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February 29, 1996

AT&T Plans to Discontinue Network Notes

By LAURENCE ZUCKERMAN

In an embarrassing retreat tied to the explosive growth of the Internet, AT&T Corp. said Wednesday that it would discontinue a highly touted service designed to connect businesses with their partners and customers through AT&T computers and Lotus Development Corp.'s popular Notes software.

The service, called AT&T Network Notes, began operating last summer and was thought to hold huge promise for both AT&T and Lotus when it was announced two years ago.

Indeed, after Lotus was taken over by IBM last summer, the computer giant quickly embraced the strategy, beginning a similar service on its global network. Lotus subsequently announced similar deals, to offer Notes on public networks, with 14 other telecommunications companies around the world.

Despite this new competition, AT&T said that its head start gave it a significant advantage because it had invested heavily in studying the potential market. But Wednesday's announcement suggested that being first actually proved to be a disadvantage for AT&T.

AT&T Network Notes was designed to operate on a special communications network designed by AT&T. But with the rise of the Internet, the service's potential customers no longer wanted to pay AT&T for access to the information stored on Notes data bases, because it was much cheaper and more convenient for them to use their Internet connections.

The latest version of the Lotus Notes software, which was released in January, makes it easy to get information from a Notes data base over the Internet. But AT&T designed Network Notes around the previous version, which was not Internet-friendly.

In addition to showing the impact that the rapid rise of the Internet has been having on the computer and communications industries, AT&T's reversal illustrates the challenge facing telephone companies looking to diversify into more lucrative computer-related businesses.

"The problem with AT&T wasn't a lack of opportunity, it was a lack of execution," said Mark Johnson, chief executive of MFJ International, a software developer in New York that was working closely with AT&T to develop applications to run on Network Notes. "They built and built and they planned and planned, and by the time that they got around to making an offering, it was already obsolete."

Johnson and others said that AT&T's failure would not be a setback for Notes, which has been rapidly gaining users. Indeed, the companies that established public Notes networks after AT&T are doing well with their services, which cost much less than the average charge for Network Notes of about $40 a month for each subscriber plus usage charges.

Larry Moore, the Lotus senior vice president in charge of the company's relations with telecommunications companies, said that each of Lotus' 15 other partners were committed to developing their services in tandem with the Internet.

AT&T, too, plans to explore an Internet-based service with Lotus, said Kathleen B. Earley, a vice president in charge of the company's electronic commerce offerings. But the two companies were not prepared to make an announcement Wednesday, she said, because AT&T would have to research the number of potential customers and how much they might be willing to pay.

Ms. Earley declined to say how much AT&T had invested in Network Notes since 1994, but it was surely many millions of dollars. Rather than characterize the cancellation of the service as a black eye for the company, she termed it "very good news."

"I am very proud of this decision," she said, because it shows that AT&T is committed to the Internet.

Earlier this week, AT&T announced that it would offer its long-distance telephone customers five hours of free access to the Internet a month, for one year.

But Network Notes joins a growing list of failed forays into the computer business for AT&T. Earlier this year, the company announced that it would abandon its Interchange on-line serve, which it bought from Ziff Communications Co. for more than $50 million in December 1994.

The company has also announced that it would spin off AT&T Global Information Solutions, the computer subsidiary which was known as NCR Corp. when AT&T acquired it for $7.4 billion in 1991.

Now, after hundreds of millions of dollars in losses under AT&T, the company plans to once again call itself NCR when it becomes independent next year.


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