AT&T—Time Warner and the Mixed Results in Vertical Integration by Bellheads

[Commentary] AT&T has a business plan to integrate vertically throughout the information, communications and entertainment (“ICE”) ecosystem. Acquisitions provide the fastest way for the company to move up and down the ICE “food chain” of content creation, syndication, distribution and delivery to consumers. Vertical integration can achieve operational efficiencies as a single company can achieve savings through scale and a wide footprint of related business ventures. On the other hand, it takes remarkably talented and nimble management to handle different components in the food chain.

Depending on how your rate AT&T senior management, the company has wisely invested in the convergence of content and conduit, or it has unwisely deviated from its true competency. Bear in mind that at divestiture from AT&T, companies like Verizon (then Bell Atlantic) invested heavily in content creation. Verizon failed, because it did not ascend the content creation learning curve quickly enough. Can you teach old dogs new tricks? Bellhead telephone company senior management have to acquire the skills and understand the culture of Netheads and Contentheads. Companies like Verizon and AT&T have made the transition into the Nethead world through acquisitions of companies such as MCI and UUNet. Now comes an even harder challenge to embrace the Contenthead culture of Hollywood. Good luck with that!

[Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law, Penn State University]