MICHAEL ARMSTRONG July 27, 1998 The NewsHour with Jim Lehrer Transcript

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AT&T and British Telecom plan a new telecommunications company that will provide new technology in phone, computer, and news delivery services. Phil Ponce talks with the deal's organizer Michael Armstrong, the chairman and CEO of AT&T.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: June 24, 1998: AT&T and cable giant TCI announce their intention to merge. May 26, 1998: phone merger between SBC and Ameritech. May 11, 1998: A discussion on the phone merger between SBC and Ameritech. January 1, 1998: A federal judge decides to allow the regional telephone companies to enter the long distance market. November 10, 1997: The bidding war for MCI finally ends with World Com's $37 billion bid beating out British Telecom. October 1, 1997: WorldCom makes a surprise bid to merge with MCI. November 4, 1996: British Telecom makes a bid to buy MCI. April 29, 1996: AT&T , the nation's largest telecommunications company, breaks into three parts. April 22, 1996: NYNEX and Bell Atlantic announced today that they would merge. April 2, 1996: Two of the western "Baby Bells"announced Monday that they would merge. March 22, 1996: Paul Solman examines the economic insecurity of workers at AT&T. February 2, 1996: Congress has voted to reform the laws governing the telephone industries. Browse the NewsHour's Business Index OUTSIDE LINKS: AT&T British Telecom A Web site from the two companies explaining global venture between BT and AT&T.

PHIL PONCE: This multi-billion dollar joint venture brings together the largest long distance company in the United States and the largest telecommunications company in Britain. Now the man who initiated the deal, Michael Armstrong, is chairman and chief executive officer of AT&T. He joined the company last fall and is the first AT&T CEO to come from outside the company. Mr. Armstrong, welcome.

Please, sir, tell us, what is the deal exactly?

C. MICHAEL ARMSTRONG, AT&T Chairman: Well, it's a joint venture between British Telecom and AT&T and we will put all of our transnational resources and British Telecom, all of their transnational resources, international communications resources, into a joint venture company that in its first year of operation will be a $10 billion company.

A joint venture.

PHIL PONCE: When you say joint venture, it means you're not merging your respective companies, it's not just an alliance, the two of you are creating, what, a third independent company?

C. MICHAEL ARMSTRONG: We're creating a third independent company, a clean sheet of paper, and we'll have a new chief executive officer, and we'll have new governance, and it will offer a whole new set of network services.

PHIL PONCE: Tell us about those services. In lay terms, what kinds of things will you be offering your customers?

C. MICHAEL ARMSTRONG: One of the first things we committed to is to build out to a hundred cities around the globe a very wide bandwidth-some 200 gigabits per second-a very wide bandwidth communications pipe, if we could call it that, and over that pipe we'll be carrying advanced services that will permit things like global 800 numbers so that businesses can reach consumers wherever they are in the world, and consumers can buy and get around the world whatever commodities and purchases they want, things like global phones with single phone numbers, wireless phones in America that not only reach coast to coast but around the world.

Beyond long distance.

PHIL PONCE: So it goes beyond just regular long distance service of the kind that you offer here?

C. MICHAEL ARMSTRONG: Yes, it does. It really means that by applying technology to the market opening that's happening around the world and over that technology putting enhanced services, we're going to see more that people as well as businesses can do and with the kind of volume that I think that this technology will stimulate that these applications will stimulate, we can see prices come down.

PHIL PONCE: But this joint venture that you're talking about, the customer base, is it going to be primarily businesses, as opposed to individuals at first?

C. MICHAEL ARMSTRONG: It will initially appeal to businesses. Of course, what is the business of business but to reach their customers and the consumers. So it will have an effect on consumers through business to start with, but I think that many of the benefits of this kind of a joint venture will quickly be available to consumers, such as lower rates to make global calls.

PHIL PONCE: Mr. Armstrong, why did you enter into this deal with British Telecom? What's the motivation?

Behind the new venture.

C. MICHAEL ARMSTRONG: Well, I think there's two underpinning principles to this. First, around the world barriers are coming down, borders are coming down. Markets are opening, whether it's tariff or non-tariff or monetary or economic, indeed, markets are opening, and as markets open, on the one hand, societies are emerging to participate in the world economic order and get their piece of that pie. And on the other hand, multi-national institutions are reaching out to offer their goods and services.

Complimenting that very positive change are huge changes in communications technologies. We're going from analog to digital transmission, from circuit switching to packets of information that are transmitted, and that's enabling the convergence of applications like information like in the Internet, communications, such as fax and voice, long distance, and local, and entertainment as well, and so the reason we're doing this now is that markets are exploding, markets are opening, opportunities are there, costs are coming down, and we're following our customers.

PHIL PONCE: It also sounds like you might be following your competition, is that a part of it too?

C. MICHAEL ARMSTRONG: We've got plenty of competition out there, Phil. We have, of course, the entrenched and established incumbents, many times monopoly PPT's, and there are other global consortiums that we must compete with, and so, yes, there's plenty of competition to be wary of and to take and get into market to compete with.

PHIL PONCE: Mr. Armstrong, it's been said that AT&T's global strategy was somewhat ineffective and that this is aimed to fix that. Is that a fair statement?

C. MICHAEL ARMSTRONG: I think that it's fair that the strategy could be strengthened. Basically, the strategy that we had both in Europe and in Asia was an alliant strategy. It was a contractual relationship with providers of communication services. However, in doing that, we're many times reselling what was, rather than innovating and delivering what could be. And so we've shifted from a resale strategy of other products and infrastructure to an investment strategy of our own facilities that we'll deploy so that we can have control over the design, so that we can provide a universal service around the world, so that we have control of the access to our customers and to markets, and with both of those we'll be able to manage our costs.

A facilities-based strategy.

PHIL PONCE: So what you're saying is this isn't just an arrangement with other companies. I mean, you own the shop, so to speak?

C. MICHAEL ARMSTRONG: We own the shops. We own the architectures. We control the access. It's basically what they would call a facilities-based strategy. We're investing in facilities in order to deliver enhanced communication services on a uniform and universal basis, and with the volumes that we hope to bring to this venture, we hope to have the lowest unit cost in doing it.

PHIL PONCE: Your partner in this venture, British Telecom, tell us about them.

C. MICHAEL ARMSTRONG: Well, British Telecom is an outstanding company, and I have known them for many years. I lived in Europe for three years in the mid 80's, and I got to know them. We were customers of each other, gained a great respect for the change that Ian Valance was bringing about, and so-

PHIL PONCE: He being the head of British Telecom?

C. MICHAEL ARMSTRONG: Ian Valance being the head of British Telecom. And so when I came to AT&T, I think it was the second day in the job, it was obvious to me that if we could somehow put the resources of British Telecom and the leadership they had exhibited both in restructuring their company and in going out into new markets and going global with their company with the wonderful resources of AT&T, it sure made a lot of sense going forward, and I picked up the phone, gave him a call, and he thought it made sense too and invited me to dinner, took a plane the next week over, and we had a terrific conversation about where we thought the industry was going, the condition of the markets, the competition, and from that, the work sprang, that nine months later we announced this joint venture.

A glaring need?

PHIL PONCE: Mr. Armstrong, if you recognized that need the second day on the job, that need must have been fairly glaring. Is that one of the reasons-is that one of the reasons you were brought in?

C. MICHAEL ARMSTRONG: Well, I have to admit-I didn't come in with a predetermined strategy, but I had spent six years of my IBM life as the group executive of communications and development, certainly in my experience with Hughes it was all about communications, so in coming to AT&T, I did have some background.

PHIL PONCE: It's been said that notwithstanding the fact that AT&T is the largest long distance carrier in the United States and that British Telecom is the largest communications company in Britain that there was a recognition that as large as both of you were, you weren't big enough to do what you're trying to do now, is that accurate?

C. MICHAEL ARMSTRONG: I believe in taking on the global markets I don't think any one company has the resources to do that alone, and I believe that's why you see global consortiums-WorldCom, MCI, and Telephonic-one consortium-Deutsche Telecom, French Telecom-and Sprint is another consortium, so taking on the challengers of a global facilities-based strategy takes an enormous amount of reach, resource, and capital. And so I think it does make sense that a partner or partnerships are what we're going to see making the global arena happen.

AT&T and British Telecom: Becoming global players?

PHIL PONCE: You mention some of those other major global players. There's a concern, as you know, that eventually there's just going to be a handful of big players, and this is going to mean less competition and higher prices. How do you react to that concern?

C. MICHAEL ARMSTRONG: I would say just the opposite. I think that, yes, like in many industries around the world, industry consolidation will come to the telecommunications market, of course. Heretofore, markets have been closed. Each country in the world has its own telephone company and some countries like ours-many telephone companies-and we're going to see the natural evolution of industry consolidation.

But I think that that's going to make costs go down and prices go down, and competition go up, because each company as the consolidation takes place will gain a greater critical mass that they'll be able to get efficiencies of scale, and they'll be able to have lower costs as they price their products and as they bring innovation to market, and certainly industry consolidation doesn't necessarily mean in total. There are fewer players because there are many innovative start-up companies. Look what's happened with the Internet, which is basically the communications application. Internet is the fastest growing communications application we had today. And it's ripe with small, innovative upstart companies.

PHIL PONCE: Mr. Armstrong, thank you for joining us.

C. MICHAEL ARMSTRONG: Thank you.

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