AT&T;’s Split Into 3 Firms Will Cost 40,000 Their Jobs

In one of the largest layoffs in the history of American industry, AT&T; Corp. said Tuesday that it will cut about 40,000 jobs as it prepares to split itself into three companies and take on an array of new competitors in the fast-changing telecommunications business.

AT&T;, which in September announced the biggest voluntary corporate breakup in U.S. history, said it would take a pretax charge of $6 billion to cover the costs of the downsizing. About 30,000 of the job cuts will be involuntary, with three-quarters taking place this year and the remainder spread over the following two years. AT&T; currently has about 300,000 employees.

Wall Street, in keeping with its cheerful attitude about layoffs, sent AT&T;’s shares up $2.625 to close at $67.375 on the New York Stock Exchange. The news led the Dow Jones industrial average to rise more than 60 points as investors bet that profit-sweetening job cuts, though perhaps not as sweeping as AT&T;’s, would remain in vogue among large corporations.

While such measures have proved highly effective in boosting profits, some economists, pointing to such indicators as weak retail sales, now fear the job reduction trend may be damaging the economy as a whole.

AT&T; last fall announced a radical plan to divide itself into three companies--one to provide telecommunications services, one to sell telephone equipment and a third to focus on computers--and said at the time that significant job cuts were likely.

In addition, legislation to reform telecommunications law is now on Capitol Hill and would allow the powerful Baby Bell companies into the long-distance telephone business, creating a formidable set of competitors for AT&T; and increasing the pressure to cut costs.

Still, the size of the layoffs announced Tuesday surprised many, including a union that represents about 80,000 AT&T; employees.

“This is yet another case of the kind of mindless job destruction that has terrorized working Americans in recent years as corporate executives play to Wall Street and manipulate their stock prices,” said Communications Workers of America President Morton Bahr.

But AT&T; Chairman Robert E. Allen said the move was necessary to sustain the company’s long-term competitiveness.

“The reduction in our work force will be the most difficult and painful step we’ve had to take in this restructuring process,” said Allen. “This is a key milestone that puts us right on track in our plan to create three new companies that will be positioned as strongly as possible to succeed in their markets.”

While AT&T; officials declined to detail how the cutbacks would be spread geographically, the bulk of the company’s Southern California employees are in sales and customer service jobs that are considered relatively safe, said Diane Schwilling, an AT&T; spokeswoman in Los Angeles. New Jersey, where the company’s headquarters and most of its corporate staff and research and development functions are located, is expected to be hard-hit.

“In any company, an announcement that a large number of people are having to lose their jobs puts a damper on your day,” said Carol McLarty, vice president for AT&T;’s global business communications systems division in Irvine, which is expected to escape layoffs. “I wouldn’t say the mood around here is euphoric. But people pretty much understand the necessities of the situation.”

The company did not specify what would happen to the 1,000 AT&T; employees who work in Orange County. Nearly 400 sales and service employees are based at the company’s regional headquarters in Irvine’s Spectrum business park, where they occupy four floors of the 14-story building. An additional 250 equipment sales and service employees work at the company’s network systems unit in Cypress.

Tuesday’s announcement didn’t seem to shake things up, said Cheryl Gudehus, an executive secretary at AT&T; in Irvine.

“We have been expecting something to happen,” she said, “but not this big.” She said the waiting to hear who stays and who goes “is nerve-racking, but I guess they know what they are doing.”

Analysts said the AT&T; job cutbacks were the third largest in history, behind IBM Corp.’s elimination of 63,000 positions in 1983 and Sears, Roebuck & Co.’s slashing of 50,000 jobs that same year. While the flow of pink slips has generally slowed in corporate America since hitting its 1993 peak of 513,000, analysts say layoffs in the telecommunications industry have only begun.

Just as the aerospace industry was forced into a painful overhaul as defense spending fell in the late 1980s, telecommunications is undergoing a far-reaching restructuring as voice-activated computers replace telephone operators, telephone cable deployment is farmed out to independent contractors and legions of white-collar workers are sent home to telecommute using personal computers.

“Telecommunications is one of the top three industries hardest hit by layoffs,” said John A. Challenger, executive vice president of Challenger, Gray & Christmas, an employment consulting firm in Chicago.

And Congress’ effort to overhaul the nation’s 61-year-old communications laws, though touted as a job-producing economic policy initiative, may in the short run destroy more jobs than it creates. The legislation will bring AT&T; face to face with new rivals--including the Baby Bells and cable TV operators--and force everyone in the business to cut what many analysts have contended are bloated payrolls.

Even if Congress does not pass the legislation--it is now hung up in a House-Senate conference committee--recent federal court decisions and rulings by state regulators are granting telecommunications companies more freedom to compete.

“I don’t want to sound cruel or impersonal, but it had to happen,” added Richard Nespola, who heads a Leewood, Kan., telephone consulting firm. “AT&T; started with a bloated bureaucracy . . . and now they are facing the encroachment of new technology” and changing federal policy.

AT&T; said the reductions include about 10,000 corporate staff jobs in its legal, public relations, purchasing, human resources and financial departments that were needed to manage AT&T; as a larger enterprise and support its many decentralized units. The cuts will also include about 6,000 administrative and support staff positions that the company says it can now centralize, due to more automation.

AT&T; had previously announced it would eliminate 8,500 positions at its Global Information Solutions computer unit, formerly known as NCR, bringing the total job reductions to nearly 50,000.

When the cuts are fully implemented, the post-breakup communication services part of the company, which will retain the AT&T; name, will be left with 110,000 employees after cuts of 17,000. The new communication systems and technology company, which will include most of the venerable Bell Laboratories research operations, will employ 108,000 people after cutting 23,000. At GIS, 4,100 of the 8,500 job cuts were made by the end of 1995. The total number of GIS employees is expected to fall between 35,000 and 36,000, according to AT&T; spokesman Jim Byrnes.

While the AT&T; layoff is massive, it is roughly on par with the job cuts undertaken in recent years by the Baby Bells, including Pacific Bell, which have slashed 3.2% of their work forces each year on average since the breakup of Ma Bell in 1984, according to William N. Deatherage, a telecommunications analyst at the New York investment house of Bear Stearns & Co. Inc.

“Across the board we’re seeing capital substituted for labor,” Deatherage said. “As some of these telecommunications functions can be handled on an automated basis, everything from network management to operator services to billing and collection can be reduced.”

Deatherage said he expects more layoff announcements even after the company absorbs the 40,000 job cuts announced Tuesday.

“Downsizing in this industry clearly goes into the next decade,” he said.

AT&T;’s layoffs came five years after the company’s last major work force reduction, when about 12,000 workers accepted buyouts.

AT&T; said Tuesday that a typical manager with 16 years of service, earning an annual salary of $55,000, would receive a severance package of about $30,000, with up to $10,000 for education and retraining, and paid health benefits for up to a year.

About half of AT&T;’s managers--or 72,000 employees--were offered such a buyout package last year, but only about 6,500 accepted the deal by Friday’s deadline. The offer is now being extended to a wider group of employees in hopes of attracting more volunteers.

The company said the job reduction, closing of facilities and write-downs of assets will result in a post-tax charge of $4 billion, or about $2.50 a share, against its fourth-quarter results.

AT&T;’s net income for the first nine months of 1995 was $2.82 billion, or $1.77 a share. For all of 1994, its profits were $4.7 billion, or $3.01 a share.

Since announcing its plan to split into three separate companies, AT&T;’s share price has risen about $10, amounting to an increased market value of $16 billion.

“The first thing people want to know is, ‘How will this affect me?’ ” said William E. Clay, general manager of AT&T;’s business communication services group. Clay sent e-mail to the 300 employees assigned to his building in Monterey Park to tell them they would not be subject to layoffs.

Clay, a 27-year veteran of AT&T;, said there was more companywide stress leading up to Tuesday’s announcement than when the government broke the company up in 1984.

Times staff writer Shiver reported from Washington and special correspondent Kaplan from Los Angeles.

* SMALLER CUTS: Big layoffs are giving way to more focused cutbacks. D1

* STOCKS RALLY: Cuts spark 60-point gain. D1