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AT&T to Stop Seeking Customers for Traditional Long-Distance Service

Posted on: Friday, 23 July 2004, 06:00 CDT

NEW YORK - AT&T Corp., the nation's largest long-distance carrier, said Thursday it would stop seeking new customers for its traditional consumer long-distance service, once the bedrock of the company known as Ma Bell.

The move comes less than a month after AT&T said it would stop pursuing residential customers in Louisiana, Ohio, Missouri, Washington, Tennessee, Arkansas and New Hampshire.

Thursday's announcement coincided with another big drop in quarterly profit.

The move is the latest in a series of humbling events for the once-mighty telecommunications company, starting with its breakup by a federal judge in 1984. Since then, "AT&T has made a number of decisions that set it up for a big fall, and a big fall we have seen it take," said Adam Thierer, a telecommunications analyst at the Cato Institute.

Even as the company bets its future on its business customers, which generate 75 percent of revenue, investors knocked pennies off its already battered stock and one ratings agency downgraded its debt to junk status.

By contrast, the announcement was seen as another victory for the regional Bell Companies, once mere divisions of AT&T, now its fiercest rivals. Shares of all four regional Bell companies, Verizon Communications Inc., BellSouth Corp. and SBC Communications Inc. and Qwest Communications International Inc., rose Thursday.

AT&T is not pulling out of any markets and will continue to serve its existing residential customers, but it said it will no longer pour roughly $1 billion a year into winning new ones.

"If you're not actively marketing, with the rate of churn in the telecom industry, that's basically tantamount to a market exit," AT&T spokesman Andy Backover said last month during the announcement that affected Louisiana.

The announcements follow a regulatory decision that increases AT&T's costs to provide local service and compete with the regional Bells. "AT&T will focus on lines of business where we are a clear leader, where we control our own destiny and where we have distinct competitive advantages," said David W. Dorman, the company's chairman and CEO.

AT&T, based in Bedminster, N.J., did not rule out the possibility of spinning off its consumer unit as a separate company.

Some analysts are predicting yet another breakup for the company, which was split under antitrust law in 1984 and by management in 1995. The next split would divide it in three: a consumer company, a business services company and a wholesaler, said Tim Horan, a telecom analyst at CIBC World Markets Corp.

"I would have preferred to have seen them spin it off now," he said. "But a spin-off is a big move for them psychologically and practically. It's not easy to do."

In a report titled "Ma Bell No More," Legg Mason analyst Daniel Zito said the company could be an acquisition candidate. Indeed, AT&T already has held talks with BellSouth.

The company, founded by Alexander Graham Bell in 1885, grew to become the nation's main phone company, the only way for most boys in the Army or girls at college to call home. Its pioneering advertising, urging viewers to "reach out and touch someone," changed long-distance from a luxury to a necessity.

Still one of the nation's most widely held stocks, an investment in AT&T was long considered a safe bet, with steady share increases and a dependable dividend.

Before the breakup, the company was a government-blessed monopoly. Afterward, critics say, it remained mired in a bureaucracy where office furniture was bestowed according to rank and the cushy executive suite was known as "Carpetland."

A series of strategic mistakes and an ongoing price war have bled its profits. For the April-June quarter they were $108 million, or 14 cents a share, down from $536 million, or 68 cents a share, in the same period a year ago. Revenue dropped to $7.6 billion, down 13 percent from $8.8 billion in the same period last year.

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