The Internet Connection War

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

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.

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.CorporateBackground. 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

1. dialup access

1. cable access
2. digital subscriber
3. wireless
4. long distance

b.analysis

1. opportunities
2. threats
3. strengths
4. weaknesses
5. market

IV.TechnologyForecast. 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.

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.”

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.

5.5.99AT&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.

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).