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New President, New Focus at AT&T

By Steve Rosenbush AT&T is shifting course with the appointment of its new president, William Hannigan. AT&T (T) announced Dec. 2 that Hannigan will be replacing Betsy Bernhard, 48, who helped cut costs and stabilize the telecommunications giant during a brutal industry downturn. Now, as the economic recovery gains strength and telecom spending is rising for the first time in three years, AT&T is looking for revenue growth. CEO Dave Dorman tapped Hannigan, an old friend who worked with him at Sprint (FON) and SBC (SBC), to help lead the effort.

He and Dorman, 48, have a huge job on their hands. While the $38 billion outfit will get a lift from an improving economy, AT&T's long-distance markets still suffer from overcapacity and falling prices. There's no easy or obvious way to halt a pattern of revenue declines that goes back 15 quarters. "AT&T has always been the gold standard. It's the greatest brand in telecom, by far, and it has the greatest set of capabilities, too," Hannigan said in an interview. "The big challenge is going to be changing the momentum and the revenue line."

Hannigan, 44, brings a breadth of experience. Before AT&T hired him, he had been chairman and chief executive of Sabre Holdings (TSG), which operates the Travelocity airline-reservation system. He also served six years in the Navy's submarine service.

SHRINKING REVENUES. The key to AT&T's future lies in developing a new plan for the huge Business Services division, which accounted for $26.6 billion in revenue in 2002 and is perhaps the most strategically important asset in telecom, with a market share of more than 38%. But it's not doing that well.

Revenue has been dropping at an accelerating rate all year, reached 6.2% in the third quarter, thanks to a tough combination of competition, falling prices, and a sluggish telecom market that has trailed the overall economy. And life may get tougher. "We have seen signs of increased price competition, especially among the more challenged players," Dorman said in an interview.

AT&T needs to move beyond transporting voice and data over its networks and should be putting a greater focus on network-management services, industry observers say. That would put it head-to-head with rivals IBM (IBM) and Hewlett-Packard (HPQ), which also manage entire networks for big corporate customers.

STOCK SLUMP. "AT&T needs to focus its efforts on the small number of growing markets where it can dominate, like managed services," says Brian Adamik, chief executive of consultant and market researcher Yankee Group. It can also do well in Internet services for corporations and in local and long-distance consumer phone service.

Dorman is under enormous pressure to produce results. The collapse of AT&T's merger talks with BellSouth (BLS) this fall was a blow. Now, it has little chance of boosting its stock price through a big combination. And even though profit margins are twice as strong as those of MCI (MCWEQ), investors don't seem to care.

AT&T stock is down 22% for the year, having fallen a further 8 cents on Dec. 2, to $20.27, after news of Hannigan's appointment hit the wires. Dorman acknowledges that AT&T's enterprise value is only 70% of its revenue, while the Bells' enterprise value is an impressive two-times revenue. He's determined to boost that figure, and to do so, he's preparing to start 2004 with a new team at his side. Rosenbush covers telecom for BusinessWeek in New York

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