In The Hot Seat

Title: President, chairman, and CEO-electC
ompany: AT&TWhere: Basking Ridge, NJChallenge: Create AT&T's future<

It's been one hell of a year in the telecom world: Industrywide network overcapacity. The WorldCom, Qwest, and Global Crossing meltdowns. Consumer, investor, and employee confidence all shaken deeply. And for AT&T? Throw in spin-offs of its wireless and broadband divisions and add an attempt to break back into the local-phone-service market, and you get one tough moment for David W. Dorman to take the helm at AT&T. But the onetime CEO of Pacific Bell and the failed PointCast Inc. operation is up to the challenge. In the ruins of AT&T's competitors, Dorman sees market-share opportunity. In the shambles of the industry, he sees a chance to redefine the nature of AT&T. And in the possibility of a broader economic recovery, Dorman sees a future for telecom even bigger than it was at the height of the boom. Here's what it feels like to be David Dorman, AT&T CEO-elect, on the hot seat.

We're in a unique position. We're the clear leader in the enterprise telecom space. Our largest competitor is seriously impaired -- if that's a fair description of WorldCom. Our third-largest competitor is losing money at the operating-margin line, and our next-largest competitor is rated as junk. We're profitable, and we have an operating margin of almost 20%. I'd say we're in a pretty good situation.

Look at the airline industry since deregulation: About 135 bankruptcies have been filed. Until the past 18 months, the telecom industry hasn't had that many bankruptcies. I don't think that we're done with our shakeout. There are still a lot of bankrupt assets out there that are selling for 5 cents to 15 cents on the dollar. Look at Global Crossing or KPNQwest.

For a year, our strategy has had three elements: to grow in the local market at the expense of the Bell companies who dominate that segment as near monopolies, to grow globally against the PTTs -- the nationally oriented telephone companies in Europe and Asia, and to be both the market leader and share-growth leader in managed services and IT services, which represent the new wave in enterprise communications.

We still consider ourselves to be a telecom-services company. But the definition of "services" has broadened from basic connectivity to managing all aspects of communications capabilities for individuals and corporations -- delivering a more customized solution for customers, across that communications continuum.

I draw some comfort going back to 1995 and 1996 -- back when the rate of growth of companies like Cisco was real, before they got put on steroids. I believe that once we get through the painful correction process of the excess and the bubble, communications will be a bigger part of the total GNP or GDP in five years than it is today. The demand for technology as a productivity builder is a reality. It's not a fad; it's enduring.

How much more do you communicate today than you did 10 years ago because of a cell phone or a BlackBerry? A lot more. And generationally, when I look at my kids, I see that they are totally wired. They carry cell phones, and they use instant messenger. We are altering behavior in some profound ways.

The difference between a good and a great company is usually the talent level. If talent is a differentiating factor, you're going to have to reward that in order to keep it. It's naive to think we'll go to a social-egalitarian level of compensation -- you know, the Ben & Jerry's model. At the same time, there's clearly been a lot of excess out there in the amount people have been paid to run a company.

What keeps me up at night? What doesn't? How will the WorldCom situation resolve itself? Will the Bell companies continue to harangue regulators and legislators, trying to overturn the Telecom Act and monopolize the industry? What role will the government play in that process? What will go on with the economy -- are we in a long, bathtub-shaped, multiyear situation? My job is to worry -- and I have lots to worry about.

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