AT&T was once a model of stability. It was a monopoly, a secure place to hold a job virtually from cradle to grave and an icon of American business. It enjoyed reliable earnings growth and kept widows and orphans happy by making healthy dividend payments quarter after quarter.

These days, though, the telecommunications giant seems to know only uncertainty. It sometimes seems more like a dysfunctional family than a harmonious clan under the protective apron strings of a matronly Ma Bell. Consider just a few recent developments.

In mid-October, AT&T and British Telecommunications yanked the plug on a money-losing joint venture called Concert, which was established early in 2000 to provide telecom services to multinational companies. The result: AT&T took a $5.3 billion charge against earnings. Later in the month, AT&T announced it was bringing in a new management team to run its broadband division, which had been criticized for having the lowest profit margins in the cable industry.

Elsewhere, AT&T continues to lose ground to competitors in its consumer long-distance business. For 2001, the company is expected to post $15.2 billion in revenue from the consumer business, down from $23.7 billion in 1997. In releasing its third-quarter earnings report, the company said it expects consumer revenue to drop to $11.5 billion in 2002.

The company also announced recently that it plans to sell or lease its headquarters building in New Jersey to raise cash. Another matter still unresolved is the $44 billion bid that Comcast made for AT&T’s broadband unit over the summer. That bid was so bold that it has delayed AT&T’s plans to spin off broadband to the public.

So where does AT&T and C. Michael Armstrong, its CEO since 1997, go from here?

AT&T is likely to experience more static on the line in the months and years to come, say Wharton faculty members and Wall Street analysts. Indeed, the turmoil may cause what was once the world’s largest corporation to disappear altogether as parts of the company are spun off or sold off and as consolidation begins to accelerate throughout the telecommunications industry in general.

“They are the telecommunications equivalent of Pan Am,” says Scott Cleland, CEO of the Precursor Group, an independent research company in Washington. “Much like airline deregulation was the death knell for Pan Am because they had no local hubs, AT&T is a dead model walking because when the [regional Bell operating companies, known as RBOCs or “r-bocks”] get into the long-distance business, AT&T can’t survive long-term.”

Cleland says Congress “whipsawed” AT&T in 1996 when it passed a law that paved the way for the Baby Bells to offer long-distance. As part of the original court-supervised divestiture plan in 1984, AT&T “spun off $300 billion in local assets because the government said the Bells couldn’t get back into that business. But then 12 years later another arm of government said, ‘Never mind, the Bells can get back into that business.’”

“It’s a company in the process of being chopped up into pieces and sold,” is how David Farber, professor of telecommunications at the University of Pennsylvania and former chief technologist at the Federal Communications Commission, describes AT&T.

Adds management professor Michael Useem, director of Wharton’s Center for Leadership and Change Management: “The biggest question that Michael Armstrong has faced from day one is, ‘What is the strategy that is going to win in the marketplace, given the assets that AT&T has?’ In the last four years that hasn’t been clear, in part because technology has changed and consumer demand has changed in ways we never would have guessed.”

The recent difficulties faced by AT&T have taken place in the context of the massive restructuring that Armstrong launched last year. In October 2000, AT&T announced a plan to create four businesses. Under the plan, which the company says is expected to be completed in 2002, each of these four businesses will become publicly held, trading as either a common stock or tracking stock.

The restructuring took a big leap forward on July 9, 2001, when AT&T Wireless was split off as an independent, publicly traded company. The company’s other units are AT&T Broadband, AT&T Consumer and AT&T Business.

Against this backdrop, continuing consolidation looms in the telecom sector. A recent report by Jack Grubman and other analysts at Salomon Smith Barney stated that “the industry structure is starting to crystallize.” The report predicted that some deals involving “big players” subject to political and regulatory issues will close between late 2002 and the middle of 2003.

Management professor Gerald Faulhaber, a former AT&T executive, says that the company is under pressure on several fronts and that there are a number of scenarios for how AT&T could be reconfigured. Faulhaber calls AT&T Consumer “an absolute dog” that will continue to weaken now that the RBOCs are beginning to obtain so-called “271 approvals” to offer long-distance phone service. The FCC grants such approvals on a state-by-state basis. Verizon was the first company to receive permission to offer long-distance service, in Pennsylvania.

“For a long time, the RBOCs were not getting 271 approvals, but now they are,” says Faulhaber, who recently served as chief economist at the FCC. “I expect that to continue. When they get into that long-distance business, they are going to clean up … because they’re closer to the customer [than AT&T].”

Indeed, Faulhaber says that AT&T – and perhaps MCI and Sprint – may simply sell their consumer long-distance businesses to the regional Bells. One reason: It is expensive for long-distance companies to send out monthly bills to millions of households that rack up an average of only $8 to $12 a month in long-distance charges. But the Baby Bells can easily roll those long-distance charges into the billing statements they send out for basic phone service plus high-margin features like caller ID. “Right now people are just waiting for the next acquisition, and the next acquisition is going to be the consumer business,” Faulhaber says. “Probably the whole telephony side of AT&T and MCI and Sprint will get gobbled up by one of the big RBOCs.”

Faulhaber says AT&T’s prized possession is its business unit. The business communications market is large and margins are hefty. “If AT&T has anything to sell, that’s it,” he says. “It would be tough to keep as a stand-alone business because it’s just one market segment. But that would be the most lucrative thing.”

As for broadband, another valuable asset, Faulhaber says he expects AT&T will try to hold onto it for a while. But if AT&T cannot make a go of broadband, Comcast and other would-be acquirers “are going to be around like vultures.” Armstrong “initially thought he would hang onto broadband but now he’s backing and filling about Comcast because all of a sudden that’s in play,” Faulhaber adds. “My guess is that management will continue to screw around and hold Comcast at arm’s length because I think they think this is what their business is. Armstrong probably had the right perception four years ago: Move out of the low-margin [consumer telephone] business into something else. He had the right idea but the execution was terrible.”

Faulhaber says AT&T overpaid substantially for the cable assets of Tele-Communications Inc. and MediaOne as part of Armstrong’s vision of building a cable behemoth. AT&T spent some $100 billion to buy cable assets over the past two years. With its bid, Comcast valued those assets at less than $50 billion.

Cleland of the Precursor Group predicts that Comcast will eventually acquire AT&T Broadband. “Comcast is the spider and AT&T Broadband is the web. It’s only a matter of time. There isn’t a better offer for AT&T Broadband and AT&T Broadband will continue to be devalued with the toxic, negative growth long-distance business. AT&T must harvest its cable assets to realize its full value. Their strategy of combining cable and long distance to create value blew up in their face.”

As for the rest of AT&T, Cleland says it “will be absorbed by another company, the prime candidate being Bell South … Somebody’s going to buy the AT&T brand, the AT&T network and some of their big customers,” he adds. “The question is at what price. There will be a good fight for who gets it. There are not going to be a lot of buyers, so the few buyers who might be interested will wait for the price to go down.” Verizon and SBC, the other two remaining Baby Bells, would probably like to acquire AT&T, but they will not make a move because of antitrust concerns, Cleland says.

According to Rob Gensler, manger of the T. Rowe Price media and telecommunications fund, it is unclear which direction AT&T management wants to go. He foresees a difficult future for a company that has struggled, in one way or another, since divestiture. If AT&T executives and its board of directors “were willing to maximize shareholder value today [the corporation] would go away rapidly because they could sell parts to Comcast and others,” says Gensler. “But management and the board have little interest in that. So we’re left with it, and it will stay around. But will it be a leader or a follower? Given the results for the last 18 years, one is forced to think it will be a follower. Either AT&T gets bought by someone else or it continues to be a somewhat mediocre [perfomer].”

“Now that could change,” says Gensler. “AT&T could surprise us all … But it’s a company with a chronically long history of executing below expectations, below hopes and dreams.”

If AT&T does vanish, should anyone lament the passing of such a symbol of American business? “Not in my view,” says Useem. Plus, he says, “consumers don’t care because they just want a cheap product.” Adds Cleland: “The Pony Express went away, as did Western Electric and Pan Am. There have been a lot of venerable names that have gone away. Companies are not forever.”