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Summary:

Ma Bell, a very weakened Ma Ball in all honesty, is betting that VoIP would be its white knight. Talk about an aging crone dreaming of a 20-something stud-muffin. In the quarterly conference call today, AT&T CEO Dave Dorman said that the company is selling VoIP […]

att.103x49.headerMa Bell, a very weakened Ma Ball in all honesty, is betting that VoIP would be its white knight. Talk about an aging crone dreaming of a 20-something stud-muffin. In the quarterly conference call today, AT&T CEO Dave Dorman said that the company is selling VoIP service in 100 markets without spending anything much on marketing so far.

Thus far what we’ve done is shakedown our operating systems, our provisioning, billing, care systems, so that we can be ready to scale. We feel like we are. We have plans for promotion for the VoIP product through the second half of the year, based on achieving this rollout. So, over the course of the late summer and the fall, we will be promoting the VoIP product. At this point we’ve not built the plan for next year with respect to what we’ll spend on VOIP, or other services.


On the business side, AT&T is planning on teleworker trials during this quarter in Australia, Hong Kong, Singapore and the UK.

If you think about Voice over IP as a sort of a garden start opportunity, we do believe that voice is going to grow as broadband penetration grows. It will help broadband penetration increase. It is an application layer service, so it exists in the same realm that e-mail does, search and other hosted applications that we’re familiar with from people like Yahoo, Google and the like.

And while he was swinging the bat, Dorman decided to hit one on Vonage’s knees.

I do think it also suggests that as people think about the VoIP product, where the VoIP product started out at the consumer price point has already seen price competition emerge pretty dramatically. If you’re thinking that you’re going to have a Consumer VoIP product out there that’s going to generate $40 per sub you’re probably kidding yourself. So whether you’re a cable company or you’re a telephone company I think you’ve got to reassess what the retail price point for voice services is going to be in three years and look at your investment against that and understand very carefully whether you have an asset base that can support that kind of price point.

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  1. Charlie Sierra Thursday, July 22, 2004

    It may go against conventional wisdom, but I’m a big believer in ATT CEO Dave Dorman, who also just happens to be a Georgia Tech grad, and has spent lots of time in Atlanta.

    Dorman is generally recognized as the smartest guy in telecom, and if take the series of announcements over the past 3 months as a whole, we can see a clear pattern.

    Don’t discount ATT’s future, Dave is making all the smart moves and he’s making them early, another sign of leadership.

    When ATT rolls out its new bundles, it will become clear that Dave took Gary (sprint’s CEO, another former atlantan) to the cleaners.

  2. AT&T lost the local telephony battle and hence, DSL market. It doesn’t provide cable services. With no control over broadband internet market, I wonder how AT&T plans to be a viable competitor in the VoIP market against the likes of Comcast, Verizon, SBC and Vonage? As VoIP is essentially a race to provide low-cost services, I don’t think AT&T can provide any bundle of services that would be lower than what its competitors can provide.

  3. Charlie Sierra Thursday, July 22, 2004

    Aravind,

    1) ATT didn’t lose anything. The regulatory environment continues to evolve. ATT can’t control that and must respond appropriately, and they have.

    2) All the companies you list are basically regional monopolies at best and none have near the Brand equity of ATT. Nobody outside of telecom knows that VZ pulls down twice the revenues of ATT, and half the people in telecom don’t even know that.

    3) Telecom like computing has been a deflationary business ever since Moore’s law pushed the product and service portfolios into ‘overshoot’ mode.

    Thus one has to actually think thru this situation and environment and not jump to conventional, but false, conclusions.

    For starters, it doesn’t make financial sense to actually own the network, in deflationary conditions. Think of home ownership, if this is not obvious.

    Secondly owning a network is like being on an ever ending treadmill, that you can’t exit. Again like owning a house, the maintenance is constant. And even worse if you don’t upgrade to the next generation, then your network asset becomes obsolete in short order.

    In a couple of years after the macho intoxication of ‘owning’ assets (or do they own you?) wears off, ATT will look like geniuses.

    Now, what ATT can do is invest in things that are of actual interest to customers, like premium care, and VAS. So while VZW and PCS are going to have to blow $1B bones on an 1xEV-DO upgrade, ATT gets to ride along for nominal cost and invest in customers, not the network.

    Last point here, owning a network and having low costs, rests on a huge assumption, that being that you have achieve a profitable level of network loading. If you are short of this mark, then you have a very, very expensive network. So the pain of deflationary price cuts, works against network owners, because revenue = price * subscribers. So dropping prices is no pananeca, because it just means the marketing dept must kick it up just to stay even. Again that treadmill thing.

    So to summarize, A network owner has to make two large investments, CAPEX and CPGA (marketing), whereas a virtual operator only makes one investment, CPGA. An here is where ATT has a huge advantage due to Brand and a still very large base of LD customers.

    4) ATT will be an ass-kicking competitor and competitors that underestimate them will pay bigtime. By moving early, ATT ensures that they can maximize the value of their Brand. Plus an early entry will serve to disuade marginal players from even getting financed to compete in this area. Very smart.

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