AT&T; Suffers 1st Loss in 103 Years Due to Cost of Modernization
American Telephone & Telegraph Co. reported Thursday the first annual loss in its 103 years and one of the biggest quarterly losses in U.S. corporate history, the result of last month’s decision to speed up the modernization of its long-distance system.
The losses, which were projected by AT&T; on Dec. 1, stemmed from a one-time charge of $6.7 billion to write off outdated switching equipment and to convert its network to all-digital operation. AT&T; officials and analysts said the writeoff masked improved operating earnings and the general financial health of the company.
In the fourth quarter, AT&T; lost $3.34 billion on revenue that rose about 6% to a record $9.21 billion. A year earlier, AT&T; posted a profit of $498 million.
For all of 1988, AT&T; lost $1.67 billion on a 4% increase in revenue to $35.21 billion, also a record. In 1987, the company earned $2.04 billion.
Long History of Profit
Without the special charge in 1988, earnings would have risen 19% for the quarter and 11% for the year.
Until 1988, AT&T; made money every year since being founded on March 3, 1885--even in 1983, when the company took a $5.5-billion writedown to reflect the loss of its local phone companies to settle an antitrust lawsuit. In the fourth quarter of 1983, AT&T; posted what remains its biggest quarterly loss ever, $4.87 billion.
On the New York Stock Exchange, AT&T;’s shares--which had climbed to a 52-week high of $37.875 a share on Wednesday--closed unchanged Thursday.
Audrey Stevoff, an analyst for Duff & Phelps in Chicago, acknowledged the huge size of the writedown, but observed: “When it’s AT&T; and it’s such a large company, people just brush it off and look ahead to the next quarter.”
On the other hand, Robert B. Morris III of Goldman, Sachs & Co. expressed disappointment at the company’s performance. Morris said growth in equipment sales did not boost net income as much as he anticipated, suggesting that the sales gains came from price-cutting.
Morris thought that the stock market responded coolly, too, since AT&T;’s stock didn’t advance despite the 25.18-point rise in the Dow Jones industrial index on Thursday.
Even so, analysts and investors appeared to be anticipating a favorable ruling for AT&T; on Monday by the Federal Communications Commission. The FCC is expected to loosen its grip on AT&T; by scrapping the regulatory limits on the company’s profit from long-distance calls and instead imposing limits on prices.
The change is intended to spur cost-cutting improvements in technology. It also is expected to strengthen AT&T;’s competitive position in the long-distance business against such companies as MCI Communications and U S Sprint, whose long-distance service is not regulated by the federal government. AT&T; has 70% of the long-distance market.
Before divestiture, the company had anticipated completing the modernization of its long-distance network by about the end of the century. Now it plans to finish most of the work this year. U S Sprint has already completed an all-digital network, and MCI is hard at work on one of its own.
AT&T; also recently started a five-year program to slice 16,000 jobs from its operator services and network maintenance staffs. At the end of 1988, AT&T; had 304,700 employees.
Chairman Optimistic
“The charge for network modernization, despite its effect on short-term results, was driven by our determination to continue winning customers in the marketplace,” Chairman Robert E. Allen said in a prepared statement. “Underlying this action are clear indications that 1988 was a year of steady improvement in our operations.”
In an interview last week, Allen insisted that “the house is in good order” and noted that AT&T; landed two major contracts in 1988.
In November, it won a hard-fought contest for an Air Force contract that could be worth $1 billion in computer sales. That news boosted the company’s morale and credibility in the computer field, where it has struggled.
In December, the company snared 60% of a contract worth up to $15 billion over 10 years to overhaul the federal government’s civilian telecommunications network.
Ahead for AT&T; are negotiations for new three-year union contracts with 135,000 employees who belong to the Communications Workers of America and 40,000 others represented by the International Brotherhood of Electrical Workers. The contracts expire May 27.
Union spokesmen said job security and increased pay will be at the top of their agendas when bargaining begins April 5. They also want to reinstate the cost-of-living raises that they agreed to suspend three years ago.
