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AT&T mulls Web charges
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October 9, 2000: 6:41 p.m. ET
Analysts say firm to charge merchants for customers, value of goods
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NEW YORK (CNNfn) - AT&T Corp. is considering a plan to charge Internet retailers a commission each time a customer buys something through the telecom's broadband network, an industry analyst said Monday. AT&T would also collect a fee from retailers each time a customer accesses their site through its network.
The change would help AT&T reduce dependence on its shrinking consumer long-distance telephone business and make money off traffic on the high-speed broadband networks it gained through its acquisitions of Tele-Communications Inc. and MediaOne Group Inc., analysts said.
AT&T has reportedly been considering various options, including the spin-off or sale of its consumer long-distance, to prop up the company's sagging stock. Shares of AT&T (T: Research, Estimates) lost 69 cents Monday to close at $26.56, just 19 cents above its yearly low. Since April, the stock has lost more than half its value amid profit concerns in the telecom sector.
 A commission on each transaction would mark a departure from the flat rates or traffic volume-based fees that telecoms typically charge to transmit information on their networks or manage corporate Web sites.
AT&T spokesman Ritch Blasi said the program is not a new one, and is currently offered as PocketNet service on the company's wireless phones. Under PocketNet, retailers pay for highly visible spots each time someone logs onto the Internet with their wireless phone.
But Ken McGee, an analyst at the Gartner Group, said AT&T plans to extend the program to broadband subscribers. Therefore, each time a customer who gets their cable, telephone and Internet service over one line from AT&T, buys something from an online merchant, AT&T would collect a fee from that merchant, McGee said.
"Our thinking is the major carriers of the world have got to derive less than 50 percent of their revenue from being a long distance carrier by 2002 if they want to remain viable," McGee told CNNfn.com. "I think when you consider that we bought $6 trillion worth of stuff last year, I think it is an easy and clear path to replace consumer long distance."
AT&T plans to shift to the new fee structure next year, McGee said. Other analysts said the new pricing plan still is under consideration and no decision has been made. The exact fee structure and commission rates were not immediately available.
"Their primary (long-distance) product is 5 cents away from being free, so they need to find a new growth engine," McGee said.
Increased competition and price wars have pushed residential long-distance calling rates to as low as 5 cents a minute, forcing long-distance carriers such as AT&T to find new businesses to offset declining sales to consumers.
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With the new pricing plan, AT&T may be able to mine a lucrative new market. Business-to-consumer sales over the Internet are expected to grow to about $152 billion in 2002, up from $25 billion in 1999, according to Internet research firm Giga Information Group Inc.
If the AT&T plan works, other network operators such as WorldCom Inc. (WCOM: Research, Estimates), Sprint Corp. (FON: Research, Estimates) and Qwest Communications International Inc. (Q: Research, Estimates) could follow suit, analysts said.
Drake Johnstone, an analyst with Davenport & Co. said the new strategy would make sense given the fact that other stock-boosting options under consideration, such as selling the long distance business, would be difficult.
He also said the plan makes sense in that it would help defray the charges local exchange carriers would charge AT&T to access their infrastructure in order to offer broadband service.
"I think spinning off consumer long distance, who would want to own the stock?" Johnstone said. "Long-term for AT&T the cable strategy could pay off. They need to have local infrastructure in place across the country to provide high speed Internet access, and the only way to do that is to build on fixed markets."
The fees may, however, alienate some Web merchants who already struggle to make a profit on their online sales, analysts said.
Given the expense of attracting customers, many major Web retailers lose money on every sale, a study by consultant McKinsey & Co. and brokerage Salomon Smith Barney said. 
- from staff and wire reports.
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