AT&T opens its arms to the interactive age

As the lovefest between the cable industry and regional Bell companies continues unabated, telecommunications giant AT&T Corp. is courting new-age communications on a much grander scale.

Much has been made of AT&T’s “multimedia master plan” which, mildly put, is comprehensive: in a marathon series of interviews with Digital Media, mostly at various AT&T and Bell Laboratories sites in New Jersey, AT&T revealed an impressive arsenal of technology and strategy for its foray into the future.

AT&T executives and product leaders were quick to dispel what they say is a mistaken notion that AT&T is aiming for world market domination. They say that while their company is a far cry from being an underdog in the nascent information age, the fact that AT&T no longer owns the last mile of either cable coax or copper phone wire means it will have to be much more clever, horizontal and — buzzword alert — “open” in how it capitalizes on its long-time strengths in communication technology to deliver interactive services.

HOSTING THE FUTURE IN A NETWORKED WORLD

You can believe whatever you want about that sentiment, but AT&T’s stated intention is to become indispensable to anyone — from device manufacturers to network system developers, information providers to competitors — involved in developing products for tomorrow’s interactive, media-rich networks.

The host with the most. The word that AT&T executives seem to like best when it comes to explaining their company’s strategy is a nice, welcoming one. Everyone from Bob Kavner, executive VP and chief of AT&T’s Multimedia Products and Services Group to Dick Bodman, VP of Corporate Strategy for AT&T Corp., says their goal is for AT&T to play “host” to every market segment that it can, with its competency in “anytime, anywhere” communication technology at the core.

“We view there’s a missing industry — a host industry — between distribution and content,” says Bob Ranalli, president of multimedia services for AT&T. “We have the ability to redefine content through networking.”

AT&T is one of few companies in the world that could make such a strategy statement with a straight face: It actually has, or has access to, most of the products and technologies needed to make such a strategy work.

Formidable assets. For example, it has over the decades developed formidable internal assets in microelectronics (semiconductors and components), customer premises equipment (modems, PBXs and a new generation of video telephony devices for business and home), broadband networks (via interactive video servers and ATM products) and multimedia services for both broadband (i.e., interactive TV) and narrowband (computers and personal communicators) networks.

Whatever AT&T hasn’t already installed or invented, it’s in the process of acquiring or investing in. To date, the company has acquired McCaw Cellular and EO (maker of personal communications devices). It is making an increasing number of investments in new media companies and projects including General Magic (as both software licensee and developer of a new media messaging service), interactive media maker PF Magic, Object Design (an object-oriented database designed for network applications), multimedia platform designer 3DO (as hardware licensee and equity partner), the Sierra Network (which it renamed the ImagiNation Network) and Sega of America (for a multi-player video game platform).

All this and ITV, too. AT&T is also a key player in all three major interactive TV trials, including Viacom International’s Castro Valley site (providing ATM network switches, interactive video servers, interactive video software tools and networking software); Time Warner Cable’s full service network in Orlando (an ATM switching system) and US West and Tele-Communications Inc.’s Viewer Controlled Television (VCTV) project in Colorado (an interactive video server).

A little history. It can do this because it is far less restricted than the regional Bell companies in terms of what businesses it can participate in.

Unlike companies that didn’t get so big that they needed breaking up, AT&T’s monopoly, which ended in the early 1980s, provided it with decades of massive profitability and the subsequent luxury of funding pure research into many areas of technology.

As a result, AT&T Bell Laboratories became the birthplace of the seminal technologies of our time, including the transistor and the laser. More recently, Bell Labs invented asynchronous transfer mode, or ATM, a switching protocol for high-bandwidth communication (such as video) that nearly everyone believes is the fundamental building block for the so-called “information superhighway.”

Divestiture’s sunny side. When the Bell system was broken up by federal decree, the RBOCs were granted the status of regulated monopolies while AT&T was tossed into the competitive arena.

Because of their monopoly status, the RBOCs were forbidden from entering or funding research into any business outside of local telephony services. They could do all the research they wanted, but could never move out of the labs or sell it off to someone who could productize it.

The same was not true for AT&T, though for a while it didn’t realize it had become a very capable and well funded startup. As a competitor, it could and did actively pursue R&D projects and new markets, including many failed attempts in the computer industry. As a direct result of intense competition for high-quality, long-distance services, for example, it installed a fiber-optic network with high-capacity digital switches spanning most of the world — a vital physical foundation for the broadband network services it has under development, and a feat that the heavily regulated RBOCs have yet to (and may never) accomplish in the local loop.

An accident of fate. AT&T believes that its intrinsic knowledge and understanding of communications will win the day, despite today’s merger and alliance mania. “The communications industry now is the hottest place to be,” says Gordon Bridge, president of AT&T EasyLink Services, the group which is, among other things, developing a new consumer messaging system for people with personal communication devices. “Microsoft, Apple, IBM — they all wish for or aspire to richer communication abilities. It was an accident of fate that AT&T had world class skills in communication, not computing, now that computers are a matter of fact.”

AT&T ‘HOSTS’ CHIPS, CUSTOMER EQUIPMENT, NETWORKS…

AT&T’s “world class” ability to host network applications of the future starts on the most basic level, with its expertise in microelectronics. Even at the component level, says Mark Melliar-Smith, chief scientist for AT&T Microelectronics and executive director of the Integrated Circuits Division at AT&T Bell Labs, “the only reason to build a technology is that it provides a service someone will pay for.”

Melliar-Smith claims that the evolution of silicon integrated circuits, also called chips or microprocessors, is the single most important factor driving the full service or broadband network into the consumer’s reach. As the drumbeat of “cheaper, faster, lower power consumption” spurs the chip industry to greater achievements, the net effect has been plummeting costs for powerful, flexible computing and communications systems.

A shrinking Hobbit. AT&T recently announced, for example, that the latest addition to its Hobbit family of microprocessors and support chips — which it is selling as a system solution for the new class of small, mobile devices that integrate voice and data communications capabilities in one unit — is faster, cheaper and yes, consumes less power than the previous Hobbit family. Not incidentally, it was also able to cut the number of chips required in half.

Though the complexity of designing advanced semiconductors is creating unprecedented challenges in designing and writing software that takes advantage of them, Melliar-Smith says he doesn’t see anything in the short term that will stop the “faster, cheaper, less power” trend in the chip industry.

The $50 tea chest. “It’s only a matter of time before a tea chest full of electronics becomes a single chip for $50,” he says. He predicts that by the year 2000, for example, Hobbit will be a single chip that handles both sound and video. Modems as we know them will go away, and they will become a software business as more powerful digital signal processing chips become standard.

While many companies today are selling circuit boards for video compression, Melliar-Smith says, in a few years video compression technology will also be contained on a single chip. And in 10 years, high-quality video telephony will be the norm. “Voice communication will be like telegraph,” says Melliar-Smith.

Materials research is key. AT&T is also deeply involved in researching physical materials (i.e., new plastics and the like) from which new products are built. “One area I have faith in is new materials to solve problems,” says Greg Blonder, who is both director of the Materials and Technology Integration Research Laboratory at Bell Labs and chief technical advisor to AT&T for corporate strategy and development.

His lab, which develops both materials and product prototypes, is conducting research in a wide variety of areas. He says his biggest problem is energy storage for wireless devices. “And there’s no solution,” he says. “Batteries double in capacity every 25 years, silicon capacity doubles every two. The only good thing is that today, silicon uses less power.”

Batteries are very much on Blonder’s mind, since much of the work done in the materials lab is geared toward prototyping mobile communication devices, he said, including research into radio frequencies and power dissipation, displays (they’re working with Xerox PARC on a flexible plastic flat-panel screen), “wearable” computers (also known as “active badges”), and very small, very high-density portable storage devices.

Language translation. One of its many advanced research projects is a project inside Bell Labs to perfect spoken-language translation systems. The dream, says David Roe of Bell Labs’ Speech Systems Research Group, is for you to speak English into your end of the receiver and have your grandmother hear a perfect Sicilian dialect into her earpiece. Roe says the group is working on versions for Mandarin Chinese, Japanese, French and German, and intends to have eight languages in the system by 1995.

Digital radio. Another promising technology under development in Bell Labs is at the core of two CD-quality digital audio broadcast systems that AT&T has developed and submitted to the Electronics Industry Association’s National Radio Systems Committee for consideration as a new broadcast standard.

The quality of the signal produced by the technique is remarkable, based on a distortion control mechanism developed by Bell Labs. It delivers perfect CD quality sound and consistency of signal in an extended range over existing spectrum. And most interesting of all, it allows for seamless integration of data with audio — which means any radio station could carry an auxiliary data channel for weather, traffic, emergencies, etc. It’s also conceivable that radio devices could be individually addressable for custom subscription services.

Nikil Jayant, head of signal processing research in the Advanced Audio Technology Department at AT&T Bell Labs, believes that digital radio is “inevitable,” based on the fact that 40 percent of homes in the U.S. now have CD players and have become less tolerant of audio distortion. In addition, cable TV is already pumping out digital audio, and it won’t take long before satellites are doing the same. “Current broadcasters don’t have a choice,” he says.

CUSTOMER EQUIPMENT: OUT OF THE LABS, INTO THE WORK SPACE

Carl Pavarini, head of new business development and vice president for AT&T’s General Business Systems, knows customers won’t replace their phone systems wholesale with broadband technology, but instead will evolve their networks over time. His “host” strategy is to provide voice-plus communications at a range of price points.

Saving investments. “A lot of the action over the next two years will be people making modest investments to connect computers with telephones,” he says. “We’re saving their investments with what I call ‘virtual multimedia’ — if I can make a PC and a phone act like one instrument, you get a number of benefits of multimedia, not the least of which is virtual bandwidth.”

In its soon to be released Personal Video System, for example, AT&T has patented a way to capture certain kinds of graphics information so that two people on opposite ends of an ISDN phone line can share screens via a circuit board added to their PCs.

‘Multi’ is not all. Other voice-plus-data solutions include a product called PassageWay, which simply connects a PC with a phone (as Pavarini reminds us, “multimedia is more than one media, but not necessarily all of them”), and a PBX-local area network solution it is developing with network leader Novell.

The company already sells a still-image phone called Picasso that captures images from a magnetic disc camera or a video frame grabber and displays them at NTSC quality over standard phone lines.

“The only way to get a lot of people using [multimedia telephony] products is to be parsimonious with bandwidth,” says Pavarini. “We’re real good at voice compression and screen sharing; there’s a lot you can do with equipment you can buy today. We believe there’s a lot of benefit in enhancing value of voice networks, PBX, local nets, etc. — in other words, the narrowband networks of today.”

For those without PCs. Beyond patching multimedia capabilities into existing networks, Pavarini says his group is working on integrated multimedia devices that will be particularly useful to businesses that don’t use personal computers (and this number is larger than one might suspect).

Most likely resembling AT&T’s EO Personal Communicator, the phone with a big, pen-sensitive screen would be capable of what he calls “voice-ink dialog,” where callers can share sketches and messages while talking. It’s reasonable to assume that such a device could dock into something on your desk — “maybe a low-function phone or box that supports infrared connection,” says Pavarini — that would allow it to be untethered.

Easy conference calling. Whether wired or infrared, he says, what will make such a product successful is services — perhaps the ability to draw a line between three numbers on a screen to set up a conference call.

Finally, Pavarini says, his group is working on devices to take advantage of more capable networks, either public switched or local area, as ATM-based technology comes into the customer premises.

NETWORK SYSTEMS AT THE CORE OF INNOVATION

The Network Systems Group is home to the basic communications building blocks that AT&T sells to customers ranging from RBOCs to interactive TV systems developers. In addition to narrow-band products, the group is now beginning to move into the marketplace with real “end-to-end” solutions — from ATM switch to video server — for customers who want to install broadband networks.

John Miller, strategy officer for AT&T’s $10 billion manufacturing company called the Network Systems Group, says that broadband has been “kicking around” inside AT&T for more than a decade, but the lack of operational support for the technology has held it back.

“It’s never been a case of bits through a wire; that’s easy,” he says. What it’s really about is tariffs, complex billing systems, reliability — the operational details that make it possible to make broadband networks a real business. “Now,” he says, “there’s an incredible array of building blocks mature enough for operational support — the market is viable and the financials are viable.”

Miller has been doing some big-think on what he calls “serverism,” and he believes that server technology — that is, big computers with highly sophisticated databases, billing systems and transaction processors — will be a key element to AT&T’s success in the broadband world. (Besides, what else would a “host” do besides “serve.”)

In the broadest sense, Miller says, even getting a dial tone and punching in a number is a server request, since the bottom-line function of a server is to facilitate connection. The challenge for AT&T, he says, is to decide where to focus its attention — does it stick with providing a very low level of complexity, i.e., dialtone-to-destination, or does it try to provide a sophisticated system?

The answer is fairly clear: The company is building a complex, end-to-end broadband system for Viacom in Castro Valley (more below), and Miller can’t say in enough different ways that ATM is ready for prime time. In fact, he says it will be a “given” in five years, which is pretty darned fast by any accounts. He also can’t be more emphatic that AT&T’s competitive advantage is operational, which means it’s really the only company qualified to handle the service complexities that exist outside the ATM switch itself.

“Broadcast operators can get things out, send pictures to people’s homes, do pay-per-view, etc.,”he says. “But then there’s the companies who can keep a network going on Mother’s Day [the highest call levels of the year] and bill you correctly for it. The two systems may have some architectural similarities, but they have significantly different operational requirements. The competitive advantage for AT&T is operational.”

If it isn’t crystal clear by this point, says Miller, “Yes, Network Systems wants to help cable do this [build full service networks]. We have the switching expertise for broadcast and the bandwidth for telcos.”

Obviously the TCI-Bell Atlantic deal has turned some heads inside AT&T. “We’re optimistic about the cable-telco marriage. Things are possible now that weren’t before,” says Miller. “Certainly there are some time efficiencies [i.e., not reinventing the wheel in either high-bandwidth or switching technologies]. When you look at the two sets of assets, they’re complementary. Of course, it’s still competitive — everyone’s trying to steal the consumer’s dollar.”

THE BIG WINS: INFORMATION SERVICES AND INTERACTIVE TV

Although the work done in Miller’s group is essential to AT&T’s eventual success, the information and interactive TV services that will steal those consumer dollars are what have most captured the attention of the outside world.

EasyLink Services, for example, is working closely with General Magic (see Vol. 2, No. 10, p. 3) on a new consumer messaging service that will allow subscribers to receive E-mail, fax and voice messages as well as news, weather, sports, shopping and other services, on what-ever device they happen to be closest to at the time they want the information.

Not constrained by transport. Gordon Bridge, president of EasyLink Services, believes that the key to successful information services of the future is that they not be constrained by the transport mechanism, but only by the device the consumer is using at the time.

Today’s text services, for example, almost exclusively deliver the most universal form of electronic text, the lowest common denominator standard known as ASCII. But Bridge says in the multimedia world AT&T is inventing, services will be delivered to the highest level of expertise, not the lowest.

Reaching in. “In the future, the services will tell you who they are — they’ll reach into your device and tell the service what your device is, whether it’s a personal computer, a mobile communication device or your television,” says Bridge. “I want my news, weather and sports to be sensual whenever possible. At home, on TV, you want it to be sensual. It would be different if you were in Japan or using a PDA.”

A NEW CONSUMER PLATFORM, NOT A ‘BRANDED’ SERVICE

AT&T is creating the new consumer messaging service from a number of different building blocks. Central is General Magic’s Telescript scripting language, with the rest built around it by an EasyLink team led by Dan Rosen. Bridge says the platform will be unlike anything done before — “it’s what you get when you have the luxury of starting with a clean sheet of paper,” he says — and claims it will compete head-on with popular information services such as America Online and Prodigy.

But, he says, there’s a key difference: it’s that “host” thing again. “AOL and Prodigy aren’t platforms,” he says. “They’re branded services that decide for you what information you get. In our service, anybody can put anything up there.”

No more gatekeepers. The model for information services today is much the same as television programming: the service operator (to continue with Bridge’s example, AOL or Prodigy) serves not only as gatekeeper between information and consumer, but also decides what information will be available on the service based on proprietary deals it cuts with information providers. (For example, Time magazine and the San Jose Mercury-News had to cut custom deals with America Online to mount their services on the service.)

But again, AT&T’s strategy, says Bridge, is to open up the system at both ends. “Our model is to be a host — not to try and control the entire value chain, but to be a friend of content providers who want to meet as many customers (for their services) as possible.”

“The honest broker.” This is the role that RBOCs and other telecom companies provide today — serving as the “honest broker,” as Bridge calls it, to connect customer (i.e., information provider) with consumer over a wire. Anyone who wants to can call the network provider of their choice — for example, now both AT&T and MCI can sell 800 or 900 numbers for a business — and set up shop.

Certainly there is a place for the kind of branded services that AOL and Prodigy provides, he says. But today, the way these “branded” services are designed is weighted heavily in favor of the brand provider, which often takes more than 75 percent of the revenues generated by consumers of information.

Increasing volume. AT&T believes that opening the network allows it to bring down the cost of providing network access, increasing the number of information providers who set up shop on the network and hopefully increasing the number of information consumers along with them.

Bridge says the unannounced pricing structure, which his group has been working on for two years, will be based on the role the information provider wants to play. For example, will the data be kept at AT&T’s offices or on site? Is the 800 number connected to the business or to AT&T operators? “Companies like Mead or Paramount want to use their own brand name, but they want access to AT&T’s customers,” he says. “So we get a bigger or smaller piece of the action” based on how they carve up who does what.

Welcoming the crazies. “We want all the entrepreneurs and the crazies — I say that with all respect — who don’t want to work for AT&T to be up there,” Bridge says. “We want Mom ‘n’ Pop shops to have a toolkit. All of us know what customers want. They want equal access. They don’t want to be forced into exclusivity. The key parameter is that somebody will make sure that people have equal access.”

Bridge’s favorite idea for the new consumer network is home shopping. Although the subject has captured the imagination of many before him, his has an “open access” twist.

“Forget the QVC stuff,” he says. “I have to tip the mailman $40 every week because my wife shops ’til she drops by catalog. We get over 1,000 catalogs a year, 5 to 10 of them a day. People say video-on-demand and shopping [via TV] will drive the market for services, but who is going to offer electronic shopping for Nancy that will move her away from catalogs?”

The problem, he says, goes back to branding: Nordstrom has no clear idea about how to market, service or advertise its goods in an electronic age. “I want software companies to go to the Nordstroms of the world and when you go shopping on your (personal communication) device, you’ll find Nordstrom’s service different than Macy’s, just like in real life,” he says. “Small creative software companies will make a killing going to [companies like] Nordstrom and helping them do this.”

THE PLUM PRIZE: BROADBAND ENTERTAINMENT

Bridge believes the ticket to broadband entertainment — which includes the application we’re all calling interactive TV, as well a number of other things — will be delivered via a strong commitment to open-access network services like the ones his group is developing.

It is, in fact, AT&T’s “host” approach to the interactive TV market that sets it apart. Unlike the rest of the universe, which appears to believe that the key to success is owning or controlling all the programming yourself, AT&T instead appears committed (at least at this point) to making it as easy as possible for independent programmers to produce and sell their wares in a broadband environment without having to sell their souls to a network gatekeeper.

Ranalli, the multimedia services president, says that’s the real reason why AT&T is investing in companies such as PF Magic, a small, San Francisco-based company that’s working on a multiplayer game system with Sega and AT&T (Vol. 3, No. 5, p. 17), and the popular online games-and-chat service ImagiNation Network, formerly Sierra Online.

“We’re spending a great deal of time on the services side to see what drives customer behavior and needs,” Ranalli says. Learning what customers want — especially in today’s fast-forward environment for “information superhighway” services, he says — “equals opportunity for both the digitization and networking of content to creating interactive multimedia.”

IF THAT WASN’T ENOUGH, THEY’VE GOT AUTHORING, TOO

But investing in content companies is not the only way AT&T is learning about opportunities. Aside from its “end-to-end solution” for delivering interactive TV (i.e., everything from ATM switch to the interactive video server discussed earlier), AT&T is also close to completing a little-known internal project that will yield a suite of scripting tools for development interactive programming — the broadband version of the “Mom ‘n’ Pop” toolkit that Bridge mentioned for narrowband service providers.

Call it M. Called “M” internally (“well, the computer business has ‘C’…,” says interactive TV project manager Vinnie Grosso by way of explanation), the scripting language is considered integral to AT&T’s value proposition in building a customer base for ITV.

“We can be very helpful to content players to take advantage [of new network services] by providing them with authoring tools and capabilities,” says Ranalli. He recalls AT&T’s successful launch of 800-number services some 25 years ago: though originally designed to relieve overloaded AT&T operators who were hand-connecting collect calls to businesses during the work day, Ranalli says that providing a toll-free service actually helped AT&T come up with new technology solutions, such as connecting customer databases with incoming calls.

Using the same model, he says, AT&T wants to make itself indispensable to retailers, information services, movie studios, travel agencies or any kind of business that might want to offer services on the network.

Making players succeed. “In a new medium, the value [to new customers] comes from digitizing [their assets] and using networking as part of the authoring process,” says Ranalli. “The logic is to provide a set of capabilities that helps content players be more successful. We’ll also provide them with archiving, security products, accounting procedures for intellectual property, transaction management, billing systems and customer service.”

Though certainly AT&T’s scripting language will compete with some already in the market, such as Macromedia and Kaleida’s ScriptX, Ranalli says he still “hopes to work with” other authoring companies to help build a full suite of tools for interactive TV development.

INTERACTION V. INTERACTIVITY: A MISUNDERSTOOD CONCEPT

One reason the company decided to work on authoring tools was because there were virtually none available that approached broadband as an opportunity to enable interaction, as opposed to interactivity. And to AT&T, this was a dealbreaker.

“The Chicago (ITV) trial taught us some stuff,” says Grosso. The nine-month test of 24-hour interactive TV, mounted in the homes of AT&T employees in the area, seemed to indicate that the more interaction-style attributes contained in an application, the more people used it. If messaging was added to a program, the usage went up. If it included some kind of transactional game, it went up again.

Since AT&T is looking to transactions as a significant revenue generator in the broadband world, Grosso and his crew decided that any successful application would have to include not only transactions and information, but also a strong communication component. For example, people using the CUC interactive shopping service were enamored with the fact that they could not only buy the product, but send messages to the people running the service — and play an attached game to get a discount on the merchandise.

Grosso, whose background is in television production, says this new kind of viewing experience is “changing the rules of engagement. ” It may change the rules of production as well. Grosso says the entire interactive network for the Chicago trial was run from AT&T’s headquarters in New York City. He adds that the Viacom International trial in Castro Valley, CA — for which AT&T is providing a massive amount of hardware and software technology — will also be administered from New York and New Jersey, using ATM technology to connect network hubs and headends.

CHANGING THE RULES OF ENGAGEMENT, INDEED

If indeed Grosso’s observations are correct, and what people want from advanced network services is more and complete access to services and each other, those “rules of engagement” he mentioned are going to change a lot more than how people watch TV.

Plug and play. Where today the power resides in who controls the media and/or its distribution channel, tomorrow’s power brokers will be those who can provide, service and meter transactions over the network. Owning one or 12 movie studios or publishing houses won’t automatically be a lucrative proposition. But how about enabling the information economy by making it possible for Mom ‘n’ Pop to stick a wire in the back of a box and be in business? And maybe collect a penny or two in the process?

As Gordon Bridge so aptly says, “It’s a place-your-bet kind of move.”

800 numbers the model. Ranalli recalls that AT&T’s 800-number business has seen double-digit growth for 10 years now — 40 percent of all calls during the day on the network are to the 800 network — and created a capability for people to think “totally differently about their customers. In the evolution of multimedia, we’re on the verge of the same kind of explosion, driven by the way we make it easier for people to create content.”

Ranalli, like most other executives at AT&T, finds it “unlikely that our society will tolerate greater bottlenecks in reaching customers.” Until now, the power was in deal making and control of distribution. “We think the game will change,” he says.

AT&T’S STRANGE AND DIFFICULT CROSS TO BEAR

It’s hard to find fault with AT&T’s well-crafted logic about why and how it will be a success. It’s hard to imagine that the company, with its unassailable technology assets and building materials for the networked future, will not be successful. And its vision for “plug-and-play” broadband networking, a vision that is inclusive and hopes to distribute the power of information as widely as possible, is — at least as stated — the Good and True Way To Go.

Still, one feels compelled to address the commonly voiced concern that AT&T is looking again to stack the competitive deck in its favor. It’s one of those weird things about capitalism — the central idea is to allow new businesses and entrepreneurs to flourish, to let all comers enter a market, with the end game being a big win against your competitors. But when you win big, you push out all the entrepreneurs, which is a bad thing, and then you run the risk of getting kicked out of the game or at least severely penalized for winning, and you have to start all over again.

So if you’re AT&T, what do you do? The company is adamant that it does not want to control the new world. It has formulated a powerful public posture that echoes throughout the organization (in fact, the buy-in runs so deep they all kind of started sounding like Microsoft): it is “openness” and “access” it is interested in facilitating, not “control” of the network or “gatekeeper” status.

What if it weren’t AT&T? Both Bob Kavner and AT&T chairman Robert Allen have stated publicly that they don’t want to become “content” companies — they aren’t interested in starting a movie studio, for example, or a publishing house.

Nonetheless, AT&T’s venture group is placing lots of money in a wide range of technology, service and content companies, often with an option to own. As some of these investments turn into outright acquisitions — the McCaw deal is the most noteworthy of this category to date — and somewhat ominous commercials on late-night TV show AT&T in the position of commanding a networked future, the question becomes less rhetorical. People are getting nervous. Do does AT&T really want to own it all? Or are these actions we would applaud if it were any other less powerful company?

Convicted and tried. We put the question to Bodman, the corporate strategy and development vice president for AT&T Corp. His frank comments made AT&T’s position — i.e., perception vis-à-vis reality — seem almost poignant. In a perverse way, if you want to give the benefit of the doubt, AT&T is a bit like the convicted felon who has “done his time” and now has to convince the world that’s he’s reformed.

“It’s a question of psychology,” says Bodman. “Regulators see that 60-something percent of AT&T’s business is long distance, and that switching is 39-something percent, and these numbers are the source of people thinking, ‘they’re taking over the world.’ That’s a very dangerous way for us to look at ourselves.”

IN TUMULTUOUS TIMES, ONE CAN’T BE INSECURE

The reason it’s so dangerous, he says, is because the world is not the same place it was during AT&T’s monopoly days.

First, telephony is so cheap and ubiquitous that all we care about is the end-to-end transactions. “You don’t care who is the supplier of your dial tone,” Bodman says.

Second is how the concept of access has changed. “Today we sell minutes of use,” he says. “But you’d rather pay a flat rate, or find a way to use less minutes. So we have a mental set about long distance and minutes that’s out of tune.”

Third, the U.S. market for telephony services has changed dramatically. Twenty years ago, Bodman says, AT&T received 98 percent of every dollar spent on telecom. “Today our share is 15 cents and falling a point a year — not because usage is dropping, but because everyone is hooking up everyone to everything,” he says. “It’s an exploding market. We’re small potatoes in terms of access.”

Changing the mental set. Bodman says AT&T — and all the RBOCs — haven’t forgotten those days of 98-percent and are carrying around “a mental set about dominant market share that makes it impossible to move forward. We’re defensive about protecting what we’ve got, even though out there in the tumultuous world, going from stagecoaches to railroads, most established stagecoach companies are in the weakest position to understand the new world.”

Bodman cites recent history: “I would posit that not since railroad barons have we had the dynamism of real tycoons building infrastructure. The 1980s weren’t building anything new. But today, there are authentic billionaires — Gates, Malone, Redstone, Grove, Murdoch, McCaw — who have assets, concepts, backing and an obsession to build the new world,” he says. “We [AT&T] haven’t had that for a hundred years. Until AT&T acquired McCaw, no established stagecoach makers had entered [the new world]. When we did the McCaw deal, when we spent $18 billion, we announced to ourselves the intention to leave behind our defensive post. We’ll provide personal service and mobility, and put some teeth behind it.”

ENGAGING ENTREPRENEUR AND ESTABLISHMENT

Bodman believes AT&T’s purchase of McCaw gave US West and Bell Atlantic the guts to make their equally bold moves — investing in Time Warner and buying TCI, respectively. “We’ve started an engagement between establishment and entrepreneur that guarantees terrific turmoil and opportunity,” he says. “We do really well in chaos, and it will serve to the advantage of the American consumer.”

This explains even more fully why AT&T is bonding with entrepreneurs with ideas and technologies that show promise in the new world, and it is a smart, albeit risky, move. Most established companies are virtually incapable of seeing the world through a different filter; they seem blind to all but the most incremental differences between new and old. (See related item, p. 2.)

AT&T does not seem to be so afflicted. Most of the companies it has chosen to invest in, ally with or acquire, may not all be ready for prime time, but they generally have a take on the new media world that’s a bit askew from traditional wisdom, and one that’s usually quite interesting at that. Though it may be too big to fly by the seat of its own pants, AT&T certainly doesn’t want to cramp the style of its partners who find creative value in such exhilarating activities. “The first rule is don’t play down the power of individuals,” says Bodman. “There’s never been a big company that made it from one paradigm to another. If there’s any doubt about that on the basis of history, it’s a thin reed.”

Denise Caruso