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AT&T Shakes Up Management, Strategy

Industry watchers were surprised when AT&T CEO David W. Dorman surprised replaced president Betsy Bernard with William Hannigan this week.

Dorman worked with Bernard at Pac Bell. When he took the top job at Ma Bell, he boosted her up the executive ladder by tapping her for the second spot.

By most accounts, Bernard did a good job stewarding AT&T through an unprecedented industry slump. The 48-year-old cut costs and improved corporate structure.

But apparently the skills AT&T needed to endure tough times and now capitalize on an upturn are different. With hints of a telecom turnaround, Dorman called Hannigan, another friend and former colleague.

Most recently, Hannigan led Sabre Holdings , parent of online travel site Travelocity.com. But before that, his resume was all telecom.

The 44-year-old spent 16 years at Sprint , Pac Bell and SBC in operations, sales and tech support jobs. Announcing the hiring, Dorman praised Hannigan's "high-energy" and "team-oriented" style.

He'll need all his talents and experience to pull the Bedminster, N.J., carrier from its rut.

The Challenges
For decades, AT&T's gains were so predictable its shares were dubbed "widow-and-orphan" stock. But a beaten-down economy and stepped-up competition from regional telecoms, cable companies and Internet telephony providers, has resulted in 15 consecutive losing quarters and a squashed market value.

AT&T has seen its long-distance business erode as the Baby Bells and cable companies expand their reach and consumers switch to cheap national wireless plans.

On the corporate side, Ma Bell is battling the growth of Internet telephony providers, such as Vonage, as well as increased competition from MCI, which escapes bankruptcy next month.

AT&T was hurt when merger talks with Bellsouth collapsed for the second time in a year. One industry analyst called the proposed $19 billion price tag as "sad" given AT&T's history.

The company, as well as other telecom players, also failed to pry business from MCI/WorldCom while that company slogged through 18 months of bankruptcy proceedings.

The Plan
With the trends in the consumer markets, Hannigan and AT&T must focus on higher-margin managed services for business customers, analysts say.

Instead of transporting voice and data traffic, AT&T should handle voice and computer networks for enterprises, says Lisa Pierce, research fellow for Giga Information Group, a subsidiary of Forrester Research.

That would pit it against heavyweights like Hewlett-Packard and IBM . To do so, AT&T likely needs more additional talent in managing computer systems, probably through partnerships rather than acquisition.

"AT&T is much more willing to be a subcontractor than they used to be," Pierce says. "And that's an important cultural change. Like IBM, AT&T will look to get expertise in deep verticals." (IBM credits industry-specific consultants it acquired from Accenture for helping it land a slew of enterprise IT outsourcing customers.)

But which one? -- transportation, retail, financial services, government?. The economy is gathering strength, but certain sectors will recover faster than others and a wrong bet could set AT&T back further.

What's more, even if Hannigan makes the right choices, the overall market may still be flat next year, especially during the first half, Pierce says. It's not until 2005 that carriers will begin to see revenue jump, she predicts.

AT&T does have assets to help execute a managed services strategy, said Lynda Starr, a vice president with research firm Probe Group.

For starters, it has a global presence, which is attractive to multinational firms and sets it apart from some, but not all, of its competitors. Sprint, for example, has a global IP backbone and a presence in some 60 countries.

AT&T also has working relationships with equipment vendor Cisco and CRM software maker Seibel , which boosts credibility with enterprise customers, Starr said.

It also has a base of customers who currently only buy long-distance service but could be pitched to upgrade to managed network offerings. Finally, the company has made MPLS network infrastructure investments, Starr said.

"AT&T is fairly well-positioned, but right now the market is changing, becoming more competitive," Starr said. "I don't think (Hannigan) has an impossible task ahead of him, but not everything is rosy for AT&T."