NEWS ANALYSIS : Will the New AT&T; Maintain Its Edge? : Telecom: The smaller version of the company could find itself less competitive domestically, some experts say.

WASHINGTON — As AT&T; Corp. spins off its computer and telecommunications equipment businesses to focus on its core communications services, the company will face an open horizon of opportunity. But it may also find it isn’t necessarily the best equipped to face the new competition.

On the whole, AT&T;’s breakup provides more benefits than negatives, analysts say. As a less vertically integrated company, AT&T; will no longer be distracted by resolving conflicts between its far-flung businesses, and will be able to concentrate on gaining market share in fast-growing fields such as wireless communications, electronic home banking and consumer credit, computer networking and local phone service.

Also, the communications giant will be better positioned to raise capital and find allies among local telecommunications companies, including large equipment suppliers and service providers.

“Restructuring puts us in a better position to move faster,” AT&T; Chairman Robert E. Allen said. “We will have better management focus.” Nonetheless, the new AT&T; will face some competitive challenges as well as regulatory hurdles and uncertainties.

In domestic markets--which still represent the bulk of its business--the smaller version of AT&T; could find itself less competitive.

For example, one of AT&T;’s main selling points in picking up major new clients has been its prestigious Bell Laboratories. But now, at a time when many regional Baby Bell companies are eager to begin manufacturing sophisticated equipment--including “smart” phones that will help sell new products--AT&T; will be without a manufacturing arm. Most of Bell Labs will be spun off with AT&T;’s telecommunications equipment operations.

“It makes product development more difficult,” said Mark Winther, vice president with IDC/Link Resources Corp., a research group. “They will be more like their peers like MCI; there will be less to distinguish them.”

Without the ability to offer such comprehensive services to its customers, AT&T;’s dominance may be threatened, some experts said.

“Their ability to be an integrator of communications services will be hurt. . . . That could make companies who want one-stop shopping look for” other providers, said Richard Nespola, president of Management Network Group Inc., a Leawood, Kan., telephone consulting firm.

Meanwhile, Sprint and MCI may be a step ahead in tapping markets opening up to local phone service providers. For example, MCI has launched an aggressive scheme to build local telephone networks in major metropolitan areas to bypass regional phone companies and get direct access to customers. Sprint has an ambitious plan to work with cable companies to develop telephone links to the home.

AT&T; has a broad cellular phone market as a result of its acquisition of McCaw Cellular, but analysts say cellular phone rates will be too expensive to serve as an alternative to land lines. Cellular calls cost 30 cents a minute compared to the inflated 10 cents a minute AT&T; now pays regional phone companies to complete calls.

Beyond the uncertainties of the marketplace, AT&T; is striking out on a new business strategy without much guidance from federal regulators about how they might react to the restructuring.

Although AT&T; huddled with officials of the Internal Revenue Service to iron out possible tax consequences, AT&T; spokesman Jim McGann said the company did not request Justice Department officials to review its plans to determine whether they would raise antitrust issues or run afoul of the groundbreaking consent decree that broke up the AT&T; telephone monopoly more than a decade ago. Chairman Allen said he has had no discussions with Justice on whether restrictions on AT&T; might be loosened, adding that he has “no expectations” that the regulations will be loosened.

In comments that many analysts considered pro forma, Anne K. Bingaman, head of the Justice Department’s antitrust division, said that although AT&T;’s restructuring plan does not appear to present immediate competitive concerns, her agency will examine the restructuring.

However, earlier this year, the Justice Department challenged the plans of AirTouch Communications--a spinoff of Pacific Telesis Group--to resell long-distance telephone service and conduct equipment-related research and development after deciding that those activities would violate the 1982 consent decree.

“The federal government can’t give blanket assurances in advance [of a transaction], but DOJ has in the past given guidance to companies about the potential consequences” of various deals, said one federal regulatory official who did not wish to be named. “I would think it would be prudent to discuss something like this with DOJ.”

AirTouch, which maintains that a court waiver is not necessary for it to resell long-distance service because it is not a regional Baby Bell operating company covered by the decree, broke away from Pacific Telesis a year ago. But it never sought a formal interpretation from Justice on whether the consent decree would apply to its activities.

AirTouch officials have asked U.S. District Judge Harold Greene to rule on the legality of the Justice Department’s decision. A decision is expected this fall.

An even bigger test of the wisdom of AT&T;’s restructuring will soon unfold on Capitol Hill, where telecommunications reform legislation is pending.

The House and Senate have passed separate bills that would allow the Baby Bells, long-distance and cable TV companies to enter each other’s businesses. With their deep pockets, the Baby Bells are expected to take as much as 30% of the long-distance market.

AT&T;, which has generally been viewed as being thoroughly outclassed by Baby Bell lobbyists on Capitol Hill, had hoped to convince lawmakers that the Bells should not be allowed into the long-distance business until after “actual competition” exists, to give AT&T; time to strengthen its competitive position.

By restructuring, AT&T; now appears ready to concede it must ready itself for a more competitive climate, said Sen. Larry Pressler (R-S.D.), who chairs the Senate Commerce Committee.

“There will be an Oklahoma land rush of competition” as a result of telecommunications reform, Pressler said. “Companies will have to be strategically nimble in the new deregulatory competitive environment.”

Shiver reported from Washington and Helm from Seattle.