AT&T DISCONNECTED

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When AT&T Corp. marketing chief Connie Weaver answered her AT&T Wireless phone last month, she apologized to a reporter for what would be a "guaranteed" lost connection.

Dropped calls, and AT&T Wireless' reputation for poor customer service, technically are not the responsibility of AT&T, which spun off the cellphone business and licenses its name to the wireless company.

But those lost links, and a recent history of dropped business opportunities, make the brand as vulnerable as it is venerable, casting doubt on AT&T's revival.

"I don't think the AT&T brand will survive," said the head of a major ad agency with AT&T experience. "It's incredibly sad."

Ms. Weaver, AT&T exec VP-public relations, marketing and brand, vehemently defends the brand and potential. "Look at the power and recognition of the AT&T brand and the rock-solid character it stands for," she said. "It's an ideal place to continue to evolve a plan."

The brand has taken some hits. One image blow came in April, when the Dow Jones Industrial Average bumped AT&T in favor of Baby Bell Verizon Communications.

"Yes, it is one of the oldest telecommunications brands around and, yes, it has a strong international heritage," said Jan Lindemann, managing director-global brand valuation at Interbrand, Omnicom Group's brand consultancy. "But it requires the right marketing concept and business structure behind it."

AT&T has ricocheted from strategy to strategy over the past 15 years as it jumped into and out of computers, credit cards, cable and wireless.

Some ventures were far afield-buying NCR Corp., moving into financial services with the AT&T Universal Card. Yet during the 1990s, AT&T accumulated assets-the biggest cable service, AT&T Broadband; the No. 1 wireless service-that could have uniquely positioned it to lead the broadband, wireless and emerging telecom market of 2004.

Instead, AT&T, faced with a slumping stock price and questions about its strategy, in October 2000 unveiled a major restructuring that led to the sale of AT&T Broadband to Comcast Corp. and the split-off of AT&T Wireless. An AT&T spokeswoman declined to discuss the restructuring and whether in hindsight AT&T would have been better off keeping cable and wireless for a stronger consumer play, calling the issue "speculative."

AT&T breakups have made investors rich. The four surviving Baby Bells from 1984's court-ordered Bell System bust-up have a combined stock market worth of $240 billion. Stock AT&T shareholders received in Comcast now is worth $35 billion. Cingular, a joint venture of SBC Communications and BellSouth Corp., in February agreed to buy AT&T Wireless for $41 billion.

parlor game

But all this maneuvering left AT&T a shell of its former self. The stock has fallen about 39% since AT&T promoted President David Dorman to chairman-CEO in November 2002. Its market cap is below $14 billion. Credit-rating services rate its debt one to two notches above junk. Standard & Poor's last month put AT&T on review for possible downgrade.

The road back won't be easy. "A lot of brands have taken their place," said Mr. Lindemann. "They have to look out that they don't become a Pan Am, which just disappeared."

The AT&T spokeswoman said: "Raising questions about the AT&T brand has become a popular parlor game in certain circles. However, under Dave Dorman's leadership, AT&T has been making the necessary moves to assure the longevity of the AT&T brand. It's a game we plan to win."

Mr. Dorman is restaging AT&T with Internet-based services for consumers and a focus on network offerings for business. In a $200 million business campaign launched earlier this year from WPP Group's Y&R Advertising, New York, AT&T positioned itself as "the world's networking company." Ms. Weaver said AT&T has the opportunity to deliver a whole spectrum of business services over networks.

AT&T today is primarily a U.S. phone company that gets its biggest share of revenue from long distance and generates only 5% of revenue from abroad.

AT&T had a 90% share of long distance in 1984, according to the Federal Communications Commission. At year-end 2003, AT&T reported 35 million long-distance residential customers, or 32% of U.S. households, a shrinking share of a declining revenue market. It's had mixed success with other consumer services. AT&T's residential dial-up and DSL Internet service has just 1.4 million customers, flat since 1999.

on the line

AT&T Consumer Services revenue-long distance and related phone services; its ISP offering-fell nearly in half over the past four years, from $18.6 billion in 2000 to $9.5 billion in 2003. The long-distance market is declining amid competition from Baby Bells, wireless and e-mail.

Mr. Dorman is betting on a strategy to leapfrog Baby Bells and traditional long-distance rivals MCI and Sprint with VoIP (Voice over Internet Protocol), a technology providing cheap and enhanced local and long-distance services over broadband. AT&T, aiming for 1 million VoIP customers next year, is the biggest brand pushing VoIP, via a campaign from Y&R.

"AT&T is putting their brand on the line with VoIP," said Kate Griffin, senior analyst, Yankee Group. AT&T "may have found the product that will keep the customer and transfer that brand equity before the long-distance market disappears," she said, but VoIP "can eat away at and devalue" AT&T's reputation for reliability because customers won't be forgiving of glitches in the new technology.

AT&T's VoIP service has received positive early reviews-The New York Times said "the call quality is close to perfect"-and AT&T has the opportunity to draw on its historic engineering prowess. "We're investing in our business and in new technology near term and in the labs," said Ms. Weaver. "We are focused on the customer, and we are continuing to improve our relationships with customers."

The company already thinks local: It's a combatant in the bundling wars with 4.4 million residential customers for local and long-distance service over traditional phone lines. But it for now is an also-ran; only 5% of households with bundled service are with AT&T, vs. 36% for Verizon and 23% for MCI, according to researcher TNS Telecoms.

Unlike AT&T's old monopoly game, Mr. Dorman is bundling services that AT&T doesn't own. It already resells DSL service from Covad Communications Group. Once Cingular absorbs AT&T Wireless and the brand reverts to AT&T Corp., Mr. Dorman plans to re-enter the market with an AT&T-labeled service from another carrier.

Some analysts wonder if the patchwork quilt is sustainable. "I don't know whether AT&T will have the ability to continue investing to solidify the brand," said Raul Katz, partner at Booz Allen Hamilton.

takeover?

Others, such as independent analyst Jeff Kagan, said the evolving telecom world is moving toward AT&T's sweet spot. Telecom is moving away from copper wires covering the last mile into the home to a "marketing game" where packaging and positioning play a major role. "Can it once again be a leader in telecommunications? Absolutely." Mr. Kagan also believes AT&T's assets and brand could make it an attractive takeover candidate.

Marketing executives who have worked with the AT&T brand say it is still powerful, even with young adults who fondly recall the "Reach Out" campaign of their childhood. "The AT&T brand is unbelievably strong-it was the sole asset of AT&T Wireless and it got them 21 million customers," said Harold Sogard, partner at Omnicom's Goodby, Silverstein & Partners, San Francisco, agency for the campaign.

AT&T Corp. allowed AT&T Wireless to use the vaunted "Reach Out" line in ads, and even some savvy business executives were unaware that there were two distinct, separate companies. Yet the AT&T Corp. spokeswoman insisted her brand won't be hurt by service issues at AT&T Wireless.

wi-fi opportunities

"We believe that customers are discerning enough that if they have a problem with their cellphone from AT&T Wireless, they understand that it's not a problem with AT&T Corp.," she said. "If there are quality problems with AT&T Wireless, the problems will become part of Cingular. Customers are sophisticated enough to understand that. If anything, the pending merger gives us an opportunity to have a higher-quality wireless service associated with the AT&T brand."

For AT&T's Ms. Weaver, having full control of the brand presents marketing opportunities, with AT&T looking at new means of delivering communications via Wi-Fi and over electric utility lines.

As for the AT&T Wireless drop-off problem, she acknowledges it's disconcerting for her calls and hardly ideal from a brand standpoint. But she added, "I'm delighted we're getting that brand back that quickly. We're taking it back and moving on." This could be AT&T's last call. It better not lose the connection.

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