11/20/00; Vol. 15 No. 17
AT&T, WorldCom Splits May Help Competitors
By Jennifer Freer, Staff Writer
The planned breakups of AT&T Corp. and WorldCom Inc. could open the
door for competitors to steal federal business from the two telecommunications
giants, according to industry analysts and competitors.
This is a way for the next tier of telecom companies to move up in the
market, said Jim Payne, vice president of the government systems unit
for Qwest Communications International Inc. of Denver.
The government market is dominated by WorldCom and AT&T. Now, this
is a signal for Qwest to step up and play a larger role in the market,
he said.
AT&T of Basking Ridge, N.J., plans to create four new companies, with
its government business falling under the new AT&T Business company.
WorldCom of Clinton, Miss., is planning to divide its business into two
separately traded tracking stocks, WorldCom and MCI, with the federal
business going with the WorldCom company.
The challenge for AT&T and WorldCom will be to avoid becoming so focused
on restructuring and internal processes that they ignore their government
business and customers, said industry analysts.
It's always a challenge to get the right level of resources, attention
and decisions in the federal business with large telecom companies, said
Warren Suss, a telecom analyst in Jenkintown, Pa. Generally, these companies
don't understand the federal business very well and are focused on the
commercial side of business.
The companies that have succeeded in the federal market are the ones that
have high-level management attention, he said. The major problem with
the break-up of AT&T and WorldCom is that management's attention will
be distracted by the reorganization.
Lisa Crawford agreed. She is chief executive of the Crawford Group, a
Washington-based consulting firm specializing in the government market
and a former executive director of state and local government for AT&T.
All eyes in the corporations are going to be focused internally and not
paying attention to the marketplace for every market space, including
the government, Crawford said.
It does provide an opportunity for other players to take advantage and
carve out a niche for themselves. They can get in the market and cement
their relationships with the government customers, she said.
The planned restructuring also will make it more difficult for the federal
groups within AT&T and WorldCom to get the pricing and post-award
resources for implementing the government contracts, Suss said.
This will make it difficult for them to provide complete, end-to-end solutions
for the government customers, because they will have to deal with separate
companies for voice, data and video solutions, he said.
Soon, the winners of FTS2001, the General Services Administration's program
to provide long-distance voice, data and video services to government
agencies, and Metropolitan Area Acquisition contracts will be able to
compete against each for local and long-distance services.
If the long-distance companies have not learned to compete effectively
in the local market, then the local companies will hold an advantage in
offering end-to-end telecommunications services, Suss said.
WorldCom, however, does not think its government business will suffer.
The restructuring is a financial-based transaction that will allow us
to make the changes we need, said Ron McMurtrie, vice president of business
product marketing for WorldCom.
[The breakup] was done for growth. I think saying anything otherwise is
somewhat unfounded and not the case.
AT&T would not comment for this article.
McMurtrie said WorldCom's restructuring effort will improve, not hurt,
the company's ability to compete in the FTS2001 and MAA markets.
The government business is all about changing technology, and WorldCom
believes it's a growth-oriented business, he said.
WorldCom will concentrate on high-growth markets such as data, Internet,
hosting, international businesses, wireless and long-distance and local
voice telecom services for businesses. MCI will include the consumer,
small business, wholesale long- distance voice and dial-up Internet access
operations.
Analysts said the breakups were spurred by problems such as a loss in
shareholder value and concerns in the investment community.
Long-distance revenue is falling, said Jeff Moore, a senior analyst for
network services with Current Analysis, a business intelligence and analysis
company in Sterling, Va. The prospects of long-distance business is not
bright, and it is driving the breakup of both companies.
Crawford agreed. The companies know long-distance minutes are on their
way to being free, she said. That is the driver. They have failed to come
up with a strategy to bundle long-distance into a package that continues
to deliver profit.
Crawford believes the objective of AT&T and WorldCom is to sell off
the long-distance piece of the business and keep the data and Internet
services. As the technology improves, there will be no need for separate
voice services, she said.
Moore also said WorldCom's decision to create two tracking stocks, rather
than spinning off companies, was a smart approach.
That's because a tracking stock allows investors to invest in specific
areas of the company, but does not create a new company that might compete
with the original company, he said.