A Whirlwind Hits At&T Long Distance

Joseph P. Nacchio clearly doesn't waste time. Just a few months into his job as head of American Telephone & Telegraph Co.'s consumer long-distance business, he has already made his mark. First, he killed the division's confusing marketing campaign, called the "i Plan." Then, he demoted NW Ayer Inc., the longtime AT&T ad agency that came up with the concept and put a new shop in its place. Next, he hired a new senior marketing executive from the consumer-products industry.

Now, Nacchio is laying plans to slash costs at his division, possibly by eliminating thousands of jobs. He won't be specific, but The Wall Street Journal reported on Dec. 1 that the cuts could total as many as 4,500 of the unit's 32,000 jobs. Analysts called that estimate high, but say significant job cuts need to be made.

WIDE MANDATE. This whirlwind of activity wasn't unexpected. Nacchio was named president of AT&T's Consumer Communications Services in August with a widely publicized mandate to shake things up. The division, which accounts for $20 billion of AT&T's $65 billion in annual revenues, has been losing market share to MCI Communications Corp. and Sprint Corp. for years.

AT&T CEO Robert E. Allen needs to end that erosion of AT&T's core business. A key reason: Consumer long distance is the cash cow that has allowed Allen to pursue such grand schemes as AT&T's $12.6 billion takeover of McCaw Cellular Communications Inc. "In the past year, with the failure of the i Plan, that cash cow has been at risk," says analyst Berge Ayvazian of telecom market researchers Yankee Group Inc.

Nacchio, a fast-talking, 44-year-old Brooklyn native, established a reputation for turnarounds as president of AT&T's business long-distance unit. There, he quickly matched discount-pricing plans from rivals and speeded up customer service for such things as installing new lines. He also cut costs, allowing the company to slash rates by about 30% overall while maintaining profit margins. These moves reversed a market-share loss, says Ayvazian.

But Nacchio has his job cut out for him at the consumer long-distance division. MCI, with its Friends & Family plan, and Sprint, with The Most, have been siphoning off millions of AT&T customers. Both plans offer discounts to frequently-called numbers, something AT&T still hasn't matched. And Nacchio won't find the problems as easy to fix as those in business long distance, where he could devise unique calling plans for the 500 or so major customers that produce half the division's revenues. Now, he must please millions of individual households.

Nacchio is blunt when assessing AT&T's past responses to its rivals' marketing coups. "We're not known for speed--it took us 22 months to respond to Friends & Family," he said in a recent meeting with reporters. And the response was the poorly received i Plan. The "i" stood for individual, which signified that calling plans were supposed to be tailored to a customer's needs. But the campaign and its vaguely worded commercials only confused consumers. Now, a new ad campaign is under development. And under his watch, he boasts, the consumer long-distance division matched a new MCI international calling plan in a week.

Nacchio doesn't just want to react to his nimbler competitors. "You don't have to be a brain surgeon to match a pricing plan," he says. Instead, he wants AT&T to lead with marketing innovations. One thing he is looking at is targeting niche markets, such as people for whom English is a second language or customers in particular regions, with customized pitches and pricing plans. To do this, he hired a new chief information officer, Alan Jones, who will slice and dice the reams of computerized customer data the division controls, and a new marketing vice-president, Dan Clark, who had worked at RJR Nabisco Inc. and PepsiCo Inc. "We have to become the premier consumer marketing company," he says.

MORE HEAT. Meanwhile, Nacchio, who works 16-hour days, is focusing on his division's costs as well. The layoffs he is planning could save hundreds of millions of dollars in annual operating costs. They would come on top of an announcement last year to lay off about one-third of AT&T's 18,000 operators and supervisors over the next several years and a program by AT&T's NCR Corp. to eliminate 7,500 workers by next year.

But a leaner, quicker AT&T consumer long-distance business still faces two big obstacles: MCI and Sprint. Those competitors are not about to give up their hard-won market share to AT&T. If anything, the noise and heat from the three-way battle will intensify next year. And the real winners will be consumers.

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