Acquisition propels AT&T forward - McCaw Cellular, consumer electronics industry

Discount Store News, Sept 6, 1993 by Pete Hisey

With the purchase of McCaw Cellular for $12.6 billion, AT&T, after a series of purchases and mergers, has become the newest superpower in the consumer electronics industry. The company has not only buttressed its premier position in telecommunications (with its 60% share of the $70 billion long-distance business added to McCaw's 20% share of the cellular service market), but is poised to become a dominant player in the worlds of personal computing, video games, personal communications and entertainment.

The past year has seen an ongoing series of acquisitions, joint ventures and strategic alliances with the likes of EO, Sega, 3DO and NCR. The near future might see some sort of arrangement with Apple Computer.

An indication of the company's new strategy is the appointment this spring of Carl Ledbetter, 43, as president and ceo of AT&T's consumer products division. Ledbetter is a high-profile computer executive who most recently ran Sun Microsystems. He has done stints with IBM, Prime Computer, Control Data and his own consulting business, following an earlier career as a mathematics professor at Wellesley College.

"It's clear that computing and communications are coming together," Ledbetter noted in a recent interview. AT&T is interested in "anything that costs more than $20 that you can't eat or wear," he said.

The company has one of the best known and most trusted brand names in the United States (the same holds true in Europe, where the brand is underutilized). But AT&T's long-term strategy is to establish corollary brands (like NCR) and to joint venture with existing brand names. "No matter how good your brand, there's a strange phenomenon that even your best customer won't bet the farm on a single brand," Ledbetter said. "You reach a plateau where you're stalled, and a second brand, even though it might cut into your primary brand, produces a higher market share in combination with the original brand."

So NCR computers will be marketed under that brand name (with a discreet AT&T logo elsewhere on the box), and other products, EO for instance, will stand on their own.

The company has launched a multimillion dollar advertising campaign that, ironically, isn't even selling anything. In it, future technologies, many of which won't hit retail shelves until the end of the century if at all, are previewed, with a tagline crediting AT&T.

The positioning is obvious. From the trusty telephone unit that was essentially the company's only consumer product 15 years ago, AT&T is now building an image for itself as the most forward-thinking of the major consumer electronics companies.

The latest mergers and acquisitions of Sierra On-Line (an equity position that, like EO, may become ownership in the near future) and EO also deepen AT&T's already formidable technology pool. "No matter how big your company is or how great your employees are, most of the smart people still work for someone else," Ledbetter said. Whiz kids from cutting-edge technology companies will give AT&T a marketing edge in the future, he added.

The Sierra joint venture is a case in point. The Sierra Network, an online service, will be renamed the Imagination Network, and will eventually provide a host of services through telephone lines: interactive video games in which players nationwide can compete head-to-head, team up to defeat other teams, or even modify old games or invent new ones; special interest community bulletin boards on which subscribers can discuss hundreds of subjects, trade recipes and share information; virtual malls, in which consumers can browse and purchase products; and virtual classrooms, in which students can receive specialized information in an interactive environment that could, theoretically, grade a student's knowledge and even give college or high school credit for successfully completing a curriculum.

Noted Rick Selvage, AT&T Consumer Products vp and general manager of interactive systems, "This combination will allow consumers to tie into an electronic |virtual community' of networked entertainment, information and transaction services."

The ImagiNation Network has several user-friendly attributes. For instance, users (who pay about $13 a month for 30 hours access) can build a physical character (complete with gender, race, hair color, facial expression, etc.) that other users will see each time they |talk' to you.

AT&T will provide funds so that the network can be accessed not only from PCs, but also from Sega's Genesis (with AT&T's peripheral, The Edge 16, which allows players to play head-to-head over telephone lines) and all 3DO interactive disc players.

The McCaw acquisition offers AT&T access to the booming cellular market, and more important, positions the company to provide a raft of new services in combination with some of its other products, like the EO personal digital assistant. With built-in cellular capabilities, for instance, EO users could have access to instant stock quotes, international E-mail, news reports, national paging, and even games and other entertainment . . . anytime, anywhere.