Building Morale At AT&T

Cable World, May 6, 2002

Byline: K. C. NEEL

When AT&T Broadband employees in Chicago began wearing T-shirts emblazoned with the company's logo to places like the local grocery a few months ago, executives knew the company was finally headed in the right direction.

Morale at AT&T Broadband had gotten so low by the end of last year that employees in many of the MSO's markets didn't want other people to know they worked for such a corporation. Customer service was shoddy, construction projects were left unfinished, promises were continually being broken and customers were fed up. And frankly, so were employees.

"When people are proud to say they work here, I know we're making progress," says Joe Stackhouse, AT&T Broadband's SVP in Chicago. "And that is starting to happen more and more. They all want to do a good job, and we are finally giving them the resources to do that."

Six months after former Continental Cablevision veterans Bill Schleyer, Ron Cooper and David Fellows came on board to run the troubled cable operation, financial numbers continue to lag; but employee spirits are up, and customer service statistics have improved dramatically.

"Things are much better at AT&T today than they were a year ago," says University of Wisconsin professor and city consultant Barry Orton. "But [things] were so low a year ago that any improvement is significant."

Orton credits CEO Schleyer, COO Cooper and CTO Fellows with the quick turnaround of the company's reputation for poor service. He stresses, however, that customer-service and -satisfaction levels still need to be improved. Meanwhile, there's also mounting pressure from Wall Street to improve the bottom line and stem customer defections.

To be sure, the financial picture hasn't turned positive yet. AT&T Broadband posted a 19% cash flow margin in the first quarter, about half of the operating margins in the cable industry and below the margins AT&T Broadband reported in the fourth quarter. AT&T also lost some 179,000 customers from the year-ago period, mostly due to a backlog in disconnects. Some 35,000 AT&T customers left for the competition.

Those setbacks aside, Merrill Lynch analyst Jessica Reif Cohen is confident about Schleyer and his team. "We believe the new management team is taking appropriate steps to help stem subscriber losses by focusing on aggressively upgrading the plant. However, it could take longer than anticipated to halt subscriber defections," Reif wrote in her weekly cable report late last month.

Schleyer and Cooper admit the subscriber losses are distressing. But rather than react to the lackluster cash flow numbers by cutting costs, Schleyer and Cooper are opening their purse strings. AT&T Broadband will spend $1.1 billion this year on upgrades alone, Cooper says. The theory: When service improves and upgrades get back on track, customers stick around.

Schleyer expects video churn to drop 20% to 40% in markets where customers can subscribe to either voice, video or data services in bundled packages. That means upgrading markets as quickly as possible, which unfortunately translates into lower cash flow numbers - at least for a while.

"This has been a challenging year," Schleyer says. "But we're moving the business forward, and we will come out a stronger company at the end of the year."

Orton agrees AT&T is on the right path. "Schleyer came in and began running AT&T the way a cable company should be run," Orton says. "They began burying drops and answering their phones. Rather than save money by not doing those things, they decided it was better business to spend the money and do them. And they were right."

Schleyer, Cooper and Fellows spent the first five months at AT&T just listening to what customers and employees had to say about the company, most of which wasn't pleasant.

"We had heard inside and outside the company that AT&T Broadband had lousy customer service," Schleyer says. "And sure enough, it [did]. Employee morale was very low. People didn't know where the company was going. No one was talking to them. So we started listening and talking. We quickly realized that our employees had great ideas, and they started sharing them with us. Morale is up, and customer service is better. People told us we were losing customers because we weren't rebuilding our systems, so we aggressively began to increase our rebuild construction."

AT&T's new operating model mirrors that of Comcast Corp., which is one of the industry's best when it comes to customer service standards and which is in the process of buying AT&T Broadband.

"Schleyer and company are running the company like Comcast will run the company, and that is a good thing," Orton says.

Schleyer says he isn't running AT&T to please the folks at Comcast, but admits that the two management styles are similar. "Comcast's model is similar to the one we adopted because it fits, not because it's Comcast's model," he says. "We're doing these things because it's the right thing to do."

Just how bad were things last fall when Schleyer left his cushy venture capital job at Boston-based Pilot House Ventures, the firm Amos Hostetter started after MediaOne Group's headquarters were moved to Denver in 1997?