the divided company's linchpin, it will own and license AT&T's name to the other units. AT&T Business also will lease access to AT&T's network to the others at prevailing market rates.

AT&T Laboratories will belong to this unit. Fruits of AT&T Labs' research and development will be shared with all four units. The same goes for the 50% stake AT&T has in Concert, the international services venture it formed with British Telecom.

The other three entities will be:

- AT&T Wireless, which will have a separate, asset-based stock and will consist of the company's cell-phone operations.

- AT&T Broadband, also with a separate, asset-based stock, but composed of AT&T's far-flung cable-TV, digital-TV, and residential Internet operations.

- AT&T Consumer, which has drawn the short straw, is left with AT&T's dwindling residential long-distance business. It will be traded as a tracking stock. AT&T Business will own this unit.

Each will sell integrated bundles of services by contracting with its brother units for services it can't offer on its own.

According to AT&T execs, the breakup plan is intended to let each business reach its full potential, both in terms of serving their markets and maximizing their financial performance.

By dividing the company, AT&T hopes to insulate its fastest-growing sectors from its lackluster long-distance voice business, which generates 82% of AT&T's $70 billion in annual revenue. A nice chunk of change, but voice revenue is declining at about 10% a year.

"These new companies are being created as the foundation and the path for the creation of new value," says Michael Armstrong, AT&T's chairman and CEO. Separated, they'll be able to better serve customers, adapt more quickly to technological change, and more quickly implement services.

For business customers, the split also frees AT&T to concentrate on solving some of the admitted problems that have kept its business IP and data services from keeping pace with overall industry growth rates.

Long a leader in private lines and frame relay services, "we were behind in data and IP, and that's probably true in some of the managed services as well," Armstrong says.

The breakup will take place in several phases between now and sometime in 2002. It will kick off this year with a $10 billion exchange of AT&T stock for tracking stock in AT&T Wireless.

That will be followed in mid-2001 by the launch of AT&T Broadband through an initial public offering and the conversion of AT&T Wireless from its status as a tracking stock into a separate stock.

Then, in the third quarter of 2001, AT&T will create the AT&T Consumer tracking stock. AT&T expects to complete all of the transactions no later than 2002, at which time it also intends to implement new dividend guidelines so each of the freshly created companies is in line with other companies in its sector in either paying dividends or reinvesting profits.

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