A Rotary Dial Antique That's Gleaming Like New

When AT&T was broken up 10 years ago, its telecommunications-equipment arm, Western Electric Co., was little more than a backwater division that shoved hardware to captive long-distance and local-phone operations. It had never had to compete for business and showed little indication that it could. The conventional wisdom was that the newly free Baby Bells would jump to Alcatel, Siemens, Northern Telecom, and Western's other competitors. And they did--for a while.

Not anymore. AT&T Network Systems International, the main part of the old Western Electric, is winning one multibillion-dollar phone company contract after another. In the U.S., it's the top supplier of equipment and networking expertise for Baby Bells and others hoping to lay portions of the Information Superhighway. Overseas, it's nailing down communications infrastructure deals from Saudi Arabia to Beijing.

SWITCH HIT. The results are impressive. Last year, while AT&T revenues grew 3.5%, to $67 billion, Network Systems sales jumped 8.5%, to $8.35 billion. This year, analysts expect the unit's sales to surge 15% to 20%--while the long-distance business will be flat or slightly down. In 1993, AT&T's share of the market for digital switches (used in phone-company switching offices) hit 50%, up from 41% in 1990, estimates Northern Business Information Inc.

AT&T's equipment coup stems in part from the phone giant's unique advantages: It not only makes switching gear but also builds transmission equipment and runs its own huge network. "AT&T has the most advanced, most efficient long-distance network in the world," says Michael Arellano, a Northern Business consultant. "So customers are comfortable turning over these very complex new networks to them."

AT&T also is seeing the fruits of a technology bet made 18 months ago. It deduced that telecommunications would go multimedia, requiring high-capacity ("broadband" in industry jargon) digital networks and prompting phone companies to spend billions on networks to handle voice, data, and video. "We put all of Bell Labs' resources into developing broadband networks well ahead of any of our competitors," says Network Systems President Richard McGinn.

The bet proved serendipitous. Local phone companies, fearful of competition from cable TV, are installing broadband networks that can carry such services as movies on demand and home shopping. Now, AT&T offers them switches, video servers, network-management software, and soon, set-top cable-TV boxes. That breadth of products and services is why AT&T is both equipment supplier and systems integrator on every broadband contract it has won. "AT&T may not necessarily have the best equipment or the best price, but they are the only ones to have it all," says Merrill Lynch analyst Richard C. Toole.

That doesn't mean AT&T can sit back and count its winnings. Network Systems has been involved in virtually every interactive-TV trial in the past two years, but no full-scale broadband network has been built yet to test its technology and systems integration in real-world conditions. In the next few years, AT&T will install a series of full-scale networks--hybrids that rely on high- speed fiber-optic lines to bring digital signals into a neighborhood and coaxial cable for the "final mile" to homes. Controlling these networks will be AT&T's powerful asynchronous-transfer-mode (ATM) switches.

That technology is allowing AT&T to leapfrog Canada's Northern Telecom Inc., the No.2 in digital switches. Northern is recovering from a year of turmoil in its executive suite and delays in shipping new switch software. But President John Roth vows to catch up: "We have some very high-end broadband switches coming out, and we expect to be very competitive." Still, the company's share of the digital-switch market slid from 35% to 33% last year, says Northern Business Information.

BELLS ARE RINGING. AT&T's target is 60% of the market, a goal that megadeals with Bell Atlantic, Pacific Bell, and Southern New England Telephone (SNET) should help it achieve. The latest: a June 7 contract to build a broadband network for Southwestern Bell in Richardson, Tex. Overseas, Network Systems recently won a $4 billion contract to build a state-of-the-art phone system in Saudi Arabia, the biggest such contract outside the U.S.

But how long will the Baby Bells throw business to a potential enemy? The Bells want to crash AT&T's long-distance market and are bracing for its foray into local service, possibly via its pending buy of McCaw Cellular Communications Inc. But when it comes to rigging the latest gear, Baby Bells don't have many choices. "AT&T is really the only company out there that can offer a total network," says Andrei Jezierski, a telecommunications consultant at Booz, Allen & Hamilton Inc. Adds Charlotte Denninberg, SNET's vice-president for network technology: "AT&T is certainly the supplier ef choice right now." Maybe it's time for new conventional wisdom.



The California Baby Bell has tapped AT&T for a seven-year project to build an interactive broadband network reaching 5 million homes



AT&T will be prime contractor and systems integrator for interactive TV networks to be built in 20 markets in five years



Setting up a 700,000-line digital network in Connecticut for

Southern New England Telephone



AT&T will build and manage a 1.5 million-line digital network in the largest telecommunications contract ever outside the U.S.



AT&T will provide network equipment for a cellular system to be operated by a GTE-led consortium in southern Argentina



In Beijing, AT&T will supply transmission equipment, network management, and operator services for a digital phone system


Before it's here, it's on the Bloomberg Terminal.