The word to describe the new AT&T (T) these days would be "upside." Presenting at its annual analyst conference Jan. 31 in New York, CEO Ed Whitacre used the word repeatedly in buoyant remarks from the dais of the ritzy Pierre Hotel. COO Randall Stephenson echoed the sentiments. Indeed, the $16 billion merger between SBC Communications and AT&T last year has created an estimated $100 billion behemoth of a telecom company.
Never mind that SBC plodded along with soft revenue last year, or that AT&T's own revenue was falling off a cliff. Together, they have such an enviable set of assets that Whitacre, Stephenson, and the gang feel a bit of elbow grease will help the company soar to double-digit growth in earnings per share through 2008. Revenue will continue to fall overall, but the slump will recede over the next couple of years -- and even turn positive in 2008.
LOADS OF SAVINGS. Wall Street was enthused. "Nothing we heard at yesterday's meeting undermines our conviction that the new AT&T will outperform its smaller peers and the market in 2006," wrote Sanford C. Bernstein analyst Jeffrey Halpern in a report published Feb. 1. AT&T share prices jumped 2.3%, to $26.55 on the day.
What's got AT&T execs and investors piqued? First, the cost savings AT&T outlined surpassed Wall Street's expectations. The management team laid out a fairly comprehensive plan for integrating the old AT&T and slashing enough costs to generate $18 billion in synergies by 2008, 20% above the $15 billion estimates it gave a year ago.
Add to that the progress of Cingular Wireless, AT&T's joint venture with BellSouth (BLS), and the opportunities to wow customers with wireless bundles could drive even fatter margins.
At the New York meeting, Stephenson discussed the new AT&T and its plans for growth with the deputy chief of BusinessWeek's Chicago bureau, Roger O. Crockett. Edited excerpts follow:
How is the new AT&T different from SBC and the old AT&T? How is the culture changing, for example? AT&T's legacy business is a very fast-moving, heavy-negotiated type of business. It's a very different type of business than what we had on the old, legacy SBC side. The last thing you want to do is change that laser beam-type of focus, that deal kind of culture. So what we are doing is taking that SBC business and effectively shutting it down and forklifting all of that onto the AT&T platform and letting that AT&T environment drive the business segment going forward.
So we're trying to really assimilate our business side to the AT&T culture. We don't want to mess up what has been created over the last couple of years.
You're referring only to the business segment, not the whole company? Yes, the business side. Really at the end of the day that's 90% of what you've bought with AT&T.
There have been some layoffs, right? After we closed the deal we had what we called merger and integration playbooks. We had to get the workforce from X level to Y level. We had to go down in each discipline to certain levels. We talked to customers and asked their preference on sales teams and such. And the decision was based on performance.
On the customer-care side, it was a little more methodical. As we forklift the old, legacy SBC systems onto AT&T that doesn't happen overnight. So you're going to have a nice migration path. As we move the traffic and systems onto AT&T, you can take the workforce out on the SBC side and it will be less radical than on the sales side.
Can you say what the X level and Y levels are in terms of where you want the workforce to go? No. But we have said that we have to take 13,000 people (until 2008) out of the business to achieve our merger synergies, and we did 11,000 last year just in SBC. So I think it's a very achievable number.
How has the acquisition of AT&T changed the revenue mix of SBC? Pre-AT&T we were a very consumer-centric business. Post-AT&T, our consumer wireline business now only composes 23% of our revenues. Before it was closer to 40%.
If you take that 23% and say what percent is [consumer] voice service that is subject to being cannibalized by VoIP (Voice over Internet Protocol) and things, that's now only 17% of our revenues. And the revenue stream that is subject to broadband cable competition is only about 6% of revenues. So we've diversified the revenue stream.
Let's talk about future revenue drivers. Is the timeline for Internet protocol TV still on track (see BW Online, 10/04/05, "IPTV: Big Potential -- but When?")? The plan is to do a controlled launch. We started in San Antonio, and between December and the May-June time frame we’re rolling it out in very measured terms. We launched in a single neighborhood, and we have a handful of customers up. As you would expect we're finding little issues here and there that we are trying to address as we move along.
But right now I'd tell you that I am optimistic that by late second quarter we will be launching in scale and by yearend we will be in 20 markets, marketing the full product set across all those markets. We have over 200 channels and 500 hours of Video On Demand available.
Is it HDTV yet? The controlled launch is not, but the scale launch will be.
Do you have any new products coming out? We will be announcing what we call Home Zone. This changes how you think about broadband and TV. I have a beta version of it in my house right now. It's a set-top box. They removed my old Dish Network satellite set-top and replaced it with this one. It's connected to my TV and stereo, and it has DSL connectivity on it.
I can now get Movielink (a Web site where full-length movies can be downloaded to a PC) coming into my TV set via DSL. I also can sit back and look at all my digital photos on my TV. I can listen on my stereo to the music library on my PC. I can sit back using my TV remote control and access my music library on my PC.
Were going out and working on a lot of content relationships to take advantage of this. We'll be bringing this to market in the second quarter.
How will you work wireless into your convergence strategy? It's critical. We have the largest IP backbone in the U.S. now via acquisition of AT&T. And we're moving as fast as our legs will carry us on an IP-based 3G network at Cingular [Cingular says it will have 3G in most of the top 100 U.S. markets by yearend.) You now have all the parts so that your entire infrastructure is IP-enabled.
Once you are in that position, you have three screens in your life: a TV screen, a wireless phone, and a PC screen. We are on the cusp to bring our entire experience to all three screens. We now have a Yahoo! (YHOO) phone that has all of your Yahoo personalized content on there: digital photos, e-mail, instant messages, news (see BW Online, 1/06/06, "Yahoo on Your Phone, TV, PC…").
If you send me an e-mail to the AT&T Yahoo account it shows up on the phone. I can record TV shows on my Home Zone set-top via my AT&T Yahoo portal on a PC. And I can now use my Yahoo phone to record. If I'm out and the Oklahoma football game came on and I forgot to record it, I could use the phone to boom-record it.
When is the Yahoo phone available? We have a version of it now, but it will be available in mass in the second quarter. It's a Nokia (NOK) handset.
So this uses the Cingular network but it's branded with AT&T? Yes. It's the Cingular wireless voice and their data capability that will be delivering this. We'll be selling it in Cingular stores.
But you also have an AT&T wireless play for business users, right? In the second quarter we'll start selling Cingular Wireless service under the AT&T brand name to our business customers. We'll come to a business and an AT&T salesman will say: we have all of your IP connectivity, we have your voice service, why don't you let us handle your wireless service as well? We'll give you a discount on the total bundle of services (see BW Online, 1/27/06, "Communications Gear's Strong Signals").
Why not just buy all of Cingular so you can brand it what you want? I can't comment on that. That's big-time out of bounds.
How do you see competition in the enterprise market developing. Verizon (VZ) is launching an aggressive ad campaign. Will you counter? It's going to begin at a different level. Suddenly, wireless becomes a part of the equation. Verizon, AT&T, and Sprint (S) are the three companies that have a full integrated set of services. Verizon has wireless to bring into theirs. Sprint has wireless to bring into theirs. It's going to be a new element to the suite of services. And I like where we stand.
Printer-Friendly Version