Jul. 27--AT&T Corp., which has been losing share in the crucial business market for the last few years, is gaining ground again under the direction of a rising company star.
The company won back the $3 billion IBM account from archrival MCI this spring, prompting a blowup in which MCI was forced to issue a statement denying that it cut IBM's service before the old pact expired. Then in May, AT&T lured Merrill Lynch away from MCI with a five-year telecommunications pact.
Those are just two signs of renewed vigor in the AT&T unit that provides long-distance, wireless, Internet access and other communications services to businesses around the world. The unit has emerged from AT&T's massive breakup and restructuring with a fresh identity: A new name, a new focus, a new leader and a new growth target.
Gail McGovern was tapped in January as executive vice president of what is now known as Business Markets, a $20 billion-a-year unit that accounts for nearly half the company's revenue. If it were independent, it would rank 34th on the Fortune 500 list of biggest U.S. companies. It's bigger than Boeing, bigger than Xerox, bigger than Coca-Cola.
She takes over at a critical time. The company's share of the business market has fallen to 60.9 percent from 67 percent in 1993, according to The Yankee Group in Boston, and competition is mounting.
AT&T, MCI and Sprint, the three giants of the long-distance business, already face newcomers like MFS Telecommunications Corp. in Omaha and Teleport Communications Group in Staten Island, which are building their own fiber-optic networks to attract business customers.
A new wave of competitors, the regional Bell phone companies, are due on the long-distance scene as soon as late this year in some markets. One of the publicly stated reasons for the pending merger of Bell Atlantic Corp. and Nynex is to bulk up so they can compete for big corporate clients around the world. Until then, AT&T still has its hands full with nemesis MCI, which stole the Chrysler account earlier this year.
"When one point of market share is worth three quarters of a billion dollars, you know AT&T and MCI are going to be waging a take-no-prisoners war," said Jeffrey Kagan, an independent telecommunications analyst in Atlanta. "For sheer number of customers and share, AT&T still has the advantage. As far as who is growing faster, it is MCI."
The question is, how should AT&T wage that war? The 44-year-old executive leading this charge for AT&T says the key is to know the customer better than anyone else does. "There are entire groups of people who live or die based on their understanding of the customers' needs," she said. "At the end of the day, the company that has a superior understanding of the customers' needs is going to win."
That strategy is a departure for AT&T, where the network and the research laboratories have historically held sway over the marketing department. But in an era when a company's technological advantage is short-lived and competitors abound, marketing is crucial.
"It's so competitive. Things are really becoming much more close as far as making a decision between carriers now," said Chris Landes, an analyst at TeleChoice, a consulting group based in Verona. "I think the bottom line is how well you take care of the customer."
Customer service was the critical issue this winter when Evergreen America Corp., a shipping agent in Jersey City, switched to AT&T from MCI.
"We used MCI for a long period of time and it seemed they don't really care about the customer. That is why we changed," said James Lo, a manager for the U.S. unit of Evergreen Marine in Taiwan. MCI angered Evergreen by demanding a long-term contract, Lo said. AT&T's price was important, but other things mattered too. said Lo, who had spent the morning calling Taipei, Japan, Hong Kong, London, Hamburg, Jamaica, Chicago, Baltimore, Los Angeles, San Francisco and other points around the world.
"The price is reasonable and the service is good," he said. "You cannot say they are the cheapest of all the long-distance carriers, but it is a better system than some small company."
The seeds of McGovern's strategy were planted late last summer, when she was still a vice president of strategic planning for AT&T's communications group. She was spending a week with her husband and daughter at the family's getaway home on Long Beach Island on the Jersey Shore, which is one of her chief relaxations. (She also likes to watch The X-Files on television, "especially the one with the circus, where Sculley has to eat a locust.")
Then one evening she got a call from her boss Alex Mandl, the chief of communications services. The company had tapped 15 of its "best and brightest" managers to develop a new internal structure for communications services, and Mandl wanted her to run the group.
"Naturally, I was very excited about the opportunity," said McGovern, who has a bachelor's degree in theoretical mathematics from Johns Hopkins University and an MBA from Columbia University, where she was a prize-winning student. She joined AT&T right out of school, and has been cutting a swath to the top ever since.
Mandl withheld one crucial detail, though. In just two months, AT&T would announce its breakup into three separate companies, communications, computers and telephone equipment. McGovern thought she was revamping a part of the old conglomerate, but without knowing it she was about to devise the structure of a new communications company that would carry on the AT&T name.
Such changes aren't made lightly at AT&T, either. Back in 1909, AT&T President Theodore N. Vail organized the company along the functional lines of plant, traffic and commerce, and that system prevailed for more than 60 years, until chairman John D. deButts shook things up in 1973. The company's center of power has gradually shifted away from Bell Labs and the network and in the direction of the marketing chiefs. By the time McGovern and group met last summer, AT&T was organized around its 200 products. The transition committee decided to rebuild the organization around groups of customers.
The committee finished its work and AT&T proceeded with its massive job cuts and breakup, splitting the communications company apart from the telephone equipment business and the computer business. Then late last year, McGovern was selected to run Business Markets, inheriting the sector in January from John C. Petrillo, who was named executive vice president for strategy and new offer development.
She was also named to the executive policy council, making her one of the 11 most senior people in the company. She is the company's highest-ranking woman, and last year Network World magazine named her of one of the 25 most powerful people in computer networking.
Landes, who was an AT&T strategist for seven years and worked with McGovern, described her as an approachable boss who pushed projects ahead when managers were skeptical.
"It was refreshing working with her," said Landes, who left AT&T in February after seven years with the company. "She wanted to hear ideas from some of the younger managers. She was very responsive to us and very appreciative and she didn't really rely on consultants' data. She wanted to rely on the talent she had."
Landes said she was a strong advocate of a new software program that would allow business customers to more easily track their own telephone traffic. She held fast when the deadlines looked impossible, Landes recalled.
Now it's also up to her to make her customer-oriented organizational theory work in practice.
The old Communications Services Group was reborn as Consumer Markets, under the direction of Executive Vice President Joseph P. Nacchio. And Business Services was reborn as Business Markets, with McGovern presiding over its 16,000 employees, about one-third of whom work in New Jersey at sites in Basking Ridge, Bridgewater and Bedminster.
Most of the staff in New Jersey is marketing; almost all of the people who work outside the state are in sales. Many of them work from the field with laptop computers instead of reporting to an office each day.
The organization has five tiers. Global markets includes 2,500 large companies that spend more than $85,000 a month with AT&T. Middle markets includes customers with monthly bills of $5,000 to $85,000, followed by commercial markets at the $500 to $5,000 level and general markets, at $200 to $500. Businesses that spend less than $200 a month are managed out of Nacchio's Consumer Markets division.
The customers cut across the spectrum of business. AT&T still has the majority of Fortune 500 companies. It is driving to put multimedia systems in hotel rooms and counts HFS, the hotel franchiser in Parsippany, among its clients. It also has the biggest share of the prison telecommunications business, and is making a bigger push for smaller and medium-size companies, where AT&T has traditionally had less success.
The new organization has been stripped of many departments that were part of the old business services group. Product development and online services are separate departments now.
The company's 200 product managers used to have control over research and development and sales and marketing. Now the marketing folks are in charge. The Business Markets sales force is free to take products from other AT&T units like Wireless Solutions without asking a product manager for permission.
"Once they are allowed into the local exchange, and allowed to add all the new services they want, from Internet access to wireless to paging, the potential mix and permutations of bundles (of products) begins to multiply," said Bryan Van Dussen, telecommunications analyst at The Yankee Group. "The challenge is to know what makes sense for each segment of the market. They are studying the demographics and psychographics. They are trying to identify how much (customers) are spending and why. That kind of analysis demands a great deal of brainpower and an organizational structure that enables them to address the various constituencies."
There is a lot at stake, for McGovern, Business Markets and AT&T itself. A strategic plan known as Target: Growth 2005 calls on AT&T to double its post-breakup revenues from $50 billion a year to $100 billion by 2005. It can't reach that goal if Business Markets doesn't do its part, doubling revenues to $40 billion.
Business Markets may end up generating the bulk of the company's growth. Its rising importance was evident in the company's second-quarter earnings report and caught the attention of Chairman Robert E. Allen. Calling volume for the second quarter rose just 5.1 percent, lagging MCI and falling behind its own 9 percent growth rate of last year. Nearly all the gains came from business.
"On balance, we had a solid second quarter," Allen said in an official statement. "We had some significant accomplishments, notably in the business and wireless markets, but we also encountered turbulence in our consumer business."
Chaos reigns in the consumer side of the business, where AT&T spends billions a year on marketing, blanketing the Olympics with advertisements that promise "a world without limits," and luring customers back to the company by mailing them $100 checks. Customers remain fickle despite the company's efforts, and state and federal rules regulating the industry are still in a state of flux.
Business customers provide some stability. They sign contracts, like the five-year pact that Merrill Lynch signed with AT&T. And they spend much more money than consumers spend.
But McGovern isn't counting on the company's core long-distance unit to fuel its growth anymore, or even to define the company. "The business market is increasingly important," McGovern said. "Our strategy for business customers is to have a superior understanding of their needs and then pull all those elements of the system together. That would include local, long-distance, Internet access and electronic commerce." AT&T's new contract with Merrill Lynch shows where the growth in business communications is these days.
AT&T is building and managing a new high-speed communications network that will have 30 times the capacity of Merrill's current system.
"The voice traffic is riding the side channels. It really doesn't change at all," said Bruce Sieben, a director in the communications department at Merrill. "Data is taking up all that traffic. It's moving Powerpoint presentations and Excel spreadsheets and inquiries to relational databases."
AT&T and competitors like MCI are also using their communications networks as jumping-off points for services like AT&T's Order Express. AT&T will receive all of a company's orders, regardless of whether they are received over the telephone, fax machine or computer network. Then it will fill the order and keep a detailed billing record that includes demographic information about who called and who didn't call.
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