Your Mother: Ma Bell, Brand Whore?
By Douglas Rushkoff, Fri May 21 16:15:00 GMT 2004

AT&T's MVNO deal with Sprint points to a new telecom infrastructure strategy.

AT&T has had its share of disgraces since the US Department of Justice forced them to break up into eight "Baby Bells" back in 1984. Long distance competition from young upstarts like Sprint and MCI; a meager cable TV effort ultimately sold off to Comcast; a technologically plagued and then financially troubled cell phone service, spun out and eventually sold off to Cingular; and, most recently - on April Fool's Day of all times - being dropped from the Dow.

So it came as something of a surprise to those of us who grew up with AT&T as one of the most powerful companies and brands in our world to learn of their deal to sell Sprint wireless services under the AT&T brand this fall, as soon as the current AT&T Wireless removes the blue logos from its stores and phones to become part of Cingular. (One condition of the AT&T Wireless spinoff in 2001 was that that AT&T couldn't sell its own wireless services under the AT&T banner. The Cingular deal lifts this restriction, letting AT&T get back in the wireless game with its own services under its own brand name.)

So AT&T, the original phone company, parent to the legendary Bell Labs, is becoming a reseller of its competition's technology! Like Qwest, Virgin and, likely soon, Walt Disney, AT&T will be purchasing minutes at wholesale rates, and reselling them under their own brand. One can only imagine that this will be limited to a consumer business, and not B2B, since AT&T will be incapable of creating custom configurations for larger clients.

Then, what's really in it for AT&T? Why the back and forth (and back and forth again)? There may be some method to this madness.

First off, as AT&T knows better than anyone, owning and maintaining a technological infrastructure is a pain. Just ask any of the Baby Bells, who are still servicing the tremendous debt they incurred burying mega-computers under city streets, only to be leapfrogged by companies using PC chips to do the same processing work for a fraction of the cost. By letting Sprint do the grunt work, AT&T gets to utilize one of the fastest wireless Internet services in America without any capitalization costs. And if someone else's network is better or cheaper someday, they can switch.

But the bigger issue here, I'd venture, is AT&T's need as a communications company to offer a full range of communications services. It's another piece of the convergence puzzle, really. Just as Verizon is investing in fiber-optic cable in order to stave off attacks from cable companies and bring its own telephone/interactive television solution to American homes, AT&T needs to develop a total offering. Even if it means merely reselling the offerings of others.

In a sense, taking a lesson from the young upstarts who have been causing it such headaches for the past two decades, AT&T has become the opposite of what it once was. Instead of building the infrastructure that everyone else will resell under more attractive brands and through more user-friendly packages (which appears to be Sprint's role these days), AT&T will take the role of the packager. In spite of AT&T's famous failures in wireless service, Ma Bell still has some brand equity left to her name, and could leapfrog her own competition, this time, by becoming something of a virtual company, investing in nothing real, but offering everything customers could want.

Finally, though, the real answer to why AT&T is back in the wireless business might be found on the balance sheet. The company currently pays out about a third of its annual revenues -- $11 billion (that's not a misprint) per year -- on local connection fees to carriers like BellSouth and Verizon. Until now, they've had very little bargaining leverage.

AT&T's General Manager for Wireless Services, Kevin Crull, told reporters yesterday that the company plans to offer mobile phones that, when used from the home, connect using voice-over-IP technology -- bypassing local carriers completely. While Sprint won't have a problem with that, the local carriers who have been living off AT&T's fees might -- at least enough to negotiate some of those outrageous local connection fees.

Taking a cue from the hacker era that eroded her in the first place, AT&T may be on the verge of hacking the business model of new communications infrastructure: own the brand, rent the product.