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The smile is long gone


By Scott Bradner


AT&T has been fading away in front of our eyes like Alice's Cheshire cat for quite a while now, at least since the Big Breakup twenty years ago.    Now AT&T management has announced that they were giving up another chunk of the old cat.  It's hard to imagine that there will be anything left of the once-fabled "The Phone Company" by 2010 at the latest.


In late July AT&T announced that it had decided to stop trying to market its services to consumers and, instead, concentrate on its business customers.  AT&T said that it would continue to provide service to existing customers and would welcome anyone who wanted to buy service from them but AT&T will stop all ads that try to get new consumer customers and would stop all attempts to hold onto its existing 35 million consumer customers.  (In the silver lining department, maybe this means we will be sparred the further adventures of the embarrassing Carrot Top.)


AT&T did this because it's not making much money from consumers and would rather abandon that market and focus on the business world where it can make more of a return.  This is an almost perfect example of author Clay Christensen's corporate death scenario.  A company abandons the field represented by its lowest margin customers because competition is too strong, either from other companies selling the same product or from companies selling new products.  Soon the competition starts to invade the next higher tier of the company's customers and the company abandons that field because competing gets too hard.  Soon the company runs out of fields to abandon.  AT&T is well along that path.


AT&T used to be one of the biggest companies in the U.S. and thus, in the world.  In the late 1950s and early 1960s it got as high as number 9 in the Fortune 500. At that time AT&T, US Steel and General Electric were the only non-energy or automotive companies in the top 10 U.S. companies.  AT&T stock once was the "widows and orphans" stock, a stock that would be safe through all kinds of bad times.  That time is long gone.  The stock that carries the label of AT&T is not one that I'd recommend these days.  (Holders of pre divesture AT&T stock might have quite a pile if they kept all of the stock in the various spin offs, but not nearly as big a pile as they would have if they knew when to unload it along the road.)  Few holders of AT&T stock, particularly AT&T retirees, are all that happy.  In this case, unlike with Alice, the smile faded early.


At least for a while, we seem to have come full circle.  The old baby bell components of AT&T are posed to take over most of the consumer phone business, and maybe later the business consumers as well.  This includes both the consumer line and wireless business.  So we are on the way back to a small handful of local monopolies running the phone business.  But, I'd caution these new winners to take care.  Unless they can get the regulators to help them by restricting VoIP, they may soon find themselves abandoning their bottom tier of customers to cheaper VoIP providers.  What goes around comes around.


disclaimer:  No monopolies in the higher education business, you can always to go to the trade school down the river but the above is my opinion, not Harvard's.