- The Washington Times - Thursday, October 26, 2000

AT&T; Corp., the nation's eighth-largest company, will split itself into four parts in an effort to revive its sagging stock and prevent the struggling long-distance business from stifling its other services.

It will be the third restructuring for the company since a court-ordered breakup in 1984, when AT&T; spun off its local calling operations as seven regional Bell operating companies, or Baby Bells.

Yesterday's move was the result of discussions about a reorganization that began with a meeting on Jan. 24, 1998, Chief Executive C. Michael Armstrong said.

"This is being done as the next logical, next necessary step," Mr. Armstrong said.

The restructuring announced yesterday will divide AT&T; into four separate companies. AT&T; Consumer will market services to residential customers, AT&T; Broadband will sell cable service, AT&T; Business will provide services to businesses, and AT&T; Wireless will sell wireless-telephone service.

The announcement of the change in corporate structure didn't help AT&T;'s stock price, which fell $3.50 a share on the New York Stock Exchange to $23.38 a share.

AT&T;'s third-quarter earnings report yesterday also didn't help. AT&T;'s operating income fell 15 percent to $1.33 billion from $1.56 billion for the same period a year ago. Revenue increased 3.7 percent to $16.97 billion from $16.33 billion a year ago.

The stock has fallen from its 52-week high of $61 per share.

Mr. Armstrong defended his company's strategy to branch out from a long-distance provider to a company marketing the bundled service of calling, Internet service and cable television.

As part of that plan, AT&T; spent $100 billion to buy two cable-television companies, Tele-Communications Inc. and MediaOne Group.

But Mr. Armstrong submitted yesterday that the structure set up to market those services must change.

That's because the long-distance company's slow growth is stifling AT&T;'s other companies, he said.

The company is most concerned about its fast-growing wireless telephone company, AT&T; Wireless. Since established as a tracking stock, the wireless unit has exceeded every performance target, and last year had revenue of $7.6 billion.

At the same time, AT&T;'s long-distance business has been in decline because of competition from companies like Sprint Corp. and WorldCom. Revenue from its long-distance services fell in the third quarter by 10.8 percent, from $5.2 billion a year ago to $4.7 billion this year, according to the earnings report.

Under terms of the restructuring, AT&T; Wireless should be independent by 2001. It has a tracking stock now a separate class of a company's common stock issued to track the performance of a subsidiary.

The company also plans an initial public offering of AT&T; Broadband in the middle of 2001, Mr. Armstrong said.

AT&T; will create a tracking stock for AT&T; Consumer and will distribute 100 percent of it to AT&T; shareholders in 2001.

AT&T; Business will become the principal unit of AT&T; after the company completes the reorganization.

Mr. Armstrong said the change will give AT&T;'s separate businesses greater visibility, making them potentially more valuable than AT&T; is now.

"The underpinning of these changes is to lay the foundation of shareholder value," Mr. Armstrong said.

It's a common argument, said Dan McBride, securities analyst at H&R; Block Financial Advisors in Detroit.

"Companies get frustrated that their stock price doesn't reflect the real value of the company. The ones with a lot of different businesses under one umbrella think that if their companies were separate, they'd have more value. But I don't think anyone has taken the argument as far as AT&T; has," Mr. McBride said.

AT&T;'s stock was downgraded after the announcement yesterday from "accumulate" to "sell" by analyst Anna-Maria Kovacs at Janney Montgomery Scott LLC.

Mr. McBride said he was skeptical of the restructuring because it could increase the cost of doing business.

"When companies merge, they cut costs. The opposite will happen in this case," he said.

The Communications Workers of America, the union representing 35,000 AT&T; workers, said the company's plan to split won't solve its problems and that it failed to give its plan to bundle voice, Internet and cable services together a chance to work.

Gene Kimmelman, co-director of Consumers Union, said AT&T;'s decision to break itself into four companies indicates deregulation of the telecommunications industry has not worked.

"One of the immediate concerns for consumers is how this breakup will affect the price of long-distance service and the possibility of local phone competition. Given AT&T;'s debt and the pressure on its stock price, the company is no longer in a good position to compete with the local Bell monopolies that are beginning to offer long distance. AT&T;'s weak position could eventually lead to a hike in long-distance prices," he said.

But David Bolger, spokesman for the United States Telephone Association, which represents the regional Bell operating companies, said prices would fall if Baby Bells are able to market long-distance services, even if AT&T; can't seem to make money from the service.

"Since MCI [now WorldCom] got into the game, the competition in long distance has been fierce, and I think the margins are too slim for AT&T.; They feel a company can't make a living on someone who has 30 to 40 dollars a month in long-distance charges, but we think we could," Mr. Bolger said.

AT&T; had $62 billion in revenue last year and has 60 million long-distance customers. Its wireless company, the third-largest provider of wireless-telephone service, has 12.6 million subscribers.

Its cable division has 2.5 million cable-television subscribers.

Sign up for Daily Newsletters

Manage Newsletters

Copyright © 2020 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.


Click to Read More and View Comments

Click to Hide