Thursday, March 09, 2006

The "New" AT&T Part 2 : Content vs. Delivery

It strikes me as odd that most, if not all of the commentators and analysts addressing the AT&T-BellSouth merger focus on an apparent future of content over digital wideband loops, without coldly assessing the skills of the company's to do so.

For example, I asked my partner today at lunch if he thought it would be reasonable for GM to enter the online video content business. He replied he thought not, because it's not something they have ever done before, and there is already competent competition. Just so.

Thus, I can't understand why anyone would think a phone company could enter the content business, either. Phone companies are the ultimate delivery business. Since inception, they have focused purely on connectivity, being a "pipe," not on the content over the pipe. Why would anyone think they have any relevant expertise in the hoped-for revenue-growth enhancing areas of video and other content-on-demand?

What is more likely, per Holman Jenkins' WSJ piece yesterday, is that AT&T, Verizon, which is spending like crazy on fiber, and the cable companies will all see the value of their physical high-speed connectivity assets fall with the coming of ubiquitous, high-speed wireless wideband access.

The game, for Verizon and AT&T, seems to be to add high-speed access revenues before the declining landline business forces them to the brink of insolvency. Cable companies are likely to be reduced to carriage, too, as much of their television content revenues become priced per-usage as online access consumption.

To me, this is appropriately Schumpterian. As Jenkins wrote yesterday, these investments are not guaranteed- they are, whether realized or not, just attempts at survival in a very uncertain competitive environment.

One thing continues to stick out in my mind this week, as I continue to reflect on the merger. Lately, I have reconnected with one of my earliest, post-graduate school supervisors for whom I worked at AT&T over 25 years ago. He's still in the area, with a telecom consulting firm. At the time he and I worked together, a then-upstart consulting firm, The Yankee Group, would publish regular pieces on AT&T and its premises equipment business efforts. However, the image I still recall is a chart showing net positive cashflow over time, beginning in about 1975. The line was headed solidly downward even then. AT&T was pouring cash into its efforts to fend off competition and prepare for some sort of deregulated environment. It was obvious to me, as I contemplated that macro view with my growing knowledge of our competitive positions in various product markets, that the entire business was headed for greater customer features, functions and services, at ever-shrinking margins and price levels.

I don't think that has ever stopped. This week's merger is really just a continuation, punctuated temporarily by Judge Greene's mistaken ruling, of that trend. The combination will help lessen some of the operating costs for AT&T, but it can't affect the continuing downward pressure on its revenues.

As I sit here writing these two posts, I sit only ten miles from the headquarters of the "old" AT&T, where I once worked. Mapquest tells me it is eighteen hundred miles from here to the "new" AT&T headquarters in San Antonio. It sure doesn't feel that the company has moved very far, or that very much has changed in terms of its fortunes.

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