AT&T; Will Cut 24,000 Jobs to Reduce Costs

American Telephone & Telegraph, saying it needs further streamlining to compete, announced Wednesday that it will eliminate 24,000, or about 20%, of the jobs in its computer and office-telephone equipment arm.

Robert E. Allen, president of AT&T;’s Information Systems unit, said that the reductions are needed to “reduce costs and improve profit margins,” adding that the company contemplates further cost-cutting steps that might include more job reductions. He announced the long-rumored move in a telephone call that was heard by employees nationwide across AT&T; public address systems.

The telephone giant said that some employees in “surplus” jobs will be entitled to transfers and that all will be offered financial incentives to retire or quit. Of the surplus employees who remain, most will be dismissed by year’s end, the company said.

4,800 Jobs Already Cut

The Morristown, N.J.-based unit has already eliminated about 4,800 positions since the beginning of 1985. That figure includes 1,000 planned layoffs at a Shreveport, La., plant.

Spokesmen were unable to estimate the potential job loss in Southern California, where the Information Systems group employs 2,556. The company has 9,594 employees in California.

AT&T; said that the cuts involve 15,000 administrative support jobs; 4,000 installation, maintenance and technical-support jobs, 3,000 distribution jobs and 2,000 hourly factory jobs. About 30% of the positions are considered management posts, AT&T; said.

However, a union that represents 190,000 of AT&T;’s 360,000 employees charged that the cuts require too great a sacrifice among the rank and file. A spokesman for the Communications Workers of America called the layoffs an “outrage.” He said that the union wants to negotiate the extent of staff reductions and predicted that the cuts would pose a major obstacle to agreement on the labor contract that is up for renewal next summer.

CWA workers went on strike for 22 days in the summer of 1983 over what the spokesman described as reductions in health benefits. “The company just has this confrontational attitude,” the spokesman said.

Earnings Short of Targets

Since its court-ordered divestiture of local phone companies in January, 1984, AT&T; has said repeatedly that it planned deep cuts in overhead to enable it to compete with slimmer rivals in the telephone service, equipment and computer businesses. But, as earnings have fallen short of AT&T;’s targets, many observers have predicted that the company would be forced to make further reductions in the staff it maintained in its days as a regulated business.

(At the beginning of 1984, AT&T; Chairman Charles L. Brown said that the company target for per-share earnings was $2.05, yet for that year per-share earnings were only $1.25.)

AT&T; spokesmen said the impetus for the cuts came from a Federal Communications Commission order last April that permitted AT&T; to integrate manufacturing and some other operations into the Information Systems unit. Such integration had been barred under a rule designed to keep AT&T; from subsidizing unregulated businesses with revenues from its regulated telephone service.

The reorganization made many jobs redundant, the firm said.

Cuts Not Specified

AT&T; Information Systems’ California employees gathered in groups around speaker-phones to hear the announcement Wednesday. They were told that just whose jobs are in jeopardy won’t be known for “two or three weeks,” according to a spokesman.

“I don’t know that employees expected this large a number,” he said.

Some analysts contended that the eliminated positions represent more than the excessive manpower left after a consolidation. “The company just absorbed body after body in its monopoly days, and now it’s got to shed some of those,” said Glenn Powers, a telecommunications analyst with Northern Business Information, a research organization in New York.

He agreed with Information Systems President Allen that sales have been generally up for the unit, which markets a range of products that includes desk top and mid-size computers, telephone handsets and telephone switchboards.

Market Position Improved

Overall, “their market position has improved dramatically,” Powers said. “But they still have to improve their cost position.”

James Mason McCabe, an analyst with Donaldson, Lufkin & Jenrette, estimated that the cuts would reduce AT&T;’s wage and salary expenses by between $840 million and $960 million next year. In 1984, AT&T; earned $1.4 billion on $33.2 billion in revenues. Because of Wednesday’s announcement, McCabe increased his 1986 per-share earnings estimate for the company by 25 cents, to $2.25.

The company’s stock closed up 50 cents a share at $21.875 Wednesday on the New York Stock Exchange, with 1.2 million shares traded.

AT&T; said sales jobs, design and development positions and the company’s computer unit will be largely untouched by the staff reduction.

No Effect on Year’s Results

The company said that it does not expect to begin reaping substantial savings from the reductions until next year. AT&T; said it has already set aside a reserve to cover the one-time costs associated with the reduction and predicted that the action therefore will have no effect on this year’s financial results.

The severance incentives will include added pay and medical coverage. Employees will be entitled to severance bonuses amounting to between 5% and 100% of a year’s pay, depending on length of service.

Also offered will be supplemental medical coverage for as long as six months after the employee departs, the spokesman said. The company said that it recently increased pension benefits for management and non-management employees.