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The Internet Connection War

AT&T Internet Services for Consumers, a Strategic Evaluation.

MGT 555 - Technology Forecasting and Strategic Planning

TEAM AT&T Joe Coppola Steve Delahunty Glen Keune

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Abstract

AT&T is in an extremely positive position in order to be the major provider of end consumer Internet services in the United States. The company has products that cross all levels of technology to include dialup, broadband, and wireless. The wealth of connection options for the customer coupled with the maturity of the technology ensures a successful market opportunity. The strategic plan of AT&T takes into account the internal and external environments. The company strategy includes long term objectives that foster market dominance.

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Outline

I. Purpose. This evaluation will perform a strategic analysis of the AT&T internet access technologies for the consumer market. This report identifies core competencies, sources of competitive advantage, and recommendations to improve AT&T’s strategic position.

II. Corporate Background. This section includes a brief history of AT&T, along with how AT&T entered into the consumer Internet services business. The report also analyzes recent press releases to identify any recent developments. a. overview b. mission c. historical review d. recent events

III. Product Analysis. Here the product offerings of AT&T in this market are identified. An analysis of the strengths and weaknesses of the two primary technologies is completed. The market for the firm’s products is explored. a. overview of products i. dialup access ii. cable access iii. digital subscriber iv. wireless v. long distance b. analysis i. opportunities ii. threats iii. strengths iv. weaknesses v. market

IV. Technology Forecast. This section focuses on new emerging technologies that could impact the dial-up and broadband Internet access market. Recent trends are covered and the changes in the overall industry explored. Technology forecasting methods are identified. a. dialup services industry trends b. cable systems industry trends c. other trends d. pertinent techniques

V. Strategic Assessment. A strategic plan for AT&T in terms of the consumer Internet access products is constructed. This includes a revision of the mission and analysis of internal and external environments. a. mission b. company profile c. external environment d. internal environment

VI. Strategic Plan Recommendations. a. grand strategy b. long term objectives

VII. Strategic Intent. Conclusions.

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I. Purpose

This report performs a strategic analysis of AT&T Corporation’s Internet access technologies and services as they apply to the individual consumer market. A set of grand strategies and long term objectives required to achieve sustained competitive advantage and improve strategic position over primary competitors will be established. The report identifies core competencies and how to best exploit them to achieve the recommended “goals.”

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II. Corporate Background

II a. overview The AT&T corporate website boasts that “AT&T is among the world's premier voice and data communications companies, serving more than 80 million customers, including consumers, businesses, and government. With annual revenues of more than $53 billion and 151,000 employees, AT&T provides services to customers worldwide. Backed by the research and development capabilities of AT&T Labs, the company runs the world's largest, most sophisticated communications network and has one of the largest digital wireless networks in North America. The company is a leading supplier of data and Internet services for businesses and offers outsourcing, consulting and networking-integration to large businesses. It is also the nation's largest direct Internet access service for consumers.”

II b. mission

AT&T’s mission statement is fairly simple: “We are dedicated to being the world's best at bringing people together--giving them easy access to each other and to the information and services they want and need--anytime, anywhere.“

Also pertinent is the AT&T business strategy as depicted in their annual report: • “Put briefly, our strategy is to build on our position as the world's networking leader.” • “Our main strength is our ability to build and manage networks. The AT&T network is the world's most advanced and reliable one. It is the core of our business. The more our network is used, the more we earn.” • “But our network does not stand alone. It is enhanced with what we uniquely offer: a business that combines communications, computing, and network products and systems.” • “We seek continuously to improve our own network and those of other service providers around the world in order to make communications more useful to customers. This, in turn, increases network use.“ • “And, as our customers' information needs have become more complex, we are providing integrated, end-to-end network solutions.“

II c. historical review

Formerly known as the American Telephone and Telegraph Company, AT&T Corporation was incorporated on March 3, 1885, in New York as a wholly owned subsidiary of the American Bell Telephone Company. It is presently the largest Telecommunications Company in the United States and a worldwide leader in communications services. Its main businesses include long-distance telephone, wireless, AT&T Solutions consulting services, and the AT&T Universal Card. Until its divestiture on January 1, 1984, AT&T was the parent company of the Bell System, the regulated enterprise that formerly provided the bulk of telecommunications in the United States. From 1984 until 1996, AT&T was an integrated provider of communications services and products, network equipment and computer systems. In September of 1995 AT&T announced that it would be splitting into three companies over the subsequent fifteen months. These companies are: today's AT&T, which provides communication services; Lucent Technologies, a systems and technology company, which provides communications products; and NCR Corp., which is in the computer business (History, 1998). AT&T subsequently focused on its consumer and commercial telephone services which became a vehicle for Internet Service Providers (ISP) to start offering Internet access. Seeing the potential market the Internet was developing into AT&T established its own Internet services using its WorldNet system of wired and wireless telephone technologies.

It is important to realize that cable was invented by AT&T. In a 1999 speech to the National Cable Television Association (NCTA) C. Michael Armstrong, Chairman and CEO of AT&T, noted “It's true: Cable came out of the AT&T labs after World War II, when AT&T engineers developed it to transmit long-distance calls.”

AT&T today continues to innovate new communication technologies and is expanding its ability beyond dial-up Internet services to deliver a broader variety of telecommunication services across an ever expanding market. Most recently with the advent of broadband Internet delivery technologies such as Digital Subscriber Line (DSL), cable, and wireless, AT&T has begun to focus on this new emergent high-speed Internet market and this report will target that aspect of AT&T’s strategic outlook. AT&T's recent acquisition of TCI and MediaOne have made it the largest cable operator in the country, and it has launched an ambitious effort to deliver broadband Internet service and telephony over a variety of cable networks (Werbach, 1999). There has also been an aggressive program established to provide businesses with broadband Internet access using DSL technology in order to economically support the increasing demand in telecommuting. Additionally, AT&T wireless should explore new wireless broadband technologies that could some day equal or even exceed the broadband capability of cable and Digital Subscriber Line (DSL) services.

II d. recent events

12.1.99 Charter Communications and AT&T BIS Announce Intent to Exchange Cable Systems to Create Regional "Super Clusters". Charter Communications and AT&T Broadband & Internet Services announced that they have signed a letter of intent to trade certain cable systems to create more efficient cable operations and speed the delivery of broadband technology and services to more consumers.

5.6.99 MediaOne Group and AT&T sign definitive merger agreement. MediaOne Group and AT&T entered into a definitive merger agreement under which MediaOne Group’s shareowners will receive .95 of a share of AT&T common stock and at least $30.85 in cash for each share of MediaOne Group stock they own.

5.5.99 AT&T and Comcast agree to swap cable systems. AT&T and Comcast Corporation announced that they had reached an agreement under which Comcast will be able to increase its cable subscribers by about two million households and the two companies will collaborate in bringing competitive local telephone service to Comcast’s customers.

6.6.99 AT&T, Microsoft announce agreements to accelerate deployment of broadband services. AT&T and Microsoft Corp. announced a series of agreements in which the companies will work together to accelerate the deployment of next-generation broadband and Internet services to millions of American homes.

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III. Product Analysis

AT&T offers the full spectrum of Internet access services. They have an extensive network based on their long distance telephone network that is cable of delivering conventional narrow-band Internet access via AT&T’s access service (WorldNet) throughout most of the continental United States. They also offer broadband Internet access via cable modem or DSL and eventually wireless. These products will now be evaluated based on their strengths, weaknesses, and potential for future growth.

III a. overview of products

i. dialup access

According to Clark (1999), “Most people now connect using a dial-up modem, a device that converts back and forth between streams of data and patterns of audible-frequency tones, enabling the data to be sent down telephone lines originally designed to carry voices. At the other end of the line, an Internet service provider acts as a kind of portal through which the subscriber can contact and exchange data with countless nodes around the globe. Dial-up modems are easy to use, and most computers come with one built in. But their performance is limited. In addition, the need to place--and pay for--a telephone call to establish a connection to the service provider means that access to the Internet is not continuously and conveniently available.” Through their WorldNet ISP services AT&T has captured a large part of the domestic narrow-band Internet access market. Conventional narrowband Internet access requires only a telephone line and a computer with a standard analog modem. This service, while very reliable and the least expensive to provide to consumers, will more than likely fall victim to the ever growing demand for broadband Internet access. According to Forrester, “By the end of 2002, 32% of on-line households will be connecting to the Internet via broadband. Eighty percent of broadband users will be cable modem subscribers, while the remaining 20% will use DSL (MacKenzie, Clemmer, & Morrisette, 1998).”

ii. cable access

Cable lines, which are essentially coaxial cables—the same as used to deliver television—are rapidly becoming a means through which a variety of media are delivered. One of the more significant developments over the last decade has been the ability to deliver Internet access via these same cable lines. Seeing the potential market for improved Internet access speeds, cable companies, as early as 1991 began to upgrade existing cable systems to Internet capable systems. The first trial use of the capability was introduced in 1995 and has steadily gained momentum. Cable offers significant performance benefits over analog modems, ISDN, and T1 technologies. Primarily designed for residential users, cable modems connect over one channel of an upgraded cable television system. Connections are constant, with download and upload speeds as high as 30 Mbps or more. Cable is currently available to more users than ADSL and is expected to grow dramatically. To further exploit the capability of cable Internet service, AT&T labs, According to Schwartz (1999), are focusing their effort on the use of telephony over cable technology. According to plans outlined by AT&T, the company will begin to use standard circuit-switched technologies normally associated with telephone networks over cable. In the next two years, AT&T will offer customers IP-based voice calls via its cable network…Rather than marketing the services on a person-to-person basis, AT&T will tout the benefits of telecommuting to its business customers, trying to sell senior management on the concept of paying for a high-performance cable subscription for their employees. “

According to AT&T, their AT&T@Home cable service offers, “No dialing in, no busy signals, no unexpected disconnects, absolutely no hassles! AT&T@Home provides all the features your family needs to enjoy the Web, including: a customized browser, unlimited use for a low monthly fee, multiple email accounts, personal WebSpace, 24/7 technical support, search & navigation tools, chat and newsgroup access, and 12 channels of news, information and entertainment. Not to mention a whole new dimension of revolutionary content you can't find anywhere else. Watch video clips on demand. Listen to CD-quality music while you surf. Pummel your rivals in the hottest online games -- all without the delays experienced on typical dial-up connections.”

Cable is still not the perfect broadband Internet capability, primarily due to the degradation in performance experienced as more users tap the same cable distribution system. However, AT&T is looking to innovate changes that will mitigate these current limitations. AT&T Labs most recent initiative is called “LightWire.” Being piloted in Salt Lake City, LightWire will increase total bandwidth of coaxial cable by as much as 1 GHz and will "triple the upstream bandwidth for each home," according to documents from AT&T Labs. The LightWire system is a two-way technology that will support all current services over cable, including digital TV, cable TV, and voice telephony, without reducing performance as the number of users increases. Other AT&T lab technologies being planned are “Shoebox” - a search and indexing service for digital photos that can retrieve photos by finding a matching face, “DjVu” - a graphics-compression technology that will be used for the distribution of high-quality scanned images, and “Digital Video Library” - a retrieval service that will allow users to access stored television programs and movies (Schwartz, 2000).

iii. digital subscriber

DSL provides a dedicated service over a single telephone line; cable modems offer a dedicated service over a shared media. While cable modems have greater downstream bandwidth capabilities (up to 30 Mbps), that bandwidth is shared among all users on a line, and will therefore vary, perhaps dramatically, as more users in a neighborhood get online at the same time. Cable modem upstream traffic will in many cases be slower than DSL, either because the particular cable modem is inherently slower, or because of rate reductions caused by contention for upstream bandwidth slots by increased user activity. The big difference between DSL and cable modems, however, is the number of lines available to each. There are no more than 12 million homes today that can support two-way cable modem transmissions, and while the figure also grows steadily, it will not catch up with telephone lines for many years. Additionally, many of the older cable networks are not capable of offering a return channel; consequently, such networks will need significant upgrading before they can offer high bandwidth services. AT&T offers DSL service but it is currently geared primarily to small business and corporate customers.

AT&T, having a substantial telephone line network in place, stands to benefit from the advantages DSL currently offers, however, as previously mentioned, cable Internet limitations are being addressed and it may be only a matter of time before cable surpasses DSL in its total utility. In the interim, AT&T will offer DSL Internet service in 17 markets throughout the nation and has aggressive rollout plans to expand its footprint to more than 100 markets by the fourth quarter of 2000. AT&T plans to make its DSL services available at more than 2000 DSL points-of-presence (POPs) by year-end 2000 using Symmetric Digital Subscriber Line (SDSL), Asymmetric Digital Subscriber Line (ADSL) and ISDN Digital Subscriber Line (IDSL) technologies.

iv. wireless

According to a recent Scientific American article “Research shows that broadband subscribers value high data transmission rates over other service attributes, and their "need for speed" more than doubles every year as Internet Web sites become more elaborate and data-intensive. Satellites are well positioned to serve this burgeoning demand for rapid Internet downloads, with maximum transmission speeds twice as fast as LMDS, three to six times faster than cable modems, and up to 12 times faster than DSL. Competitive diversity is also a consideration. Although discussions of broadband communications tend to focus on technological and economic issues, the most important driver behind satellite services may well be the competitive aspirations of large, powerful telecommunications companies. There are simply more firms planning to market broadband services than there will be ground-based broadband networks available. A September 1999 Phillips Group study claims that satellite – for broadband Internet access - offers longer-term potential as service providers plan two-way systems that would lead to mass acceptance. However, the study also contends that the time lag in entering the market will prevent satellite-based systems from making a serious challenge to the domination of the cable-based broadband in the residential market, and DSL in the business market. However, these predictions might be short-lived.

AT&T wireless services are currently primarily geared to cellular voice telephony vs. data and in this market AT&T is growing steadily—adding 440,000 wireless subscribers in 4th quarter of 1999 alone. Although AT&T currently offers no fixed wireless broadband capability, in response to the potential demand for such services they are rapidly moving toward a solution that they initially named “Project Angel.” This is a new fixed-wireless plan that has now been re-christened “AT&T National Wireless Local Exchange Carrier.” The new initiative now is concentrated on delivering data at speeds as high as 1Mb/s. The approach involves a residential base station that allows users to use cellular-like cordless with no per-minute airtime charges. The unit reportedly will cost AT&T about $750 per household to install. A $350 million debut, covering 1.5 million homes in Fort Worth, TX, and two other unidentified cities, is slated to begin during spring of 2000, according to the company (Holt, 2000).

To consolidate their wireless features AT&T will now establish a separate wireless tracking stock for it’s AT&T Wireless Group. The new tracking stock is designed to reflect the economic performance of all AT&T's wireless services businesses, including voice and data mobility, fixed-wireless and ownership interests in domestic and international wireless operators. This falls directly in line with our grand strategy of combining the full range of communications services via fixed and mobile wireless broadband on a global basis.

v. long distance

As noted on the AT&T website “AT&T runs the world's largest, most powerful long-distance network and the largest digital wireless network in North America.“ AT&T is the number one long distance company in the United States. The strengths and knowledge of that business are of great benefit to other newer operations in the firm, such as the broadband business.

Some interesting facts from AT&T regarding their long distance faculties include:

• Handled 88.5 billion voice calls in 1999. • On an average business day, handles more than 280 million voice calls and more than 300 million on peak days. • Set an all-time record on Tuesday, November 16, 1999, when it handled 328.7 million voice calls. • On an average business day, handles more than 75 terabytes [75 trillion bytes] of data on standard data circuits, plus an estimated 600 terabytes of data on Private Line facilities. • Includes more than 43,000 route miles of fiber-optic cable to carry long-distance traffic. • Is 100 percent digital for all switched traffic.

AT&T's primary services have always been in the long-distance telephone market. With more than 400 companies offering long-distance service today, AT&T recognizes the need for quality customer service, competitive pricing, and cutting edge technology in the area of long-distance telephone service. AT&T offers one of the most competitive consumer long-distance plans in the industry. All nationwide long-distance calls are just $.07 per minute.

III b. analysis

i. opportunities

Pearce and Robinson (1997) define an opportunity as "a major favorable situation in a firm's environment" (p. 171). Dominance of the fixed, wireless broadband market likely if the AT&T National Wireless Local Exchange Carrier program realizes the economies of scale required to bring household installation costs down. In the interim, AT&T’s expansive network of broadband cable service provided via their AT&T@Home service will garner at least 30% of the domestic broadband Internet market.

ii. threats

Pearce and Robinson (1997) define a threat as "a major unfavorable situation in a firm's environment" (p. 171). AOL/Time Warner and their strategic alliances pose a significant threat to both cable and fixed wireless broadband markets targeted by AT&T. Federal regulation of the Internet and Internet service distribution systems, if implemented, could impede market expansion in the timeframes targeted by our long-term objectives.

iii. strengths

AT&T’s dominance in wireless broadband technology combined with their global partnerships in wireless communication. Mitigation of existing broadband cable limitations using AT&T’s “LightWire,” should the prototype testing prove successful will place AT&T into a technology leadership position in this market.

AT&T has the benefit of a building on a 115 year reputation as a pioneer in the telecommunications industry. As we begin to see a convergence of technologies (i.e. voice, data, and video over cable), AT&T is uniquely positioned to lead the market in this area. Some of their grand strategies are in the areas of market development and concentric diversification. In the area of market development, AT&T positions the cable modem product as a new use of the existing cable network as well as uses of their nationwide infrastructure to the benefit of their dialup and wireless access services. In the area of concentric diversification, AT&T had acquired the @Home cable product as well as a pending acquisition of Media One, a major cable system. AT&T has also announced some wireless system acquisitions.

iv. weaknesses

AT&T’s long-term objective of fixed, wireless broadband depends on elimination of reliability issues that can interrupt service (weather, etc) as well as further refinement of technology to reduce the cost of in-home fixed wireless hardware. Wireless upstream data transfer technology is still early in the development stage (Derfler Jr., & Freed, 1999).

AT&T is relying heavily on its cable and dialup technologies for Internet access. It will face heavy competition from regional bell companies who offer other broadband services such as DSL. Consumers who are especially concerned about guaranteed bandwidth and security may opt for DSL over cable because it offers distinct advantages in those areas. Though major strides have been made towards securing the cable data networks, there have been reports of customers being able to view hundreds of other computer systems on the network.

v. market

AT&T is leveraging its current capabilities and finding new uses for existing products. Later on this year, AT&T will begin to offer a new product called ROSE, or Remote Office Service. This uses the AT&T network to direct calls to and from the telecommuting workforce much in the same way an office PBX system works. Building on that concept, in the next two years, AT&T will offer customers IP-based voice calls via its cable network giving consumers a choice in the local telephone market.

AT&T faces the risks of deregulation of the cable market to allow for competition using the cable lines. This is a distinct risk that would allow competitors to make use of the AT&T cable system in direct efforts to take away customers.

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IV. Technology Forecast

In order for any business to stay competitive, it is necessary to predict probable events that will help the organization prepare for the future. These predictions attempt to identify the timing and amount of change in environmental factors, such as technology advancements, that may affect the future.(Bright, 21) This process of identifying future technological occurrences is known as Technology Forecasting. (TF) The communications industry in particular is susceptible rapid changes in technology. This section will explore Internet access technology, and advances in that technology that could affect AT&T’s position in the market place.

IV a. dialup services industry trends

The dial-up Internet access technology that is available today does not differ much from what was in place when AOL, Prodigy, and CompuServe began offering their online services years ago. In order for a computer system to use this type of service, it must have an internally or externally connected modem, access to a POTS (plain old telephone service) line, and software that allows it to connect to the remote network. The only advances that have been made regarding this type of technology is the speed of the connection. The last great leap in dial-up speed came in 1997 when two competing technologies were introduced, both offering up to 56,000bps download speed. The ITU (International Telecommunication Union) agreed on a standard named V.90 for this new higher speed modem.(ITU 98-4, 1998) This represents what we feel will be the last technological break through for modem users. This is due the current limitation that the FCC has placed on the speed of analog modems of a maximum of 53kbps download. If the FCC does not lift this regulation, then dial-up users will be limited to this speed.

Although the technology used by analog modems to access the Internet will not likely change in the next 3-4 years, the service itself has and will undergo significant changes. Several companies are trying the concept of free Internet access, in exchange for placing advertisements on your computer screen. This will only moderately impact AT&T’s WorldNet service, as free ISP’s are not compatible with all software, and the level of service cannot compare to what is currently being offered by AT&T.

IV b. cable systems industry trends

When compared to traditional modem technology, cable modems are still very young. Cable modem technology offers broadband Internet access over the same infrastructure used by the current cable television network. Depending on the type and age of the network already in place, the cable provider may be limited to downstream-only access. The AT&T network is both an upstream and downstream access provider. Cable companies who are limited to downstream-only service are working to upgrade their network to be upstream capable in order to better compete with other consumer access products such as xDSL.

Internet security has always been a hot topic, however, with the advent of always-on Internet connections for the home user, it is now coming to the forefront of everyone’s mind. Internet connections using DSL or cable modems present a security risk for several reasons. To begin with, they are always on. This “always on” status gives hackers the potential for attacking a system at anytime, because it is always available. Also, many people who subscribe to cable modem or DSL service are unaware of the security risks those technologies pose, thus they are less likely to install a firewall or other protection software. Security is a large area that requires endless monitoring so that AT&T can be on the forefront of any developments that may assist our customers in securing their systems (Goldberg, 2000).

IV c. other trends

Wireless – AT&T’s position in the wireless marketplace will give us a distinct advantage over other competitors. AT&T’s current offering is low-bandwidth wireless access in very few markets, however, if the broadband tests in Texas are successful, wireless access will be offered in markets across the US. This trend will continue to increase, as the need for alternative access methods are required. Advancements in wireless technology will allow for greater access speeds, creating more choices in the broadband access market. Currently in Japan, engineers from Matsushita Communication, Ericsson, Lucent, Nokia, and others are working on the next standard of broadband wireless, known as W-CDMA. This new standard will increase transmission speeds by over 40 times the current limitation of 9.6kbps. While this is still slower than current DSL and cable modem speeds, it will give customers an alternative when cable modems or DSL is not available. (“Wideband CDMA”, Online)

Satellite – AT&T is not currently involved in the development or implementation of broadband satellite Internet access technology.

DSL – In order to best support the current customer base, AT&T is in the process of an aggressive, nation-wide roll out of DSL service. AT&T's DSL service will be able to offer customers much faster connections (when compared to dial-up) to the Internet at competitive prices. Also, AT&T offers ease of installation and ongoing support with multiple access technologies such as cable and dial-up. AT&T understands the necessity for multiple technologies, and will make these available so as to serve the broadest market possible (AT&T DSL FAQ, On-line).

IV d. pertinent techniques

Monitoring. The most helpful form of forecasting for determining future technologies in the realm of Internet access is called monitoring. To forecast by monitoring, the forecaster must keep an eye on the environment for ideas that may be applied to an application. The process is as follows:

1. Search the environment for signals of innovators carrying potential significant technological change. 2. Identify consequences if the trend initiated by the innovator is carried out. 3. Choose events that should be followed in order to verify true speed and direction of the innovation. 4. Present the data to management for their use in decisions about the organizations reaction (Burgleman & Maidique & Wheelwright, p. 198).

When monitoring the industry for dial-up, cable, wireless and DSL, it is imperative to examine the developers of the hardware supporting those technologies. Many early signs of new technologies are evident in industry trade magazines and web sites.

Trend Extrapolation. Another form of forecasting, called trend extrapolation, is based on the assumption that attributes generally progress in an orderly manner over time. By compiling past data and placing it on a graph, we can create a line showing future trends. According to Kinetic Strategies Inc., there were 1.4 million cable modem subscribers in the U.S. and Canada by October 1999, up from 1 million subscribers in July. By using those figures in a trend extrapolation graph, we can see the beginnings of an s-curve, which is typical of this type of forecasting.

[pic] By analyzing the above graph, it can be concluded that by March of 2003, we can expect there to be nearly 140 million people online using cable modems. (“Cable Modem Market Stats”, 1999)

Technology forecasting is an indispensable tool in determining the future of an organization. AT&T regularly analyzes the marketplace for trends in new technologies and uses trend extrapolation to predict future demand for our products.

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V. Strategic Assessment

V a. mission

AT&T does have a corporate mission statement. “We are dedicated to being the world's best at bringing people together--giving them easy access to each other and to the information and services they want and need--anytime, anywhere.“ This

Pearce and Robinson (1997) show seven desired outcomes for a company mission statement, paraphrased here: 1 - Ensure a central purpose for the organization 2 - Provide a basis for resource utilization 3 - Develop a basis for resource allocation 4 - Create a company climate 5 - Serve as a focus for direction 6 - Allow for translation of objectives and goals 7 - Provide for controls and parameters

It does not seem that the short mission statement of AT&T meets many of these outcomes. However when coupled with the company strategic planning business strategy, most of the outcomes are met.

Strategic planning is evident in AT&T’s business strategy as depicted in the company annual report. Key points extracted from this business strategy help to provide management direction. • Position the company as the world’s networking leader. • Capitalize on strengths of building and managing advanced technology networks. • Combine businesses of communications, computing, and network products. • Continuous improvement process. • Customer product focus.

The company strategy is well suited to the Internet market and specifically the consumer market. AT&T can utilize their business strategy to improve their position.

V b. company profile

AT&T has created a subsidiary for their Internet services. The name of AT&T Broadband & Internet Services is not widely known and most customers just assume that they are dealing with AT&T prime. This subsidiary is actually really the former TCI which was acquired by AT&T to truly broaden their market in the broadband arena. Although currently the #2 cable operator, one AT&T completes their acquisition of Media One the subsidiary will pass Time Warner and become the #1 cable provider in the United States.

The current market share of AT&T for the cable industry is excellent. Salamone (2000) noted in Internet Week the current breakout of cable subscribers by company. [pic]

|Comcast |8% |
|AT&T |9% |
|Rogers |9% |
|Cox |10% |
|Shaw |10% |
|MediaOne |12% |
|Time Warner |18% |
|Others |24% |
| |100.00% |

It can be seen that the addition of Media One to AT&T existing cable presence leads to a 21% market share which is the largest of any single cable operator. This does not take into account the various collaborative efforts with Comcast.

V c. external environment

AT&T is definitely aware of their competition and external forces on the company. It seems that AT&T had formed the Broadband & Internet subsidiary to better meet the market in this area. There are only a few major players in the cable industry and AT&T is among the largest while being posed to become the number one. Competition is fierce in the Internet access industry and especially in the end consumer market. The products and capabilities of AT&T well complement their ability to meet the market requirements.

The external environment at AT&T includes competitive risks and advantages. Pearce and Robinson (1997) define the external environment as consisting "of all the conditions and forces that affect its strategic options and define its competitive situation" (p. 15). The major external environmental areas that could be expected to impact AT&T in the next five years include:

Competition/Market. An increase in competitors could adversely hamper AT&T’s sales in this market while a decrease of competitors could enhance AT&T market position. The market in the cable sector seems to be moving towards just a few major players.

Technology. The need to keep current on technology and integrate new technology where applicable is an advantage if emphasized and a weakness if ignored. Technology changes rapidly and AT&T maintains several industry recognized labs. The company is moving to retire older technology such as their microwave links.

Alliances/Partnerships. AT&T has grown in this area. Examples include work to provide services in conjunction with competitors and trade market areas. Additional alliances and partnerships will serve to strengthen the company.

Customers. The customer base in the market will only increase as we move forward. AT&T is not complacent and continues to push to gain market share of the home user customer group.

Legislation/Regulations. The Internet is a highly regulated market. New regulations or changes to regulation can positively and negatively impact AT&T. The efforts of the company in this area are extremely proactive and include lobbying staff.

V d. internal environment

The internal environment includes the company strengths and weaknesses. The major internal environmental changes, or actually areas for change, that could be expected to impact AT&T in the next five years include:

Marketing • new product offerings, new technology • market trends Financial • ability to acquire other firms • corporate resources, capital expenditure Operations • network management • partner relationships Personnel • key executive management positions Quality • integration of controls on projects, monitoring of quality • system modernization • operational support systems General Management • performance • strategic planning

Fortunately most of these areas are strengths of the company versus weaknesses. AT&T has had years of experience and brings the proper internal environment necessary to this complex Internet market.

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VI. Strategic Plan Recommendations

Grand Strategies provide the strategic direction for actions while long-term objectives are results a firm seeks to achieve over a specified period (Pearce & Robinson). AT&T has tremendous opportunity for Internet cable and wireless access dominance over the next 3-5 years provided realistic, achievable goals are established. The following grand strategies will be employed by AT&T over the next 6 years, listed in order of priority. Both grand strategies and long term objectives will be reviewed on an annual basis for both progress reporting and revision purposes.

VI a. grand strategy

Concentrated Growth. The first element of AT&T's grand strategy is a focus on concentrated growth. Concentrated growth is defined as focusing on a specific product and market combination. This type of grand strategy is often the most effective, and comes with the least risk. AT&T's product focus has always been on communication. Whether that involves long distance, Internet messaging, or other voice and data products, we will continue to focus in those areas. We will seek to take advantage of the convergence of these technologies (voice, data & video) and exploit expertise to gain a larger market share, and increase usage by current customers.

Market Development. The next area of the AT&T grand strategy is in the area of market development. Pierce and Robinson define market development as identifying new uses for existing products and new market areas. These new market areas can be differentiated through geographic location or demographics. This segment of grand strategy is second only to concentrated growth when considering the risk and costs involved in implementation. Market development will be realized at AT&T through the use of current cable, data and wireless infrastructure for new purposes. For example, the entire cable television infrastructure will be upgraded to handle new technologies such as digital cable, Internet access, and telephone service. And, wireless technologies will expand to allow for broadband Internet access, which will in-turn allow for wireless video conferencing, and other bandwidth intensive activities. Wireless technologies will be an ideal solution for those customers who have not yet had cable television service offered in their area, or who are served by a competing cable provider. AT&T will be a "one-stop" solution for all communication needs, regardless of what technology is chosen by the end customer.

Product Development. Product development is the third aspect of AT&T's grand strategy, and it requires a larger amount of risk, and involves higher costs of implementation. This type of grand strategy focuses on developing new products for present markets. This could also include adding new features to current products or adding variations of a product. We will continue to introduce Internet-access related products (LightWire, etc.) to ensure a wide variety of choices to meet consumer needs. In keeping with this strategy, all services offered by AT&T will be available in different configurations/levels so that every customer will have access to products regardless of budget.

Innovation. An emphasis on innovation will also serve as one of AT&T’s grand strategies. AT&T has always been a leader in technological breakthroughs, and will continue to build on that reputation in the future. We will devote significant resources to expand the present capabilities of all current and future Internet-access mediums to ensure a dominant technological advantage. In keeping with this strategy, AT&T will develop switching technology for use in cable networks normally only in use by telephone providers. By implementing switching technology, customers will realize a greater amount of speed, reliability and security through Internet-enabled cable systems.

Concentric Diversification. To continue emphasis on Internet-related activities, AT&T will seek to acquire businesses that are related to us in terms of technology, markets, or products. This type of strategy is known as concentric diversification. The AT&T Internet presence will be enhanced by the purchase of a well known Internet portal, such as Yahoo!. By acquiring a site such as Yahoo!, AT&T can leverage the brand to expand customer base. We will also actively seek to acquire various local and regional ISPs to consolidate and focus cable services and enable synergies that optimize AT&T delivery technology with content provisioning.

Strategic Partnership. The final activity related to the grand strategy is the development of strategic partnerships. AT&T is highly aware of recent activity and legislation regarding open access to cable systems. To avoid federal intervention into AT&T's operations, we will develop strategic relationships with competitors seeking access to the AT&T cable networks. Companies with the potential of becoming strategic partners with AT&T include AOL, Mindspring, or other national ISPs.

AT&T notes their acquisition and partnership policy from their annual report “We make an acquisition when that seems the most effective way to take advantage of a particular market opportunity to further our growth goals. We look for partnerships--whether equity investments, joint ventures or other alliances--that complement our own strengths.”

VI b. long term strategies

AT&T's long-term objectives are the specific goals we expect to attain by focusing on the grand strategies as shown above. Pierce and Robinson list seven areas that strategic planners should establish long-term objectives. These include: profitability, productivity, competitive position, employee development, employee relations, technological leadership, and public responsibility. This section will focus on each area, and list the individual specific goals.

Profitability. The most obvious, and perhaps most important objective of AT&T is to maintain profitability. Virtually all objectives and goals can be tied to this area in some way. However, the main purpose of this objective is to exhibit fiscal responsibility to the shareholders. Profitability will be measured by analysis of earnings per share data, currently at $1.74. A long term goal of an annual earnings per share growth of 15% per year is the target.

Profitability is also a concern when the Federal Government introduces regulations that impact the way we currently do business. The most recent regulations revolve around opening cable television networks to competitors in the Internet access arena. In order to maintain profitability, AT&T will Develop revenue-beneficial open-access cable initiatives by 2002.

Competitive Position. AT&T is heavily focused on dominance in the marketplace. This is reflected in the following objectives:

1. Control 75% of the US cable Internet market by 2002, 85% by 2004. This will be realized through the acquisition of regional cable providers. 2. Increase Internet access service advertising expenditures 10% per annum through 2005. 3. Control 60% of DSL market for non-cable market by 2003. Due to varying market conditions, not all potential customers will have access to AT&T's cable networks, thus requiring an alternative for broadband Internet access. 4. Control 70% wireless broadband market by 2006. AT&T already has a major portion of the wireless voice communication market. Wireless data is simply an extension of this service will allow AT&T to capitalize on the already existing infrastructure.

Technological Leadership. AT&T will continue to lead the market in new technology introduction by directing significant financial and human resources in this area. Goals include:

1. Offer IP-based voice calls via the AT&T cable network by 2002. 2. Develop 30 Mbps downstream/10 Mbps. upstream wireless broadband by 2004.

Employee Development. AT&T will continue to offer training and education to its employees and offer financial reimbursement to employees seeking to obtain higher degrees. By doing so, AT&T will develop and maintain a highly skilled, highly trained workforce capable of reaching the objectives and strategies outlined in this paper.

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VII. Strategic Intent

By following a specific grand strategy and with focus on distinct long term objectives, AT&T can improve their competitive position in the home user Internet market over the next five years with resulting increased profit. This market for AT&T will include a near dominance in the wireless technology arena as well as the broadband sector which coupled will provide superior Internet access to their home consumers.

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