The Fool Dials Up AT&T: Part 1

Last week, the CFO of AT&T (NYSE: T  ) , Richard Lindner, was kind enough to join a couple of Fools for a discussion on the direction of a newly rejuvenated giant. Join us now for part 1 of a 2-part interview.

The Motley Fool: First of all, thanks for joining us. AT&T has undergone quite a transformation in recent years. For those who haven't followed all of the mergers, can you give us a thumbnail sketch of where the company is at today?

Richard Lindner: Sure, I would be happy to do that. Well, today we are a telecommunications company with approximately $120 billion in annual revenues. We divide the company into four primary business units. Number one, certainly, is our wireless operations that operate here in the U.S. It is a business that comprises about 35% of our revenues and it also is the fastest growing part of our business. It is our largest single revenue stream and the fastest growing piece, growing in mid-teens rates year over year.

Secondly, then we have regional telephone operations in 22 states in the West, Southwest, Midwest and Southeast. Those regional operations market to both consumer customers and small and medium business customers and some even fair sized regional customers, government, educational, medical-type business customers. That business is also kind of upper $30 billion range or so in revenues and covers over 60 million access lines, 13.8 million broadband subscribers, and, of course, we are also rolling out video across that base, partly over our own network in certain areas and then also with commercial agreements through direct broadcast satellite companies. But in total, we have about 6.7% of our consumer base that also buys a video solution from us.

Then third, we have our global business, which is largely the legacy AT&T business and they serve large business and global business customers in the U.S. and around the world on a retail basis. And then we also have that wholesale operation where we wholesale local lines and wholesale voice and data transport for other companies and other carriers.

Then finally, fourth, we have what we call our diversified business, which includes a Yellow Page business; it includes directory assistance; it includes a software company, Sterling Commerce; it includes international investments in Telmex and America Movil (NYSE: AMX  ) .

So that is largely the company today and it was built to a large degree through some organic growth as well as acquisitions. The major acquisitions in the last few years were our acquisition of AT&T wireless in 2004, our acquisition of Legacy AT&T in 2005, and then our acquisition of Bell South, which also gave us 100% ownership of the wireless asset in 2006.

The Fool: AT&T has not been as vocal as Verizon (NYSE: VZ  ) or Google (Nasdaq: GOOG  ) in the open access debate. How would you state AT&T's position on open access requirements for networks?

Lindner: Are you talking more about the open access on the wireless spectrum?

The Fool: Yes.

Lindner: Well, I think we feel at the end of the day that the FCC struck a reasonable balance between some competing interests and desires in how they structured the spectrum auction. Our preference would have been that that spectrum be auctioned without requirements placed on it. We think that it will affect the value of the spectrum, but at the end of the day, we felt, given the different points of view and the competing interests there, that they struck a reasonable balance.

I would say this -- I think we tend to take kind of a pragmatic view of things and, frankly, when we look at what customers want and from a practical standpoint, how companies can meet those needs, I think you run into some issues with respect to what people might think they want to see in open access. For example, I think many customers might say, Well yes, I would like to be able to use any device and I would like to be able to take devices from one network to another. But first of all there are some practical considerations, and one of those practical considerations is the fact that we have got two different air interface technologies that are in use in the U.S. today, so that automatically precludes you from taking a GSM device and using it on a CDMA network or vice versa. But more so than that, I think the other thing customers would tell you is that they enjoy being able to upgrade their devices and they enjoy being able to purchase new devices at some significantly subsidized rates -- at rates below cost -- and the carriers can only provide that to the extent that they have comfort that those devices will be used on their networks, and so there is a balance there from a customer's perspective.

I guess the other thing that I would offer is when you go into any wireless -- this can be any carrier -- if you go into any wireless carrier store today or you go into national retailers and look across at the products that are available, there is a broad, broad range of products available. And one of the things that is important from our standpoint as a carrier is ... when our customers have a problem and they call in, the first thing we have to be able to try to determine is [whether] the problem is being caused by the device or software on the device or is it being caused by the network or how the device interacts with the network. And so our technicians have to be trained and have to have reference materials available for all the products thaft we offer and sell.

If we begin to open up networks where customers can put any device on the network, from a practical standpoint, it will impact our ability to provide service to that customer. And it will put them in a position where they will be caught between a service provider and the device manufacturer in terms of trying to determine what their problems are when they do have them. So that is kind of a long answer to the question, but the net result of it is, again, we have not been as vocal because we felt the FCC plan at least struck a reasonable balance. All I would tell you is I think there are some practical considerations in this whole debate from a customer standpoint that, at the end of the day, have to be considered.

The Fool: What would you consider your biggest competitive threat: the quadruple play from cable companies such as Comcast (Nasdaq: CMSCA  ) , or WiMax plans from companies such as Sprint Nextel (NYSE: S  ) and Clearwire (Nasdaq: CLWR  ) ?

Lindner: I don't know if I would handicap one versus the other in terms of a competitor's offerings. I would tell you this: I really like where we are positioned in terms of the ability to offer a quadruple play or to be able to offer services that consumers are looking for. I say that because when you look at either the cable competitors or you look at Comcast or you look at Sprint, while they can offer some of the services, they cannot offer all of those services for a quadruple play and offer it over their own facilities and their own network.

As we go forward, I think increasingly when you step back from it, what customers really want is this: They want the convenience of mobility in their services and they want the quality and the bandwidth and the throughput that is available from a wired solution. So when you put those two together, I really like the position we are in in terms of having dense regional networks, having the national and global backbone facilities, and having the wireless assets overlaid on top, because it starts to give us the ability to craft solutions for customers that give them kind of the best of both worlds. The truth is that the best of both worlds is delivered over a solution where you are able to capture the traffic in a mobile environment, in many cases, but drive it as quickly as possible to a wired infrastructure. That gives you the convenience of mobility with the kind of bandwidth and quality that you look for in the service.

Our interview continues in Part 2. When you're done reading, share your thoughts on AT&T with the Fool's community investor intelligence database that we call CAPS. Registration is free, Fool.


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