At&T's Info Highway Juggernaut

It's mowing down its rivals in online services

In the online world, AT&T wasn't first. Its service isn't the cheapest. Its technology isn't the latest. But it is big. Big enough, in fact, to knock out earlier online pioneers with ease.

Since AT&T started WorldNet, its $19.95-a-month Internet access service, on Mar. 14, it has received some 600,000 requests for the software, shipped 300,000 copies, and signed up some 150,000 subscribers. That's about half as many subscribers as two-year-old Netcom On-Line Communication Services Inc., the largest Internet service provider, even though AT&T has yet to run any ads or promotions. "No question that we underestimated the response to our offer," says WorldNet Vice-President Tom Evslin.

So did his competitors. The 1,400 or so smaller Internet service providers are finding AT&T's shadow exceedingly long. A Yankee Group Inc. study released in December found that 45% of online consumers would prefer to use AT&T. No other provider garnered more than 10%.

CASUALTIES. AT&T's foray onto the Net has already claimed a few casualties. PSINet Inc. announced on May 13 that it would cut 50% of its workforce and close down Pipeline, a consumer-oriented Internet service, to focus on high-end customers. "Let's just say we're getting out of AT&T's way," says PSINet Chairman William L. Schrader. Netcom is also moving away from entry-level Net surfers, while UUNet Technologies Inc. gave up the fight on Apr. 30, when it announced plans to sell out to MFS Communications Co. Even the future of proprietary services is threatened. CompuServe said on May 21 that it will become more Internet-focused and Prodigy announced on May 12 that it will move directly to the Internet.

AT&T's WorldNet success is a dramatic departure from its past attempts to compete online. In 1994, it paid Ziff Communications Co. more than $50 million for Interchange, a proprietary online service. But information providers avoided Interchange in droves, and AT&T closed it down just nine months after buying it. Now, AT&T believes the key to success is an Internet service that is as reliable as its phone network. Forrester Research Inc. consultant Emily Green says the service will probably still not satisfy the most sophisticated Net surfers, "but [AT&T is] serving the great middle." Or, as Lily Tomlin's Ernestine said: "We don't care. We don't have to. We're the phone company."

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