Struggling for New Role, AT&T to Stop Marketing to Consumers
The New York Times > Business > Struggling for New Role, AT&T to Stop Marketing to Consumers
By KEN BELSON
Published: July 22, 2004 AT&T Corp., which for more than a century has been synonymous with phone service in the American home, announced today that it will no longer market it services to consumers. The move comes as the venerable company struggles to find a role in the volatile and competitive telecommunications industry that was created from the breakup of the AT&T monopoly in 1984.
The announcement is setback for one of the most significant companies in American corporate history and one of the nation's most storied brands. The company, once known as Ma Bell, in one form or another has been at the center of phone service in America since Alexander Graham Bell invented the telephone in 1875.
In the two decades since AT&T lost its exclusive franchise to sell phone service, the company has moved in and out of businesses at a frenetic pace, trying everything from selling computers to providing cable and wireless services, often with dismal results. While it has maintained a big business in long-distance calling, the collapse of the telecommunications bubble four years ago has hastened its decline as the cost of phone calls have plummeted.
The company made the decision to abandon the consumer market after the government in June reversed rules that helped AT&T provide local phone service at subsidized rates. Without those subsidies, AT&T said it can no longer offer affordable local service to consumers, who are more and more buying packages of phone, data and video services from cable, satellite and phone carriers.
"Whether I'd call it is strategic, financial or practical or pragmatic, the fact is we can read," said David Dorman, AT&T's chairman and chief executive. "American households are buying bundles, and these bundles are getting more complex and sophisticated, and we have to face the fact that without a local component, a basic component, were at a disadvantage."
AT&T will continue selling telephone and data services to corporate users, a business that already generates nearly three-quarters of its revenue. As the battle for the consumer market intensified, the company has tried to reposition itself as the telecommunications provider of choice to corporate America. But this market, too, remains in flux as rivals like MCI and Sprint try to grab big-name customers that demand ever-cheaper service.
Still, AT&T's retreat from the consumer market is a startling admission of defeat for a company that is still the market leader in long distance calling. It still serves about 35 million consumer customers, but is third behind Verizon Communications and SBC Communications. Though AT&T remains a well-known name with American households, it has had a hard time competing with other phone carriers, cable companies and cellular providers, all of which are selling phone service.
AT&T customers are not likely to be immediately affected by today's decision, and the company said it would not turn away new customers who ask for its service. But the company will stop trying to attract new customers or to retain those who wish to defect to other providers.
Additionally, the company will offer Internet phone service to consumers, though it did not say whether it would aggressively pursue that market.
AT&T hopes to build up its corporate business by using money generated by its consumer operations and spending less on advertising, direct marketing and others costs associated with acquiring retail customers. However, industry analysts say AT&T will only be able to harvest these savings for a year or two because the consumer business is deteriorating so quickly.
"It was a matter time before they would have more steady erosion on the consumer side," said Michael Weaver, a telecommunications analyst at Fitch Ratings, which cut its credit rating for AT&T's debt to BB+, a speculative rating, after today's announcement. "It's kind of a race."
That erosion was starkly apparent in the company's second-quarter results, which were also announced today. AT&T's revenue in the period plunged 13.2 percent to $7.6 billion, with sales from the corporate group sliding 12.7 percent compared to the same quarter a year ago. Sales in the consumer group fell 14.6 percent.
The company overall earned $108 million, or 14 cents per share in the quarter, 80 percent lower than in the second quarter of 2003.
In an ironic twist, AT&T's decision to leave the consumer market makes it more likely that the four dominant local phone providers — Verizon, SBC, Bell South and Qwest — can reassert their increasing market power. With the Telecommunications Act of 1996, these so-called Baby Bells were allowed to enter the long distance market and compete head-on with their former parent, AT&T.
July 22, 2004 at 07:26 PM in Telecommunications | Permalink
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