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AT&T Wireless Reports Fourth-Quarter Loss, Indicates Possibility of Sale

Posted on: Friday, 23 January 2004, 06:00 CST

Jan. 23--AT&T Wireless reported a fourth-quarter loss yesterday, disappointing Wall Street expectations that the Redmond company would break even.

With the lackluster quarter in the background, the company also confirmed that it is looking at different options for its future, including a possible sale.

The company's board, which met in Florida earlier this week, decided it was the right time to consider selling the company because of the amount of interest it was receiving among potential acquirers, said AT&T Chief Executive John Zeglis during a conference call.

"There is so much interest and so many approaches, and the dynamics have lined up so favorably -- globally and domestically -- we feel it is an opportune time," he said.

In the interim, Zeglis stressed the company's commitment to reversing some of the problems that led to its poorer-than-expected performance at the end of last year.

"Over the past four years going back to the IPO, we've had some great quarters to announce. The fourth quarter was not one of them," Zeglis said.

For the quarter, the company had a net loss of $84 million, or 3 cents a share, on sales of $4.2 billion. That compares with a $136 million net loss, or 5 cents a share, on $4 billion in sales during the same period in 2002.

For all of 2003, AT&T Wireless had a net profit of $429 million, or 16 cents a share, on sales of $16.7 billion. In the previous year, the company lost $2.3 billion, or 82 cents a share, on $15.6 billion in sales.

Although the quarterly numbers actually showed a slight improvement from last year, the company lost ground in one of the leading tools used to measure the industry. Operating income before depreciation and amortization declined to $890 million, the first time since 2002 that it dropped below $1 billion.

The fourth quarter was full of challenges and setbacks -- some exclusive to the carrier, which traces its roots to wireless pioneer Craig McCaw -- while others were felt industrywide.

To get back on track, company executives outlined a cost-reduction plan that included shedding some of its 30,000-plus employees and consolidating at its Redmond and New Jersey offices.

The company had previously announced that it would trim payroll by 1,900 jobs. Company spokesman Peter Rowe said the number will go higher, but declined to specify how much.

The impact on Washington, where AT&T Wireless has more than 5,000 employees, might not be as large as in other areas because consolidation means some jobs would move to Redmond or New Jersey.

"It's not going to have a detrimental effect on head count (in Redmond)," Rowe said. "The bulk of activity in reduction of staff will take place elsewhere."

The company attributed its decline in operating profit primarily to increased expenses caused by software glitches last year.

Software handling customer accounts was supposed to take three to four days to install. It ended up taking three to four weeks. Backlogs of customers piled up just before the holidays, the busiest season.

In addition, a federal law took effect during the quarter that allowed customers to keep their phone number when switching carriers. AT&T Wireless said a vendor it retained to help handle the switches experienced software problems, too.

As a result, the company lost customers under the so-called number-portability rule, while rivals saw gains. Still, AT&T Wireless managed to add 128,000 subscribers in the quarter, bringing its total to 22 million, a 5.4 percent increase over the previous year.

To get back on the financial track, the company said it would focus on its cost-cutting plan, called Pinnacle. The plan is designed to bring the company's financial performance up to the best in the industry.

But the pledge to focus on operations did not impress some analysts yesterday, who said the company sounded more focused on being acquired.

"This (Pinnacle plan) is wishing into the wind. It's a long way off, and they are much more focused on near-term issues such as whether they are going to be bought or not," said Kenneth Leon, a Standard & Poor's Equities analyst. Leon does not own AT&T Wireless stock or do business with them.

Consolidation among the six national wireless carriers, including AT&T Wireless, has been expected for some time.

Over the past week, discussion has centered on prospects believed to be interested in acquiring AT&T Wireless. The list includes Cingular Wireless, NTT DoCoMo, Nextel Communications and Vodafone Group.

Leon said he predicts a merger will occur quickly based on what he said was the relaxed attitude company executives showed toward its problems during the earnings conference call yesterday.

"We didn't get a sense of urgency that these were serious problems that are unusual in the industry," he said. "They are probably more distracted by takeover opportunities."

Leon said he thought the executives "are trying to move ahead with the sale of the company."

For its part, the company would not say how long a potential sale might take, but Zeglis promised it would be "thorough and won't be rushed."

Shares in AT&T Wireless closed yesterday at $10.56, down 43 cents.

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