AT&T Betting On Its Bundle

You're online flirting and decide it's time to make the call. No problem. Click on an icon, and your cyberhoney's phone rings in an instant--a few blocks or a few thousand miles away. And it's not just any ring. Everyone in the house has a separate phone line, each with a distinct sound. So when they're all huddled together watching a movie on cable, they know who needs to get up to answer. Of course, no one really has to get up, because they all have a cell phone handy, and it doesn't cost anything extra to take the call that way. Best of all, this whole web of communication--via Internet, cable TV, hard-line and cell phone; whether for local calls or long distance--can be bought as a bundle for less than today's total cost of the same services, and paid on a single bill. It's from AT&T.

Talk about back to the future. Ma Bell wants to be your sole communications provider again, just 15 years after regulators broke up AT&T's telephone monopoly. A major difference this go-round is that there's no monopoly. Another difference is that we're talking about much more than your phone. The vision described above, of lower cost and simpler billing for a whole complex of telecommunication services, could become reality in only a year or two--after billions of dollars in hardware upgrades. AT&T's dynamic CEO, C. Michael Armstrong, who took over in November 1997, is out to win your loyalty on many fronts, in the face of ferocious competition from giants like MCI Worldcom, Sprint, Bell Atlantic and SBC Communications. Each wants to sell you a bundle of wired and wireless connections.

Just last week long-distance company MCI rolled out local-phone service to compete with Bell Atlantic in New York State, and launched a service, with America Online's CompuServe unit, to offer Internet access to households. "The barriers for who provides what are blurring," says Daniel Reingold, telecom analyst at Merrill Lynch. "Every player needs a full shelf of products."

For now, AT&T is setting the pace, and Armstrong's vision is playing well on Wall Street: AT&T's shares--the most widely held in the U.S.--are up 65% in five months. After years of tepid growth, earnings should build 20% a year starting next year, analysts say.

Armstrong has leveraged his stock's rising value in a series of bold deals, including a joint venture announced last week with the country's No. 1 cable provider, Time Warner (parent company of Time). The deal--which still needs the approval of another Time Warner partner and possibly that of local regulators--would give AT&T exclusive access for 20 years to Time Warner cable systems, which reach 12.6 million subscribers in 33 states. Starting next year, AT&T would provide local-phone service through the same wires that carry cable TV, thus circumventing the regional-Bell local-phone monopolies.