AT&T Corp. is expected to announce to analysts today its operating strategy for the year that will include as many as 19,000 layoffs, management restructuring and the integration of its wireless business with its long-distance, local and Internet service divisions, reported the Wall Street Journal.
These moves will be part of a series of actions by AT&T’s new Chief Executive Officer Michael Armstrong, who has been streamlining the company’s operations to focus on its core business since his arrival in October.
Financial analysts have been pleased so far with Armstrong’s actions, which have included hiring freezes, eliminating certain projects and the acquisition of the nation’s largest competitive local exchange carrier, Teleport Communications Group. AT&T’s stock rose 50 cents to close at $65.62 on the New York Stock Exchange after news of Armstrong’s plans broke Thursday.
“We believe that AT&T is well positioned going into 1998 with a strong management team that is committed to executing a concerted effort to reduce a bloated cost structure and a solid local services strategy. We continue to rate the shares `strong buy,’ ” said investment firm Morgan Stanley Dean Witter in a report released Friday.
Analysts expect improved earnings and growth when AT&T reports its fourth-quarter and year-end financials today. AT&T saw a 15-percent decrease in earnings the previous quarter.
“The positive news is that the corporation has screwed up so much, the only direction performance-wise is up,” said David Kerr, director of wireless programs with Strategy Analytics in Milwaukee. “They need to stay focused. They can be characterized over the last five years as a children’s soccer game, where children are chasing the ball wherever it goes.”
AT&T definitely sees wireless services as an important part of its business, say analysts. But, “it hasn’t figured out how to take all of its capabilities to put together a convincing package,” said Kerr. The company may need to approach its strategy to bundle wireless, long-distance, local and Internet service with caution. Long-distance competitor MCI Communications Corp. has tried to build a business offering the same integrated services without much success.
A Prudential Securities report noted MCI’s third-quarter wireless revenue decreased from the previous year by $3 million, while cellular subscribers increased by only 4,000 from the end of the second quarter to 438,000 and were up only 7.6 percent from the previous year. The number of paging customers fell as well. Prudential concluded, “Customers are not actively seeking to bundle wireless with MCI long distance.”
Sprint Corp. apparently is reluctant to bundle its landline long-distance service with its PCS offering.
“It’s not close to being clear that customers want these bundled options at this point,” said Kerr.
As part of its streamlining strategy, AT&T already has plans to eliminate its credit card Universal Card services and AT&T Solutions Customer Care contract customer-service units. Analysts speculate the company’s paging unit could be next. AT&T has admitted that it might sell off this business.
“The economics and returns from the traditional paging area do not support AT&T’s long-term goals,” said Kerr. “This is a time where they have targeted focused investments. Maintaining paging would not appear to be a strong fit.”
Analysts say the company would have to acquire and build a nationwide paging network to compete, which it apparently isn’t willing to do. Early last year, it opted to pull all plans to implement the personal Air Communications Technology advanced paging protocol for two-way messaging under development by several vendors.
Questions remain whether AT&T will scrap plans to deploy a proprietary fixed wireless technology-dubbed Project Angel-designed to cut into local home telephone service and provide an alternate pathway for the last mile to the home. CLECs and independent telephone companies are leading the charge into this arena at this point, said Kerr.
AT&T confirmed that Armstrong will meet with analysts today in New York, but declined to comment on the meeting’s agenda.
