AT&T; Issues Downgraded by Moody’s : Cites Difficulties in Penetrating New Markets

Moody’s Investors Service on Friday slightly lowered the ratings of American Telephone & Telegraph bonds and preferred stock because of the telephone company’s “slow progress in meeting profitability goals” as it struggles to penetrate new computer and telecommunications markets.

The debt rating agency said it foresees AT&T;’s financial results “remaining below previously expected levels for several more years” while the company tries to cut costs and achieve the market penetration that it needs to succeed in the new markets.

AT&T;’s thrust into the market for computer-related office equipment “is likely to be more costly and less profitable than originally anticipated because product and price competition is strengthening,” the rating agency said.

At the same time, Moody’s said it expects AT&T; to maintain its leadership in the regulated market for telephone service, which it said “will continue to make strong contributions to . . . cash flow.”

Lackluster Earnings Report

The announcement came a week after a lackluster AT&T; earnings report that caused several analysts to lower their earnings forecasts. The company has been increasing its profitability in long-distance telephone service, but, despite huge layoffs, it has also been piling up losses in its sales of some telephone switchboards and computers.

AT&T; responded to Moody’s announcement with a statement saying that it “regrets” the downgrading and asserting that AT&T; is a “financially sound company” with a promising future in the markets for office equipment, telephone switchboards and related gear.

Moody’s lowered AT&T;’s double A1 senior bond rating to double A3 and the double A1 preferred stock rating to double A3. The company’s rating for commercial paper was unchanged at prime 1.

‘A Different Business’

Analysts said the downgrading was in line with investors’ increasing view of AT&T; as a company that faces more risks as it emerges from the more secure business environment that it formerly enjoyed. “It’s very much a different business than it was before divestiture, and this downgrading recognizes the reality of that,” said Douglas Held of Argus Research in Manhattan.

Yet the downgrading is too slight to affect AT&T;’s borrowing expenses, said Frank Governali, an analyst with Dean Witter Reynolds. “I don’t think this foreshadows any new information about their situation; it just acknowledges the effect of what everybody’s known.”