Now that AT&T (T) - Get Report has reportedly come to terms with its fate, a four-way breakup, it's a good time to chat with networking visionary David Isenberg, of isen.com. After 12 years with Telephone as lab geek cum in-house provocateur, Isenberg overstepped his bounds and was shown the door in 1997. His crime? Confronting Ma Bell with what now appears quite obvious. In his notorious essay The Rise of the Stupid Network, Isenberg wrote that AT&T had engineered itself into obsolescence and that the rise of the Internet would quickly reduce its empire to rubble. In a conversation with TheStreet.com's Scott Moritz, Isenberg offers his thoughts on his old firm and a prescription for its survival. Isenberg, a longtime advocate of a breakup of the old phone giant, says AT&T is just now realizing the world has changed and that its adjustments may well be too late.

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: You got slapped aside for trying to point out a new networking opportunity to AT&T. Today, probably no one can more fittingly say, I told you so. I know there is some sense of vindication in that, but I also know you have mixed feelings about the company where you spent 12 years of your professional life.

Breakup advocate

Isenberg

: Yes. Increasingly, though, the sadness fades as the immediacy of the personal relations I established at AT&T recedes into the background. And many of those people who I associated with AT&T have moved onto other positions outside the company. In fact, the company is a different company than the one I quit.

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: Three years later, it looks like AT&T is failing from the very things that you laid out. The stock is down to a three-year low, the gold-plated long distance service is now an anchor around AT&T's neck, and the pricey entry into cable is still unproven and one of the most second-guessed moves in modern corporate strategy. So if they came to you, now that you are an established expert guiding new technology companies in the Internet era, and they asked you for advice, what would you tell them?

Isenberg

: I'd say break it up, spin it out, sell it off, reorganize it. They've got to face the fact that the value proposition that built their company is over.

They have figure out what they have that's relevant to the New World and optimize that and quit trying to recreate the Old World.

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: For the uninitated, Isenberg's belief, which will be featured in an upcoming Streetside Chat, is that the abundance of network capacity rewrites the rules for network services. The overmanaged per-minute communications traffic flow that travels as though through a cocktail straw will give way to limitless bandwidth, which in turn opens the door to new network business models such as peer-to-peer file swapping and the like.

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Isenberg

: AT&T is almost literally like a dinosaur. It's been hit in the tail for years with this Internet growth thing, and the signals are finally getting to its brain and it's about to turn around. But the thing that was wiggling the tail may be moving on. It may be that there's yet another market logic that's coming into place.

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: Under C. Michael Armstrong, AT&T took the approach that it would be the all-communications-service provider. But as we have seen, AT&T's offerings are still fractured and it's not even clear people want all their services from one provider. Now suddenly, separate is better. What's going on there?

Isenberg

: AT&T is still chasing that goal of being an Internet-oriented growth company. They want to be there. So they're trying to lose the long distance business because its slow growth is dragging AT&T's share price down, even though it has healthy cash flow.

There's another reason for the company to be breaking up, because you can't manage for both cash flow and for growth. So, fundamentally it's a correct strategy. The problem with it is the timing.

They've got to find new businesses, and those are going to have different profit margins. Businesses that are associated with owning wires and switches are going to have much, much lower profit margins. The ones that have the potential to create huge value -- at the edge of the network -- are going to be hobbled by their association with the company that owns wires and switches.

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: Can AT&T pull this off?

Isenberg

: With its once heavier cash flow from long distance, AT&T could literally afford to make mistakes, or to make nonoptimal purchases.

Now, once it gets rid of the cash flow, and its only lifeline to the market is growth, well, then they're going to have to perform, and I'm not sure they remember how. Especially when almost all the good people have already left.