AT&T cuts 3,500 jobs, takes $1.5 b charge

Jessica Hall

PHILADELPHIA: AT&T Corp., the No. 1 U.S. long-distance telephone company, said it will take $1.5 billion in pretax charges as it cuts about 3,500 jobs, or about 5 percent of its work force, and writes down the value of some Latin American and high-speed Internet assets.

The charges will likely push the company into the red in the fourth quarter, analysts said. Shares of New York-based AT&T, which provides telephone and data services to about 4 million corporate customers and more than 50 million residential customers, shed 18 cents to close at $27.48 on the NYSE.

AT&T, which recently sold its cable television unit to Comcast Corp., faces a fresh bout of competition as its offspring, the Baby Bell companies created by the 1984 breakup of AT&T, enter the long-distance market.

At the same time, the long-distance market suffers from a glut of network capacity and slack demand from corporate customers in the weak economy. In the third quarter, AT&T's total revenue fell 8.3 percent to $12.0 billion and its fourth-quarter sales are expected to shrink to $9.2 billion, according to research firm Thomson First Call.

More than half of AT&T's job cuts will come from management, and most will leave the company in the first half of the year. AT&T attributed the job cuts to improved processes and automation in services for business customers. The cuts "reflect ongoing cost reduction and downsizing efforts across the industry, given weak demand," said Merrill Lynch analyst Adam Quinton.

Sprint Corp., the No. 3 U.S. long-distance company, said last month it would cut 2,100 jobs or 3 percent of its work force, to cope with the severe industry downturn. The layoffs will result in a restructuring charge of $240 million, which will lower fourth-quarter earnings by about 20 cents a share, the company said. Wall Street analysts had expected AT&T to earn 66 cents a share for the quarter, according to research firm Thomson First Call.

Separately, AT&T said it expanded its relationship with high-speed Internet access company Covad Communications Group Inc. to provide DSL (digital subscriber line) services to consumers. As a result, AT&T will take a charge of $200 million, or 15 cents a share, to write down the value of its own DSL assets, which it acquired from bankrupt DSL company Northpoint Communications in 2001.

AT&T reiterated it will take an asset-impairment charge of about $1.1 billion in the fourth quarter associated with its 69-percent stake in AT&T Latin America Corp. This charge will reduce the quarter's earnings by about $1.40 a share. AT&T Latin America, which provides data services in Brazil, Peru, Columbia, Chile and Argentina, has warned it may file for bankruptcy and hired AlixPartners as its financial adviser.

© Reuters