AT&T to Stop Consumer Sale, 2nd-Qtr Profit Plunges (Update1)
July 22 (Bloomberg) -- AT&T Corp., the biggest U.S. long- distance phone company, said it plans to stop selling to residential customers because new rule changes will make it too expensive. Second-quarter profit plunged 80 percent.
AT&T is ``shifting its focus away'' from consumer services to concentrate on business customers and building its Internet calling network, the Bedminster, New Jersey-based company said in a statement.
Chief Executive David Dorman, 50, is exiting a consumer telephone business that AT&T has dominated for a century and which brings in a quarter of the company's revenue. AT&T said regulatory changes have made it too hard to compete for residential customers against Verizon Communications Inc. and other regional carriers. Competition caused business and residential phone prices to slump.
``It's a dying business anyway,'' said Patrick Comack, analyst at Guzman & Co. in Coral Gables, Florida who has an ``underperform'' rating on the stock and doesn't own it. ``At the end of the day, focusing less on the consumer is probably a good thing.''
Net income fell to $108 million, or 14 cents a share, compared with $536 million, or 68 cents, a year earlier, AT&T said in the statement. Revenue fell to $7.64 billion from $8.8 billion, the company's 18th-straight sales decline.
Consumer operating income was $240 million, for a 12 percent operating margin in the quarter. Revenue from the business, which includes local, long distance and Internet telephony, fell 15 percent to $2 billion.
Business operating income was $152 million, for a 2.7 percent margin. Sales fell 13 percent to $5.6 billion.
Cutting Forecasts
AT&T last month said will stop marketing to consumers in seven states. The company today said it will no longer compete for residential or stand-alone long-distance customers nationwide. Existing customers won't be affected, the company said.
``Recent regulatory decisions make it financially infeasible for AT&T to offer a competitive bundle of services to consumers,'' AT&T said in the statement.
Last month, AT&T cut 2004 sales and profit forecasts, citing falling prices. Operating income will be $1 billion to $1.4 billion, from an earlier prediction of as much as $2.5 billion, and $3.66 billion in 2003, the company said at the time. Sales will be as much as $30.5 billion from an earlier forecast of as much as $32 billion, AT&T said last month.
Seven States
Shares of AT&T rose 1 cent to $14.32 at 4 p.m. in New York Stock Exchange composite trading yesterday, leaving them down 29 percent this year.
Dorman said last month he would stop trying to attract subscribers in Ohio, Missouri, Washington, Tennessee, Louisiana, Arkansas and New Hampshire after rules that gave AT&T discounted access to the local market unraveled. Earlier that month, the Bush administration said it wouldn't back AT&T's effort to wage a Supreme Court battle to keep in place the regulations that let AT&T rent competitors' networks at rates set by regulators.
AT&T is trying to salvage its consumer division by expanding in so-called Voice over Internet Protocol, or VoIP service, through its CallVantage service. Internet calling lets calls be sent less expensively as packets of data, similar to e-mail. Callers must have a high-speed Internet, or broadband, connection to sign up for the service.
AT&T was expected to report profit excluding certain costs of 7 cents a share, the average estimate of 17 analysts surveyed by Thomson Financial. The analysts expected sales to drop 14 percent to $7.59 billion, the average of 15 analysts.
``I don't see a turnaround in the company for a long, long time,'' said Paul Wright, an analyst at Loomis Sayles & Co., who rates the shares ``underweight'' and said his firm doesn't currently hold them. AT&T doesn't have the network ``to cut it on the consumer side.''
Uphill Battle
Expanding its Internet service may be an uphill battle, said Taher Bouzayen, a consultant at Boston-based market researcher Atlantic-ACM.
``The VoIP product will be difficult to market to relatively unsophisticated customers,'' Bouzayen said. ``The average Joe doesn't even know what broadband means.''
As the consumer division is dismantled, Dorman is clinging to the unit that caters to companies. He's offering corporate discounts to keep clients from switching to MCI Inc. and other phone-service providers.
Dorman embarked on the price reductions last year, as MCI, the No. 2 long-distance company, prepared to exit the largest U.S. bankruptcy after shedding $35 billion in debt. He was already under pressure from local carriers such as SBC Communications Inc. that had recently won regulators' approval to sell long-distance in the states formerly dominated by AT&T.
``AT&T is responding to the pricing pressure the Baby Bells have created in the market,'' said Todd Rosenbluth, an analyst at Standard & Poor's Equity Research in New York, before results were released. He rates AT&T ``hold'' and doesn't own them. |
