NEW YORK-Following on the heels of Motorola Inc. and Glenayre Technologies Inc., AT&T Corp. announced last week it anticipates lower than expected earnings for the third and fourth quarters of 1996.
In a letter to shareholders, Robert E. Allen, AT&T chairman, said the company anticipates third-quarter earnings to be as much as 10 percent below the “mean estimate” of 92 cents per share for continuing operations pegged by key analysts who follow the company. He also predicted a similar 10 percent shortfall compared with mean estimates of 89 cents per share for the fourth quarter. AT&T earned 90 cents per share before special charges in the third quarter of 1995.
Allen attributed the disappointing outlook primarily to price competition and customer churn in the company’s core long-distance wireline business.
“On the consumer side of long distance, we continue to see the same challenging conditions I discussed last quarter,” Allen said. “While we have succeeded in stabilizing volumes and revenues at last quarter’s levels, the number of customers moving between carriers is still disturbing … largely due to price misperceptions that are frequently promoted by some competitors.”
However, the company’s long-distance churn rate has improved in the second and third quarters compared with the first. Its business long-distance and cellular operations also are growing rapidly, company executives said.
“Our wireless services business-already the country’s largest-has a third more subscribers than last year,” Allen said. “And when the FCC (Federal Communications Commission) auctioned wireless spectrum, we acquired new licenses that will more than double our national coverage, reaching over 80 percent of the U.S. population.”
Nevertheless, Allen’s announcement added to the flux at the nation’s largest communications company, which has steadily lost ground to its two closest rivals, MCI Communications Corp. and Sprint Corp., although it still controls more than half of the long-distance wireline market.
In addition to its spinoff of Lucent Technologies Inc., AT&T is preparing to spin off NCR Corp., its computer manufacturing arm. It also is looking for a new president and likely successor to chairman Robert Allen. Alex J. Mandl, the former AT&T president who was widely regarded as Allen’s heir apparent, quit the company in August to become chief executive officer of Associated Communications L.L.C. Associated, headquartered in Pittsburgh, Penn., is a start-up established to provide broadband wireless multimedia services.
“We’re encouraged by the company’s willingness to aggressively address competitive issues,” said Julie Kennedy, telecommunications analyst at Goldman Sachs & Co. Inc., New York. “Our downgrade is driven by the lack of earnings visibility for the next several quarters.”
Despite choppy waters in the near term, Michael Elling, senior telecommunications analyst for Prudential Securities Inc., said, “within two years, the two dominant players in wireless will be AT&T and Sprint.”
However, Elling is quite critical of AT&T’s efforts in the wireless sector, a key growth area in the burgeoning communications market.
“They spent $17 billion to buy McCaw (Cellular Communications Inc.), and what have they done with it in the last two years?” he said. By now, Elling added, he would have expected AT&T to have bought a paging company.
Elling also painted another-quite different-potential scenario about AT&T. The newly deregulated telecommunications market belongs to the large scale players, in his opinion. As a means to get the best competitive advantage going forward, Elling said, “AT&T has used us (securities analysts) and the media very well to look like a weak sister; part of that is going on today because of local access and data.”
