NEW YORK-AT&T Corp.’s fourth-quarter earnings announcement last week was notable both for what the company said about its recent past and about its plans for the near future.
The country’s largest telecommunications carrier, working to streamline operations in the highly competitive marketplace, reported surprisingly strong fourth-quarter profits on flat earnings, and also announced plans to cut 15,000 to 18,000 jobs by the end of 1999.
In a Jan. 26 meeting with security analysts at AT&T’s New York headquarters, Michael C. Armstrong, who became chairman in late October, said most employee reductions will come through early retirement and attrition. Attrition accounts for about 10,000 AT&T jobs in any given year, according to security analysts’ estimates. Ken Woo, external communications manager for AT&T Wireless Services Inc., Kirkland, Wash., said the staff cuts won’t affect the wireless division significantly.
A greater proportion of executive and board-member compensation will be linked to the performance of the company and its stock going forward, Armstrong said. AT&T reported fourth-quarter earnings from continuing operations rose to $1.32 billion, or 81 cents per diluted share, up from $1.25 billion, or 77 cents per share, a year earlier. The result beat the average forecast of 71 cents per share, according to security analysts polled by First Call.
Investments in local service, new wireless markets, AT&T WorldNet and international markets diluted earnings by about 24 cents in the latest complete quarter. Increases in revenues from wireless, business long-distance, local and other services were partly offset by a decrease in revenues from consumer long-distance telephony.
Overall revenue was “essentially flat” at $12.83 billion, compared with $12.87 billion during the last quarter of 1996, the company said. However, revenue from wireless services increased to $1.13 billion, up 4.2 percent from the fourth quarter of 1996, even though net additions totaled about 234,000, a decline of 44.3 percent from the year-ago quarter. AT&T added 525,000 subscribers in fourth-quarter 1996.
AT&T attributed the wireless revenue increase, in part, to a 15.7 percent cellular subscriber growth for the year, bringing its total to 6.02 million customers by year-end. If cellular subscribers from AT&T’s minority-owned partnership markets are included in the tally, the carrier closed out 1997 with 8.19 million subscribers.
AT&T closed the fourth quarter with about 1.7 million digital wireless subscribers in its wholly owned operations. Of these, about 100,000 are personal communications services customers. The carrier closed 1997 with about 1.3 million messaging customers, an increase of about 13 percent from 1996 figures.
“Higher retention and acquisition costs in wireless markets, due partly to the migration of customers to digital service, were a driver of additional cost throughout 1997,” the company said.
“However, the cost per gross add in wireless markets was down 5.4 percent in the fourth quarter and 6.1 percent for the year.”
Armstrong told security analysts that AT&T would streamline the marketing of its diverse mix of products and services as a means to further reduce overhead.
“We expect AT&T account executives will no longer market specific products but will market a bundle of services suitable to specific market segments,” said Stephanie Comfort, a telecommunications analyst for Morgan Stanley Dean Witter, Denver.
“We already have seen evidence of this trend at AT&T Wireless. In our conversation with [its] chief, Dan Hesse, we discussed the unit’s marketing changes. The wireless marketing divisions are being consolidated into the consumer and business markets division where the company can market a long-distance/wireless bundle.”
John Bensche said AT&T’s decision to go after high-use wireless customers bodes well for PCS carriers, whose customer base is at the lower end. Bensche is a telecommunications analyst for Lehman Brothers Inc., New York, which helped manage the initial public offering of Omnipoint Communications Services Inc.
“Sprint (Spectrum L.P.) recently has indicated it is, in effect, raising prices or changing the terms of its offers [so] that its service isn’t such a dramatic discount to others,” he said.
“It is a great sign to see the two biggest wireless companies in terms of `pops,’ in effect, raising their prices. The much-feared wireless price war seems to have abated, at least for now.”
