AT&T Contemplates a Sacrifice on Investors' Altar

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The prolonged disdain of investors can be like the hot lamps in an interrogation room: You sweat a lot and, eventually, you break down and tell them whatever they want to hear.

They've been sweating at AT&T for a while. Since hitting $60 a share in April, the nation's largest long-distance and cable television provider has been a widows-and-orphans stock, but in the wrong way: It's killing investors. Falling prices in the retail long-distance game has pushed the shares as low as $21 since, and on Monday, with the stock at $27, AT&T's board met to consider a capitulation plan. Split the company in four, with a stock for each division, and let investors reward or shun each on its own merits.

Theoretically, investors will like most of their choices. Essentially, the plan (dubbed "Project Grand Slam") would be a financial quarantining of its ailing long-distance operation, which would get its own tracking stock and operate as a separate retail arm, according to reports. AT&T's wireless unit and cable television operation would each be spun off as an independent company over the next 12 to 24 months. The company's biggest and most profitable unit, the corporate-minded Business Services department, would become the new AT&T, and coordinate brand-licensing and commercial agreements with the other three.

This would of course be AT&T's third go-round with de-glomeration — the government took the hammer to them in 1984, and the company spun off Lucent and shed NCR in 1996. (And the track record is a bit frightening: Lucent has gone from $79 to $22 inside of a year, issued three — three! — profit warnings and this weekend fired its CEO.) The idea is to keep the company nimble in a shifting-sands technological landscape by letting each division act on its own, pursuing its own innovations, deals and profitability.

Is there a trend in the works? Nearly everyone in the telecom sector is having a tough time of it these days. The cable/broadband revolution has been slow to flower, and the race to the high-speed Web between wireless, cable and DSL has been far from settled. As tech marches on, some of AT&T's businesses will thrive; others will be left behind. The strategy, apparently, is to hedge one's bets with investors — investors who these days are more selective than ever with their tech buys and fully willing to punish a behemoth that might just be too big to keep up with unpredictable times.

In other words, the breakup of AT&T is just crazy enough to work, and if it does (it doesn't hurt that AT&T's baby telecoms will all have the company name at their disposal), expect imitators. Now that the markets are in the middle of a bear/bull/correction/shakeout, the glower power of investors is peaking. When a company gets too big for consumers' good, the feds start in; when a company gets too big for its own bottom line, that's when investors grab the cleaver.

Either way, you can bet Bill Gates is taking notes.