WASHINGTON (CBS.MW) -- Now that AT&T has
shorn off its most attractive growth businesses, the big question is
what happens to the rest of Ma Bell. Can the dowdy old-line phone
Company observers tend to fall into two sharply divided camps.
Some, like influential Wall Street analyst Jack Grubman, believe
can recover. By jettisoning its wireless and cable businesses, Ma
Bell can refocus on core long-distance operations and drive profits
through the introduction of sophisticated new data services for
Others, such as Bill Whyman of The Precursor Group research firm,
argue that AT&T is doomed. The Baby Bells, he said, will
increasingly take market share away from their former parent as they
gain regulatory approval to sell long-distance alongside local phone
At the same time, even if the old AT&T doesn't have much life
left, shareholders should be okay. They'll retain significant stakes
in AT&T Wireless (AWE:
and the new AT&T Comcast. Both offer solid growth prospects and
the potential for long-term stock appreciation, though at the price
of more day-to-day volatility.
Yet the comforts of a substantial dividend in a steady if
slow-growing blue-chip performer are over; management slashed the
payout in an earlier restructuring move. Gone are the days when
AT&T was seen as the stock of choice, as the old saying went,
for "widows and orphans."
On Thursday, AT&T's shares traded as high as $18.75, their
highest level in a month. They ended the session up $1.05 at
to sell its cable business to Comcast (CMCSK:
AT&T bought plenty of breathing room for its mainstay phone
operations. Comcast agreed to take on $20 billion in AT&T debt,
reducing Ma Bell's own debt load from around $36 billion to $16
"In one fell swoop, AT&T solves its debt problem, which gives
it financial flexibility to do things that can spur growth in core
long distance," Grubman said Thursday in a note to clients.
By and large, analysts expect AT&T to concentrate on its
corporate-services business, which caters to large companies willing
to pay sizable sums for secure and reliable data communications.
AT&T and WorldCom (WCOM:
remain the clear market leaders in that category.
Excluding the cable assets, AT&T's corporate-services
division is expected to generate $27 billion of the company's
projected revenue of $38 billion in 2002, Grubman calculates. The
residential long-distance business will account for the rest.
Of course, AT&T and WorldCom alike face significant
competition from upstarts such as Qwest Communications International
but the pressure has eased amid a raft of failures among smaller
"This is an area where AT&T has a lot of expertise and there
is a lot of money to be made," said Nicholas Economides, a professor
of economics at New York University's Stern School of Business who
specializes in communications issues. "It can provide more
sophisticated services for businesses."
In the past few years, it's been widely viewed that the company's
ambitious $100 billion foray into the cable business and, to a
lesser extent, the wireless market diverted the attention of
executives and undercut its corporate-services division. Without
those distractions, AT&T ought to be able to better manage its
The consumer business, however, remains a sore spot. The nation's
former monopoly is steadily losing share to the Baby Bells as they
gain wider entry into the long-distance market.
"It probably can't survive independently," Whyman said. "Our
sense is that it will be acquired by someone else."
The natural question then arises: By whom? Among the Bells,
Verizon Communications (VZ:
and Qwest own or have access to other national networks, leaving
and SBC Communications (SBC:
as the most likely acquirers.
Yet AT&T's consumer-phone network is based on older
technology. Potential suitors could buy superior networks from
distressed "next-generation" carriers at cheap prices. Candidates
falling into this category include Broadwing (BRW:
Global Crossing (GX:
Williams Communications (WCG:
and Level 3 Communications (LVLT:
Another option is for a suitor to "buy" AT&T's customers --
minus the network. Ma Bell still owns valuable relationships with
millions of customers.
Yet AT&T is establishing a modern Internet-based network of
its own to handle business traffic, notes Rob Carlson of Current
Analysis, and it probably would want to tie the sale of the
company's older circuit-switch network to the sale of its
long-distance consumer customers.
If that's the case, AT&T could end up stuck with its consumer
business, which it plans to separate into a tracking stock. While
revenue continues to decline, it does generate surplus cash every
year, and Ma Bell could broaden its menu to include new services
such as high-speed Internet access or local phone calls to generate
Whatever the outcome, analysts are unanimous about one thing: The
117-year old phone company has already seen its best days. The brand
name, however, could carry on for decades to come in its new guises
of wireless and cable broadband. Jeffry Bartash
is a reporter for CBS.MarketWatch.com in