Closing at #24.00 down 29% off the $29.50 offering price we find that :
cbs.marketwatch.com
Wall Street hangs up on AT&T
By Jon Friedman,
CBS.MarketWatch.com
Last Update: 5:00 PM ET Jun 23, 2000
NewsWatch
Latest headlines
BASKING RIDGE, N.J. (CBS.MW) -- Wall Street is
slamming the receiver down on Ma Bell, marking the
low point for a stock once regarded as an investment
haven for widows and orphans.
Shares of AT&T (T: news, msgs), the largest U.S.
telephone company, with more than 80 million
customers, have lost about 36 percent of their value in
the past year and dropped from a 52-week high of 61
marked last Nov. 29.
The latest piece of bad news streaming out of AT&T
occurred Friday when the company disclosed that it will
raise its basic long-distance phone rates as much as 26
percent and roll out discount plans, only two weeks
after halting an earlier price hike following sharp
criticism from regulators and customers. AT&T said the
new price scheme will reduce 2000 profits by 1 cent to
2 cents a share.
AT&T said it will lower a minimum $3 monthly fee on
low-volume customers, and will lift basic per-minute
daytime rates during the weekdays to 29.5 cents,
nighttime charges to 22.5 cents and weekend rates to
14.5 cents. The previous structure called for weekday
per-minute rates of 26 cents, 16 cents during the evening
and 11.5 cents on the weekends.
AT&T?s game plan depends on selling to as many
corporate and residential customers as possible a
multitude of communications services, encompassing
both old-fashioned telephone connections and the brave
new world of the wireless, broadband and Internet
technology.
It has been an
uphill battle
lately, though.
So far this year,
AT&T?s stock
price has fallen
about 29
percent. AT&T
stock fell 1 3/4
to 34 1/4 Friday. Meanwhile, Merrill Lynch analyst
Adam Quinton has placed a 12-month target price of
$60 on AT&T.
?I don?t own any AT&T shares,? said Robert Hagstrom,
a fund manager with Legg Mason Focus Capital. ?I need
a demonstration that they can generate cash beyond their
operating needs.?
To its frustration, the Basking Ridge, N.J., behemoth has
failed to rally support from investors.
AT&T is ?surprised and dismayed? by the equity
market?s resistance, said John Petrillo, executive vice
president for corporate strategy.
Some professional investors criticize AT&T
management?s performance.
?I do not own any AT&T,? said Scott Schoelzel,
manager of the $30-billion-plus Janus Twenty Fund in
Denver. ?There has been a significant management
exodus over the past 24 months. It?s a very bureaucratic
place laden with telephone execs who (are) just moving
at the speed required in today?s environment.?
On the other hand, perhaps some old-fashioned
investors aren?t sure what to make of AT&T these days.
Under Chairman Michael Armstrong, AT&T is no
longer your grandfather?s telephone company. In fact,
AT&T?s evolving so quickly as it scrambles to keep
one step ahead of the competition and keep pace with
ever-changing computer technology that it isn?t even
your older brother?s telephone company. Investors now
seem to regard AT&T more like an aggressive-growth
stock than a staid utility.
A dose of good fortune for AT&T came on Thursday
when it won a federal appeals court fight to block an
earlier federal judge?s ruling in Portland, Ore. that made
the company lease its high-speed cable Internet
connections to foes in that city.
The latest ruling is a significant defeat for Internet
service providers that have been trying to persuade
local governments to pass regulations giving them
access to cable companies' connections. See full story.
The decision, handed down by the U.S. 9th Circuit
Court of Appeals overruled an earlier federal court
decision in Portland that forced AT&T's cable
operations to open access of its lines to competitors of
AT&T's ISP such as Excite AtHome.
"We're pleased with today's ruling because it clarifies
decisively the limits of local authority when it comes to
the provision of high-speed Internet access over cable,"
said Jim Cicconi, AT&T's general counsel.
Armstrong?s plan
Thursday?s development removes a little uncertainty
facing the company?s future growth plans, the fulcrum of
which is the cable businesses.
Armstrong wants to use AT&T?s cable units to
circumvent the local Baby Bells. Why? AT&T has to
pay the Bells large amounts of money every year to
connect its customers? phone calls to its own
long-distance network. By connecting cable lines
directly to homes and offices, AT&T is one step away
from providing long-distance phone service over those
lines. Do that, and presto, away goes another headache
for AT&T?s accounts payable department. It will also
use the cable lines to provide high-speed Internet
connections.
Eyeing the decline in long-distance phone prices
currently underway, Armstrong has bet AT&T?s future
on a series of huge acquisitions.
Armstrong, 61, has spent more than $100 billion to
acquire and bolster the company?s cable TV systems.
His goal is to deliver telephone, video and data to
people?s homes on a single wire. Having concluded a
$44 billion acquisition of MediaOne on June 15, AT&T
becomes the largest cable television operator in the U.S.
It can now reach out and touch 16 million cable TV
customers in the U.S.
?Now that MediaOne has closed, they will be running
out of excuses soon,? said Schoelzel of Janus. ?It?s
really getting to the show-me stage.?
To comply with the Federal Communications
Commission?s 30 percent cable ownership ceiling,
AT&T will probably divest Liberty Media, Merrill
Lynch?s Quinton said in a recent investment research
report. He said the decision would result in a neutral
impact on AT&T shares since Liberty Media is a
tracking stock in which AT&T doesn?t have an
economic interest.
Plus, AT&T on June 19 said it agreed to purchase
mobile-phone systems in San Francisco, San Diego and
Houston for $3.3 billion in cash in a bid to reduce
calling costs and go up against such national systems
operators as Verizon Wireless. It?s the company?s first
major acquisition in the wireless sector since AT&T
took its wireless unit public in a $10.6 billion initial
public offering on April 27. The AT&T Wireless
(AWE: news, msgs) move was the biggest U.S. IPO
ever.
AT&T is making the big bets because the competition in
its businesses is more intense than ever. Rivals abound.
Among them, hulks such as Microsoft (MSFT: news,
msgs) and Time Warner (TWX: news, msgs) stand
ready to leverage cross-platform offerings. In addition,
national carriers such as VoiceStream Wireless, a joint
venture of SBC Communications (SBC: news, msgs)
and BellSouth (BLS: news, msgs), loom on the horizon.
Telecommunications companies are expanding through
acquisitions, sparking antitrust concerns and throwing
more uncertainty over the industry. On June 21, shares
of WorldCom (WCOM: news, msgs) and Sprint
declined on worries that U.S. and European Union
authorities could prevent their plan to combine. The
merger, initially valued as high as $149 billion when
announced, has since seen a steady drop to the $115
billion to $125 billion range.
Meanwhile, AT&T?s stock market prospects are further
hampered by investors? indifference to its business.
?The telecommunications industry is less attractive than
others are because it is highly, highly competitive with
low margins,? Hagstrom said.
To be sure, AT&T recognizes the stock
market?s growing impatience.
Ironically, perhaps, AT&T, the bluest
of the blue-chip companies, now finds
itself in the disquieting position of
identifying with the plight of a
garden-variety Internet company.
Internet stocks have lagged the stock
market because investors have tired of
hearing their promises and now
demand results.
Suddenly, AT&T finds itself in the
same sort of quagmire.
?People have got to see us deliver on
the strategy,? said AT&T?s Petrillo.
?They ask us, `How many subscribers
does the new cable TV operation
have? And what about Internet access?
Wireless? Cable and wireless
concurrently? And how many business
customers can you sign up???
As they examine the litany of their
concerns about AT&T, some stock
market pundits are ready to point an accusatory finger at
AT&T Chief Executive Armstrong.
?I bought AT&T stock when Armstrong took over and I
find the events of the past few weeks to be disquieting,?
said Michael Holland, president of New York money
manager Holland & Co.
?The worst I can say about Mr. Armstrong now is that
his recent performance reminds me of AT&T under Mr.
Allen,? Holland said, referring to Armstrong?s
predecessor, Robert Allen. The latter stages of Allen?s
tenure at AT&T were marked by criticism of his moves
and a low stock price. CBS.MarketWatch.com attempts
to reach Armstrong for a response weren?t successful.
Holland was irked when AT&T clumsily incurred a
self-inflicted blow to its image. Earlier this month,
AT&T raised basic rates on its residential long-distance
service. ?AT&T promised to pass on savings to all
consumers,? a furious FCC Chairman William Kennard
said at the time. ?Their new rate plan does not do that. It
is in our order, and I?m going to enforce it.? AT&T
retracted the increases a few days later.
?We plan on refiling our consumer basic rate plan soon
with the FCC,? said John Heath, an AT&T spokesman.
AT&T made another curious move this month when its
cable TV operation agreed to air a pornography channel
called the Hot Network. The Hot Network and its
partner, the Hot Zone, have 26 million subscribers.
?The Hot Network, which is not a weather channel,
features pay-per-view erotic films with late-night titles
such as Wages of Sin and Cheerleader Strippers,? noted
U.S. News & World Report magazine.
For shareholders, AT&T?s prospects hinge on the
ability of Armstrong to manage both the company?s
strategy and the stock market?s reaction to his moves.
Armstrong is well aware that hard-charging John
Malone, now one of AT&T?s largest stockholders, is
watching closely. AT&T in March 1999 acquired
Malone?s company, Tele-Communications Inc., and its
11 million subscribers, for some $48 billion.
Malone is one of Wall Street?s favorite executives
because he has shown a Midas touch in maximizing
shareholder value. Malone, who didn?t return a phone
call seeking comment on AT&T, owns 32.6 million
AT&T shares. It wouldn?t shock analysts if Malone
played a larger role within AT&T and perhaps even
became its chairman at some point. Money manager
Holland termed such a move to be a ?possibility.?
AT&T continues to change out of all recognition of the
company that the government ordered to be broken up
16 years ago.
?I?ve been here for 29 years,? said AT&T?s Petrillo. ?I
thought the divestiture in 1984 was a big deal. I have to
say, we?re doing things faster now than we ever have -
and more is coming.?
It's going to be another year or two before investors get
a good idea if Armstrong succeeds, but do investors
want to hold on to a stock until they find out when their
money could get a better return elsewhere? AT&T has
made a huge bet, but investors won't likely know if it
rolled a lucky seven or a snake eyes anytime soon. |
