AT&T, WorldCom Splits May Help Competitors

By Jennifer Freer, Staff WriterThe 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 im-proves, 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.