Article 3 of 352
AT&T tries to calm customer fears Breakup could mean higher rates
William Glanz
The Washington Times
Page B9
(Copyright 2000)

Consumers are unlikely to notice substantial changes as long- distance company AT&T Corp. begins taking the steps toward the self- imposed breakup it outlined on Wednesday.

But consumer advocates and analysts still are figuring out the ramifications of the telecommunications giant's move to restructure itself into four companies.

"I think this is a signal that consumers have a rough road in front of them because the consumer business is going to have a difficult time," said Jamie Troup, partner and telecommunications lawyer at D.C. law firm Arter & Hadden LLP.

AT&T insists changes due to restructuring won't be noticed by consumers and that the four new companies - AT&T Consumer, AT&T Broadband, AT&T Business and AT&T Wireless - will be better off because their revenue won't be siphoned off by other units.

Industry watchers aren't so sure. With news of the restructuring, analysts still are wondering:

* Whether a relatively weak AT&T long-distance company will survive.

* Whether the company will increase long-distance calling rates.

* Whether consumers will have difficulty dealing with an AT&T that has four separate parts.

AT&T wanted the cable television lines it bought when it acquired Tele-Communications Inc. and MediaOne Group so it could market cable, Internet and phone service together. That would prevent it from having to pay access charges to the Baby Bells once it began marketing local calling service.

Just the threat that AT&T would begin offering local calling services through its cable infrastructure made companies such as Verizon Communications, which already offers the service, more responsive to consumers' needs, said Nicholas Economides , professor of economics at New York University.

"If the threat goes away, consumers lose," he said.

There are also questions about what happened to AT&T's own long- distance calling service. Because AT&T will isolate its long- distance business from its other businesses, analysts wonder if the company will be forced to increase calling rates.

The division lacks the revenue growth of other AT&T businesses.

Revenue from AT&T's long-distance services fell in the third quarter by 10.8 percent, from $5.2 billion a year ago to $4.7 billion this year.

Mr. Troup said AT&T's long-distance business could raise rates to get rid of low-margin customers and increase its profit margin once it is spun off.

The Federal Communication Commission may be unable to prevent those rate increases, he said.

If AT&T does raise long-distance calling rates, it would likely help AT&T competitors such as Sprint Corp. and WorldCom gain some of AT&T's 60 million long-distance customers.

That means consumers would have much less choice, Consumers Union spokesman David Butler said.

Customers are also likely to have more practical concerns, said Lawrence K. Vanston, president of Austin, Texas-based Technology Futures Inc., a telecommunications research and consulting firm.

The new units of AT&T will have to prove to customers that quality of service and seemingly simple issues such as billing aren't affected, Mr. Vanston said. Each new AT&T unit will operate independently and have separate customer service organizations.

AT&T spokesman John Heath said consumers shouldn't notice anything different.

"It is in no one's interest to do anything that diminishes the AT&T brand," he said.

Nevertheless, analysts predict few AT&T shareholders will want to maintain their investment in AT&T Consumer, the long-distance company.

"It's a relatively weak part of the company," Mr. Economides said.

It could be further weakened by corporate debt. AT&T has $61 billion in debt, but it has not been determined how much debt will be doled out to each new unit.

"I think shareholders of AT&T Wireless will do the best," Mr. Troup said.

What's more worrisome is not that the company's shareholders could abandon AT&T Consumer, but that the division's most talented workers could bolt to the other, more profitable, units, Mr. Troup said.


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