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At&T to Change Marketing Plan ; Company Plans to Curb; Traditional Long-Distance Service, Target Businesses

Posted on: Saturday, 24 July 2004, 06:00 CDT

AT&T Corp. said yesterday that it would stop seeking customers for its traditional consumer long-distance service, the latest in a series of humbling events for Ma Bell.

The nation's largest long-distance company instead will bet its future on providing telecommunications and data services to businesses and selling residential customers technologies such as high-speed Internet and phone service over the Internet.

AT&T will continue to serve its existing residential customers, but the company will no longer pour roughly $1 billion a year into winning new ones. Last month the company, which has 4.68 million local customers, said it would stop marketing the service in seven states, Bloomberg News reported. AT&T had 30.3 million long- distance customers at the end of 2003.

The company has fallen on hard times in recent years amid a series of missteps and a price war that has caused profit to dry up. The announcement coincided with another big drop in quarterly profit, prompting one ratings agency to downgrade its debt to junk status.

The announcement was seen as another victory for the four regional Bell companies - fierce AT&T rivals that were once divisions of the company before its historic breakup by a federal judge in 1984. Shares of each Baby Bell company - Verizon Communications, BellSouth Corp., SBC Communications and Qwest Communications International - rose yesterday.

The announcement follows a regulatory decision that increases AT&T's costs to provide local service and compete with the regional Bells.

"This decision means that 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 chief executive.

Long distance was once the bedrock of the firm - founded by Alexander Graham Bell in 1885. AT&T grew to become the main U.S. phone company. Its pioneering advertising, urging viewers to "reach out and touch someone," helped turn long-distance from a luxury into a necessity.

AT&T has seen its share price slide precipitously in the past four years. It traded above $90 a share in 2000, but it closed yesterday at $14.24.

The company has cut its work force by 8 percent this year. At the end of 1999, AT&T had 148,000 employees; at the end of 2003, it had 61,600.

The consumer market pullout is a dramatic shift for a company that, in the heat of long-distance competition in the late 1990s, sent prospective customers checks for $75 and $50, with the proviso that customers who cashed them would be switched to AT&T's service.

Since then, its core long-distance business became less profitable and its regional Bell offspring leveraged their biggest advantage - owning the wires into homes. To offer local service, AT&T had to rent access to the Bells' networks, but the regulations setting low rental fees were overturned in federal court in March.

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