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MANDL PLANS TO PARLAY ASSOCIATED MOVE INTO LEC COMPETITION

To the cynic, walking away from AT&T Corp. and the prospect of being chairman of the world’s biggest telecommunications company to head a wireless start-up with unproven technology was no big gamble for Alex J. Mandl.

Start with a $20 million signing bonus to launch Associated Communications L.L.C., a tiny Washington, D.C.-based firm planning to provide low-cost, high capacity broadband wireless local loop service to small- and mid-sized businesses in the nation’s top 31 markets. In telecom jargon, it’s the CLEC, or competitive local exchange, business. The residential market is not in the game plan.

Add a million dollar annual salary (roughly what he made as AT&T president in 1995, not counting the $2.5 million stock bonus) and an 18 percent equity stake that could net Mandl another $180 million if Associated grows to $1 billion in market value. The firm is going public this year, perhaps by mid year.

Mandl is, after all, a businessman. And in Associated’s eyes, Mandl is the messiah. But he says there’s more to it than money. He says the “bonus” was tied to financial perks he left behind at AT&T.

“I have for a long time had the desire to have the opportunity to build a business from scratch, build a team, build a fast-growing business that’s shaped after my ideas and my principles and my notions of what makes an exciting business enterprise,” Mandl said in an interview with RCR at Associated’s offices in Old Towne Alexandria, Va., overlooking the Potomac River.

Associated, which will market itself as ACOMM, plans to move to a larger facility in northern Virginia later this year.

So when David Beirne, the 30-something high-tech, head-hunting phenom who lured James Barksdale away from AT&T Wireless to a then-little known Internet firm named Netscape Communications Corp., approached Mandl last April, he listened cautiously. Barksdale parlayed a 12 percent interest in Netscape into a $200 million profit. That didn’t escape Mandl.

That AT&T is wireless king today is credit to Mandl, who spearheaded the deal to buy McCaw Cellular Communications Inc. in 1994 for $11.5 million. Mandl pushed successfully to buy all of McCaw instead of part of the nation’s leading cellular operator as AT&T originally intended.

Mandl said his comfort level about moving to Associated rose significantly after meeting with the Berkmans, successful family telecom investors of the Associated Group who own 55 percent of the new wireless venture, and Rajendra Singh, whose Telecom Ventures L.L.C., has a 45 percent interest.

Mandl recruited Larry Harris, MCI’s top lobbyist and a long-time friend, to his team as senior vice president and general counsel. Translated: Mandl’s right-hand man. Harris negotiated the first interconnection agreements with AT&T in the mid 1970s, before the 1984 divestiture, on behalf of MCI and the paging industry. That skill will come in handy when Associated meets with the Baby Bells to hammer out interconnection accords.

The rest of Associated’s management team is expected to be shored up this month, at which time the wireless firm also will disclose its major supplier. Mandl said he hopes by then the spectrum interference dispute between Teledesic Corp., the global communications satellite venture bankrolled by high-tech billionaires Craig McCaw and Bill Gates, and Associated will be resolved.

“Everybody has a great interest in solving this,” he said. Stay tuned.

As for seed money, it’s good and plenty.

Associated sold cellular properties to SBC Communications Inc. in 1994 for $700 million. It holds stock in cable TV giants Tele-Communications Inc. and Liberty Media Corp., valued at $430 million. But most financing will come from capital markets and debt, according to Mandl.

Truth is, remaining at AT&T may have been a bigger risk for the 52-year-old telecom executive who speaks with a hint of an accent from his Austrian birthplace. The risk was losing out on a once-in-a lifetime chance to build a company ground up-not to mention having fun along the way in an entrepreneurial environment far removed from the corporate culture and bureaucracy that Mandl succeeded in, but perhaps also was stifled by.

“I woke up one morning and said `I’m going to go to this,’ ” Mandl said.

“Sure, it was terrific to be president of AT&T and it would have been equally or even more terrific to be chairman of that. But you shouldn’t underestimate the reward and satisfaction and opportunities that come with building something like this.”

Moreover, there was the future to think about.

AT&T continues to lose long-distance market share, though it is not in any real danger of losing its domination of that sector. Had he stayed and succeeded AT&T Chairman Robert Allen, Mandl would have been in a precarious position. Maybe a no-win situation.

Long-distance competition is expected to get even more fierce as the regional Bells and small dial-around long distance firms go after business and residential customers. Definitely not a good scene if you’re the guy facing hostile shareholders and skeptical Wall Street traders.

Still, it is not clear whether Mandl was a shoo-in for a job he reportedly wanted dearly. Allen will not surrender the post for another four years, when he turns 65, and retires. That’s a lifetime in telecommunications years.

It is said that Allen did not include Mandl in planning AT&T’s spinoff of its equipment-manufacturing and computer units and that Allen did not try to keep his No. 2 man when apprised of Associated’s offer.

“I don’t think anybody ought to make any other story out of this than the truth,” Allen told USA Today when Mandl resigned Aug. 19. “Alex was attracted by the opportunity to run his own show … and a huge amount of money. He and Michael Jordan are probably in the same ballpark.”

Even now, it’s hard to tell whether Mandl’s exit says more about the promise of local telecom competition for Associated and others or about the problems of long-distance competition facing AT&T, MCI and Sprint Corp.

The telecom act of 1996 removed barriers to competition in the local and long distance markets. Realizing that competition may prove more elusive than policymakers and industry envisioned. The cable TV industry is abandoning local telephone business as fast as most of the Baby Bells are pulling the plug on video.

Cable TV’s early exit from local telco is good news for Associated. But there is plenty of local competition out there.

WinStar Communications Inc. and Advanced Radio Telecom provide wireless local loop service at 38 GHz. Associated does it at 18 GHz. MFS Communications and Teleport do it with fiber, the Baby Bells with twisted copper wire pairs.

“The technology is no great mystery here,” said Mandl. Well maybe. Associated currently operates point-to-point microwave systems, and is testing point-to-multipoint technology in the United States and abroad. The range of each microwave station is three to five miles.

Associated believes it will have a competitive edge in terms of cost, technical capability and operating efficiency. Fiber systems, though rich in capacity, typically serve only the core of major cities, where many large businesses are located. Smaller firms must rely on the Baby Bells, whose service can be pricey and limited.

Mandl is quick to point out that Associated’s business plan is not monolithic. He said Associated may sell to Bells as well as compete with them, and possibly even resell fiber as part of its package.

“Until you have facilities-based alternatives, competition does not really exist,” Mandl said.”This service will provide very direct competition in the local service environment.”

Meanwhile at AT&T, the shake-up continues. Mandl appears to have been ahead of the curve.

Joseph Nacchio, chief of AT&T’s $26 billion long-distance consumer division, left late last month to head up Denver-based Quest Communicatio
ns Corp.-which is constructing a $2 billion fiber network-after losing favor with Mandl successor John Walter, the printing executive without telecom experience now in line to take Allen’s job.

Nacchio’s resignation came as Walter planned to reassign him and replace him with Gail McGovern, who ran AT&T’s business services.

Walter, for his part, is said to want to centralize oversight of AT&T’s business divisions.

“The communication-information industry is the most exciting industry around, bar none,” said Mandl. “And within that industry, I happened to think that this particular segment-the local service market-that is now being opened up by virtue of legislation and new regulations and as new technologies are entering this business, and as customer demands and customer needs are shifting to more of a broadband, higher speed environment, the convergence of all that makes this a very, very special opportunity.”

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