Post-breakup AT&T stays $1B advertiser

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But long-term effects could pare Ayer, others from roster

AT&T's restructuring as a linear communications company will put the telecommunications titan on a level playing field with rivals Sprint and MCI, but in the long run it's likely to leave some AT&T agencies on less than solid ground.

The breakup will yield three separate companies: AT&T (long-distance communications, credit cards and wireless), GIS (AT&T's computer division, formerly NCR) and an unnamed hardware company that for now may license the AT&T name.

The spinoffs put the spotlight on AT&T's media spending, estimated by Advertising Age at $1.1 billion in 1994 and still expected to approach $1 billion even after its post-breakup streamlining. But with fewer divisions, AT&T's need for five core agencies plus ancillary shops is likely to decrease in the long run, say AT&T agency executives and competitors such as Bell Atlantic Corp. Director of Media Strategies Paula Scanlon, who's certain "there will be agency fallout from this."

"No review is currently planned or even anticipated until at least this process becomes finalized," said AT&T Director of Advertising Dick Martin.

But AT&T agencies consider New York-based N.W. Ayer & Partners' estimated $160 million in billings to be the most vulnerable, though shops don't expect to see any shifts until well into 1996, after the dust settles from the restructuring. Meanwhile, Ayer owners W.Y. Choi and Richard Humphreys have more than one headhunter peddling the agency's vacant post of chairman, say executives contacted in the search. Ayer recently hired Bomb Factory founder Mark Fenske as chief creative office and managing partner, and in the process acquired Mr. Fenske's agency. Ayer CEO Mary Lou Quinlan is said to have wooed Mr. Fenske with a two-year no-cut contract and a minimum payment of $500,000 if he's ever cut.

Of that deal, one executive said: "Ultimately, he is a bigger risk than Helayne Spivak [now vice chairman-chief creative officer at Ammirati & Puris/Lintas] ever was at Young & Rubicam."

Y&R is also an AT&T agency, as are McCann-Erickson Worldwide, FCB/Leber Katz Partners and BBDO Worldwide. Others include TeleVest; Modem Media, Westport, Conn.; direct marketing agency Bronner Slosberg Humphrey, Boston; and promotion agency Dugan Valva Contess, New York.

Of AT&T's five core agencies, FCB/Leber Katz is considered tight with the client, as is Y&R because of agency Chairman Alex Kroll's connection to AT&T Senior VP-Public Relations Marilyn Laurie. But once the restructuring is completed, and AT&T executives have been shuffled, it's uncertain what close ties will remain intact.

Meanwhile, all existing agencies are coveting what they expect to be a windfall in spending as the telephone wars shift ground.

Along with MCI Communications Corp. and Sprint, the pared down AT&T is expected to change the focus of the phone wars from long distance to regional with the Big 3 taking on the Baby Bells, cable companies, utilities and all others who aspire to compete in local phone service.

"We believe that the restructured AT&T will focus more sharply on local communications, making them an even more powerful competitor," said Bob Barada, VP-corporate strategy and development at Pacific Bell.

The long distance to regional shift, already begun in some markets, is likely to be hastened by sweeping telecommunications legislation expected to be passed this fall. That legislation will enable phone companies to offer cable service and in some areas facilitate mergers of cable and phone companies.

"While AT&T has said they're not interested in entering the local telecom market, their actions make it crystal clear that is exactly their intent," said Sid Boren, senior VP-strategic planning at BellSouth Corp. "Their announcement underscores the wisdom of Congress and its determination to pass telecommunications legislation that will open up the telecom industry to competition. And it emphasizes the need to move forward on legislation as quickly as possible."

AT&T's other post-breakup push is expected to come overseas, say those familiar with the marketer's needs. AT&T is expected to further hone its consumer focus in markets such as Europe in an effort to build brand awareness of its core business, much as Eastman Kodak Co. has done since its own return to basics.

This week, AT&T breaks across Europe a major campaign from McCann's London office. With the exception of its phone card, until now AT&T hasn't done much consumer marketing in Europe. But Pier Carlo Falotti, the Italian hired as AT&T Europe president last year, is trying to unify the AT&T unit and has reorganized it so that country managers are now responsible for each market and the three divisions, which mirror those of the new AT&T company, now work more closely together.

The McCann campaign kicks off with a print campaign and will be followed next week by TV. The first print ad, "Daddy," ran on a limited basis last summer. Art is a picture of an airline vapor trail with the copy line, "Look, that's where Daddy lives." AT&T European Ad Director David Grey said the ad is about communications convergence and conferencing without travel.

Globally, AT&T is also expected to increase alliances and marketing for its AT&T World Partners unit, based in the U.S. The unit is an association of companies that offer a family of "seamless voice and data communications services with common functions and standards to...span the globe."

In the U.S., AT&T is also expected to make alliances, perhaps in the vein of Sprint's with cable companies or MCI's with News Corp. and SHL Systemhouse. But for now AT&T is focusing on its core operations.

"Telecommunications is all still about bundling all types of communications services for the customer," said David Reimer, senior partner and group account director for Sprint at J. Walter Thompson USA, San Francisco. "AT&T is still in that game and so is Sprint; we look at it as if nothing has really changed. AT&T will be no less competitive, and it will be no more difficult to compete with them."

Even after shedding its specialty computer business and equipment hardware division, AT&T will still be a giant $50 billion company--involved in everything from providing access to the Internet, to offering wireless service through its purchase of McCaw Cellular, to creating branded content over the Internet through its newly formed global New Media Services Group, to developing business in the emerging personal communications services arena, to offering local phone service and credit cards through the AT&T Universal card, the No. 3 credit card in the U.S.

"AT&T has done a good job of securing the position of the great enabler that links people together," said John Elkins, president of Diefenbach Elkins, a corporate identity consultancy that has done work for Kodak, MasterCard and U S West. "They're looking at a more narrowly defined communications market. In fact, all long-distance companies are going to be more than long distance. It's time for everyone to start repositioning themselves in this converging marketplace...Everybody at one time or another re-engineers business, but very few re-engineer the brand to reflect what the company will look like and AT&T will have to face up to that" by changing the physical look of the brand, including possibly a new logo.

Mr. Elkins doesn't advocate, however, a name change and applauded the Global Information Solutions operation's expected resurrection of NCR. "AT&T knows it made a mistake dropping the NCR name for GIS," he said, noting NCR will most likely be used to win back the equity lost with the switch to GIS after NCR's acquisition by AT&T in 1991. Similarly, the new equipment company, which may license the AT&T name through the transition period, will have the Bell Laboratories name behind it. That, said AT&T's Mr. Martin, "is worth its weight in gold."

All three companies are expected to invest heavily in corporate campaigns through the transition to re-introduce themselves to consumers. And AT&T's competition claims it won't counterpunch with increased spending.

"We won't double our spending on advertising because of the AT&T announcement," said William Pate, MCI director of advertising. "...AT&T needs to do what they need to do to remain competitive. We have our vision and they have theirs."

Contributing to this story: Alice Z. Cuneo, Jan Jaben and Laurel Wentz.

Copyright September 1995 Crain Communications Inc.

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