AT&T Plunges on Reduced Earnings and Revenue Outlook
By Cindy Christ

Telecommunications and cable TV provider AT&T Corp. warned Tuesday its revenues and earnings would be lower than expected due to slowing growth in its residential long distance service and a shift to wireless phones and the Internet.

In a conference call with analysts and reporters, the nation's No. 1 long distance provider lowered its revenue growth outlook this year to 7 to 8 percent from earlier estimates of 8 to 9 percent.

As a result, AT&T cut projected operating earnings by 9 cents or about 5 percent to $1.80 to $1.85 per share from $1.89 to $1.94.

"AT&T is still in the midst of its transformation from a domestic voice long distance company to a facilities-based provider of broadband services over any distance," said AT&T Chairman C. Michael Armstrong.

The company also said a delay in the closing date from April 1 to midyear in its merger with broadband cable TV provider MediaOne (UMG) also would hurt results.

"Some of those synergies and savings we were attributing to the closure of MediaOne we've had to push farther out in time," Armstrong said in an interview with CNBC financial television.

AT&T said its business long distance revenue in 2000 would reflect last year's loss of a major government contract and a first-half drop in sales to large corporations.

In the market for business services, customers are moving from low-speed private line service, in which AT&T has a leading market share, to high-speed data networks, where there is strong competition from companies like MCIWorldCom (WCOM), Global Crossing (GBLX), Qwest Communications (Q) and Level 3 Communications (LVLT).

A proposed change in FCC policy ending access fees long distance providers pay local phone companies also is expected to slow revenue growth. AT&T said it plans to pass the savings on to consumers.

On the upside, Armstrong said growth in AT&T's high-speed data and Internet-based services is growing in the high teens and at record rates in its wireless and broadband units.

In a separate announcement, AT&T also reported first-quarter earnings Tuesday.

Operational earnings, which exclude one-time charges, totaled $1.73 billion or 53 cents per share, a drop of 13.1 percent from a year ago's $1.72 billion or 61 cents a share. The company attributed the decline to its TCI Cable acquisition.

Results met consensus estimates of 53 cents from First Call/Thomson Financial, which tracks earnings forecasts.

Net operating profit was 54 cents a share or $1.74 billion, up 42 percent from 38 cents per share or $1.08 billion a year ago.

The company said the increase in operating income was largely due to higher gains from the sales of businesses and investments, lower restructuring costs, revenue growth and operational efficiencies.

Pro forma revenue rose 5.8 percent to $15.84 billion from $14.97 billion in last year's first quarter, less than Wall Street expected.

Sales in consumer services declined 5.6 percent over last year amid a shift to wireless services, one-rate calling plans, and Internet and broadband communications.

The company also reported a pretax charge of $773 million against first-quarter earnings, reducing net income by $477 million or 14 cents per share. The charge includes $682 million in restructuring charges including severance pay for 6,200 workers, nearly all from AT&T's traditional businesses.

The company's high-growth units all reported strong revenue gains for the quarter.

"Wireless revenue grew more than 40 percent and we now have nearly 10 million subscribers. In Business Services, our high speed data and Internet protocol revenue grew at a high teen rate, and AT&T Solutions posted a 25 percent increase in revenue," said Armstrong.

Armstrong said AT&T's broadband division, formerly TCI Cable, leads the industry with nearly 2 million digital cable customers, adding an average of 3,000 new customers per day.

Shares in AT&T lost 13.9 percent, or $6.81, to $42.19 on the grim outlook, losing about $20 billion in market value.

After the drop, some analysts were calling the plunge a buying opportunity.

"The decline in the share price is greater than the decline in guidance," Brian Hayward, manager of the Invesco Telecommunications Fund, told CNBC. "It may be overdone."

AT&T has a market value of about $210 billion and assets worth $60 billion from AT&T Wireless Group (AWE), $3 billion in cash, and $30 billion in other holdings, including investments in Time Warner Entertainment (TWX) and Excite@Home (ATHM), yet trades at just five times cash flow, analysts said.