AT&T sees 10,000 job cuts after BellSouth deal

Sinead Carew

NEW YORK: AT&T Inc. expects to cut 10,000 jobs by 2009 following its roughly $65 billion purchase of BellSouth, in an effort to reduce costs and help it compete in the increasingly crowded telecoms sector.

AT&T's purchase of BellSouth will bring their joint venture, Cingular Wireless, under one roof, giving the combined company a wider array of services to combat wireless rivals and cable television companies.

AT&T, which traces its roots back to the invention of the telephone in the 19th century, said job cuts would represent about 40 percent of a total $18 billion cost savings it expects to get from the deal. It also plans ad spending cuts.

While some analysts said AT&T may have overpaid for BellSouth, they were pleased with the savings targets and financial guidance.

"I would say they're paying a bit more than I expected but if you look at the guidance ... I think that it will be looked on positively," said Bear Stearns analyst Michael McCormack, who described the company's savings plans as "reasonable."

AT&T shares closed down 97 cents, or 3.5 percent, to $27.02 on the New York Stock Exchange. BellSouth stock rose $3.05, or nearly 10 percent, to $34.51.

Shares of some BellSouth suppliers fell on concerns they would be supplanted by AT&T partners. But the deal prompted some investors to boost shares of other telecommunications companies as they placed bets on which one may be bought next.

But another big deal may be far off as potential takeover targets, such as Qwest Communications International Inc. and Alltel Corp., fail to fit easily with any buyer and Sprint Nextel Corp. may be too large, analysts said.

Sprint's shares closed up $1.10 or 4.6 percent at $25.30 and Qwest stock was up 25 cents or 3.8 percent at $6.84. Alltel stock rose $2.29 or 3.6 percent at $66.61. Some analysts believe Sprint may find it more difficult to compete if AT&T sells discount service bundles as a result of the deal.

Verizon Communications, which will be a distant second to the combined AT&T, said its strategy is unchanged and suggested it would focus its acquisition strategy on trying to convince Vodafone to sell it Vodafone's 45 percent share of their Verizon Wireless venture.

In addition to the stock offer to BellSouth shareholders, AT&T said it also expects to take on $22.3 billion of debt, including BellSouth's $16.8 billion debt and the $5.5 billion of Cingular's debt attributable to BellSouth.

The deal includes a $1.7 billion break-up fee as part of the conditions of AT&T and BellSouth's merger agreement.

The new job cuts are in addition to 13,000 jobs that AT&T had already planned to cut in the next three years as a result of its November merger with SBC Communications. Job cuts from both mergers would leave the company with about 7 percent less workers than their combined workforces today.

Other savings would include cutbacks of as much as $500 million in annual spending on advertising as the company moves to a single AT&T brand from the current three separate brands, including Cingular.

"The merger ... is a very logical next step. It will improve our growth profile," AT&T Chief Executive Ed Whitacre said in a conference call with analysts. Regulatory approval for the deal is expected to take about a year.

The Federal Communications Commission, which regulates U.S. telecoms companies, and the Department of Justice said they would carefully review the proposed deal but analysts ultimately expect the transaction to be approved.

Senate Commerce Committee Chairman Ted Stevens and his staff also plan to review the AT&T-BellSouth merger "during the coming weeks," according to spokesman Aaron Saunders.

AT&T, headquartered in San Antonio, Texas, has about 190,000 employees; BellSouth, based in Atlanta, Georgia, has about 63,000; and Cingular has about 64,000.

(Additional reporting by Franklin Paul in New York, Jessica Hall in Philadelphia and Jeremy Pelofsky and Peter Kaplan in Washington)