AT&T Sees Better Times Ahead

The company says it expects the slide in revenue from consumer telephone and Internet services to reverse course in 2006, and will likely relaunch another wireless service after it sells AT&T Wireless to Cingular.

InformationWeek Staff, Contributor

February 25, 2004

4 Min Read

NEW YORK (AP) -- AT&T Corp. went out on a financial forecasting limb Wednesday, asserting that the spiral in revenues from consumer telephone and Internet services will reverse course in 2006. The company also said it will likely relaunch the AT&T brand in the cell phone market once AT&T Wireless is acquired by Cingular Wireless.

AT&T's top management, appearing at the company's first meeting with the investment community in three years, were very short on specifics regarding a potential turnaround of the consumer business or the wireless plan.

And despite the surprise optimism over the consumer business, there was no hint of a similar reversal of fortune at AT&T Business, whose declining revenues in sales to corporate clients now account for more than 70 percent of the company's sales.

Stressing the uncertainty over how the regulatory environment will evolve or which technologies and business models may emerge as most viable, the executives said they will pursue an array of strategies to overcome AT&T's long-running handicap--no ownership of the wires that reach into the nation's homes and offices.

Underscoring that stance, AT&T announced near-term initiatives on two divergent fronts: expanding its sale of local phone service over leased Bell company lines, while at the same time rolling out the new Internet-based phone service it expects to supplant the Bell-dependent product.

In addition, the company showcased some more speculative endeavors such as using a combination of electrical lines and wireless signals to deliver phone and Internet service.

Responding to questions from Wall Street analysts, the executives declined to elaborate on their financial assumptions or suggest which mode of service might lead a rebound in the consumer business. Revenues at AT&T Consumer have plunged nearly 50 percent since 2000 amid price wars and growing competition from cell phones, totaling just $9.5 billion in 2003, and are expected to decline by at least another 15 percent this year. Revenue at AT&T Business, $34.5 billion in 2003, has been falling more slowly.

But despite their admitted lack of clarity, they issued an unexpected prediction that consumer revenues will begin to grow during 2006.

"We may need to use two or three technologies. We're not there yet to claim which one will be the national consistent platform," said John Polumbo, president of the consumer division. "Part of it is going through the learning cycle to prove out the economic models."

Polumbo and other executives also acknowledged the need to devise a new cellular strategy now that former subsidiary AT&T Wireless has agreed to be acquired for $41 billion by Cingular Wireless, which is owned by AT&T archrivals SBC Communications and BellSouth.

The merger will end a lucrative partnership in which AT&T was bundling its local, long distance, and Internet services with AT&T Wireless service in six trial markets.

"Customers tell us that this is how we would like to have an all-in-one relationship," said Polumbo.

Without offering details, the company said it would likely sell another company's cell-phone service under the AT&T Wireless name, which is owned by AT&T and had been licensed to its former subsidiary.

By the end of next month, AT&T plans to launch phone service over Bell lines in 11 more states, bringing to 46 the number of states where it sells local and long distance through traditional means.

Around the same time, the company also will proceed with its foray into "VoIP," or voice over Internet Protocol, a phone service that is delivered over high-speed Internet connections.

While AT&T now sells phone service to 4 million consumers over Bell lines, it is unclear how long the company can expect that the government-mandated rates it pays to use those lines will remain low enough to make a profit on that service.

The Bells have challenged the rates--as well as the requirement to lease their lines at all--through court cases and petitions with the Federal Communications Commission and state regulators. In addition, the FCC and some states are reviewing the formula for calculating the wholesale rates paid to the Bells.

As a result of the uncertainty, AT&T hopes to lure most of its customers to VoIP or another mode of service over time.

The company did not disclose how the VoIP service, to be sold under the name "AT&T CallVantage," would be priced, but said the new product will be available in the nation's 100 biggest markets by year-end. Rivals charge $35 or $40 a month for unlimited VoIP calling.

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