At the press conference late last month to officially announce the split of AT&T Corp., Chairman-CEO C. Michael Armstrong cracked wise.
After unveiling the names of the four different entities the company would be broken into-AT&T Broadband, AT&T Wireless, AT&T Business and AT&T Consumer-Armstrong said, "I want to assure our shareholders that we did not pay a lot of outside consulting fees to come up with those names."
That light-hearted remark belies the serious branding questions facing AT&T. They begin with the obvious: Can the AT&T brand be distributed across three separate companies and one tracking stock for the long term?
Perhaps a more important question is: Which is the real AT&T? Is it the brand aimed at customers that preached the convergence of video, voice and data? Or is it the brand that was embodied in the breakup, the brand that is aimed at Wall Street and is seemingly tossing aside the notion of convergence?
While the ultimate answers to these questions may take a few years to emerge, one thing is clear: "It's going to be one of the most fascinating brand challenges in the last 10 years," said Robert Kahn, executive director of brand consultancy FutureBrand.
Future of convergence
Virtually since he took over as CEO three years ago, Armstrong has preached the concept of convergence. The telecommunications world was moving toward the bundling of voice, data and video, and AT&T was going to lead it there.
In accordance with this philosophy, AT&T spent billions acquiring Tele-Communications Inc. and MediaOne Group, transforming AT&T into the nation's largest cable operator. The strategy was to get AT&T into the "last mile," the part of the nationwide telecommunications network AT&T ceded to the Baby Bells during its first breakup, in 1986. With access to households via the cable lines, AT&T could provide customers video, voice and data from a single source.
Despite the proposed breakup, Armstrong is proceeding as if this strategy is still intact. An AT&T ad that ran last week in The Wall Street Journal featured a quote from Armstrong that read, in part: "I can assure all AT&T customers-individuals and businesses-that each company will offer the bundled services customers want over its facilities. And do it better than anyone else."
FCB Worldwide, which created the ad, said it was intended to answer the negative media reaction with facts. "The media filter hasn't accurately reflected what AT&T is and what it intends to be," said Laird Stiefvater, senior VP at FCB.
Meredith Rosenberg, director at The Yankee Group, said it is possible-on a limited basis-for AT&T to continue its convergence strategy, because it was being executed within business units anyway.
"I think it does compromise [the convergence strategy]," she said. "They have been building their image of this octopus that has all these tentacles and can solve all of your problems. By breaking up the company, it's going to be confusing, at least."
Other industry observers say Armstrong's vision is doomed to fade away. Four AT&T units with different customers, different technologies and different agendas will find it nearly impossible to present a unified message, they say.
As separate companies with independent agendas and different customers, the new AT&T companies will have little incentive to bundle services. "Cable companies, there's no reason for them to do it," said Robert Rosenberg, president of Insight Research Corp., a telecom market research firm.
The convergence philosophy is on life support, he said, because AT&T was the only company with the financial muscle to pull it off. "I'm not sure who's going to want to do it," he said. "AT&T was the boogeyman who would have driven them all toward it. It's gone now."
Observers say it's hard to imagine that the AT&T brand can mean the same thing across its four units, which will eventually be restructured as three separate companies.
Under AT&T's breakup plan:
AT&T Wireless, already a tracking stock, will become an independent, publicly traded company by summer 2001.
AT&T Broadband will be spun off as an independent, publicly traded company by 2002.
AT&T Business will retain the AT&T brand and license it to the others.
AT&T Consumer will become a tracking stock under AT&T Business.
AT&T says its brand is powerful enough to stretch across the three independent companies.
"Already, it's cable and wireless and local and long distance, and AT&T is a brand for business and consumers as well," said Eileen Connolly, AT&T VP-financial communications. "I don't believe there is any loss to the brand, as long as we maintain quality standards and assurances for our customers."
Some observers, however, say keeping these separate entities under the AT&T brand will be a challenge. The businesses will often target different customers, and when they do target similar customers, it may be as competitors. AT&T Broadband, for instance, offers high-speed Internet access via cable modem, while AT&T Consumer plans to provide the service via digital subscriber lines.
"It would be very difficult to imagine AT&T sharing its name with companies that it doesn't own," Insight Research's Rosenberg said. "Do you want to lend your name to someone you have zero control of?"
Kahn said the offspring of AT&T will likely create their own brands once they are out on their own. But that alternative will create new problems. "Fundamentally, it's easier and more efficient to build a strong global brand than to create or build four separate brands," he said.
There seems to be little doubt that the AT&T breakup is a marketing message aimed at Wall Street. Gartner Group Inc. analyst Ken McGee in a recent report wrote, "AT&T agreed with many financial and market analysts that perhaps its parts are greater than its whole."
AT&T's Connolly acknowledged, "It would be irresponsible not to recognize the stock price, but independent of where the stock price is today, we believe this was the right decision."