Although AT&T is not the monopoly it once was, the company may soon find itself at the top of the telecommunications pyramid again.
After nearly two decades of deregulation that created new competition in every facet of its business, AT&T is still standing even as several upstart rivals -- particularly those in the business of serving businesses -- are mired in onerous debt, industry overcapacity or financial scandal.
WorldCom, Global Crossing and the Williams Communications Group, along with a half-dozen other providers of telecom services to business, are all in Chapter 11 bankruptcy proceedings. Many of them are also shedding customers and employees. Meanwhile, dozens of local phone companies that had hoped, along with AT&T, to offer residential service have gone out of business.
The thinning of competition, along with the potential to whisk away customers from its suffering rivals, should allow AT&T to survive its own dubious investment of more than US$100 billion to acquire cable assets.
AT&T certainly smells an opportunity. Kenneth E. Sichau, president of AT&T Business Sales, which analysts estimate will account for US$26 billion, or 70 percent, of AT&T's total revenue this year, has added 600 sales representatives from troubled rivals and told his sales force to contact every customer of those carriers. He has also reassigned 200 AT&T employees to help customers in the complex technical job of switching to AT&T.
Sichau calls the chance to win business customers from companies like WorldCom, Global Crossing, Qwest Communications and others "as significant an opportunity as I've seen in a long time."
David Willis, an analyst at the Meta Group in Stamford, Conn., agrees. "AT&T should win 60 percent of the contracts that come up," he said of customers whose WorldCom contracts are expiring. "Sprint should win 20 percent and the regional Bells perhaps another 20 percent."
F. Drake Johnstone, an analyst at Davenport & Co, a brokerage firm in Richmond, Virginia, said he expected this new business to help AT&T's earnings this quarter.
He cautioned, however, that the overall glut in telecommunications capacity and the slowdown in capital spending were likely to pare AT&T's business sales by 4.6 percent for all of last year. Investors also seem to be warming to AT&T's prospects.
For months, AT&T stock had treaded water just above US$10 a share. But in August, after the company sold its interest in Time Warner Cable, reducing its debt and focusing its operations, investors pushed the stock up above US$12. It now trades at US$12.22.
Even now, AT&T is an "attractive long-term deep-value play," according to a report by Blake Bath, an analyst at Lehman Brothers. Based on current market prices, AT&T's business and consumer telecommunications operations -- which are forecast to generate US$37 billion in revenue this year -- are valued at less than US$17 billion in the stock market, a bargain by some measures.
AT&T's revenue, for example, is equal roughly to the company's enterprise value, the sum of its market capitalization and debt minus cash on hand. BellSouth, by comparison, has an enterprise value that is 2.4 times its revenue.
Investors have probably priced in that difference because AT&T, for all its newfound potential, must negotiate the tricky crosscurrents now buffeting its main businesses. Its residential long-distance business, so long pressured by companies including MCI (which was acquired by WorldCom in 1998), now faces further attrition as the Baby Bell companies enter the market and as consumers increase their use of e-mail and cellphones. In the second quarter, residential long-distance revenue at AT&T fell 21 percent from the corresponding period last year.
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