AT&T; Considering Split Into 4 Companies to Revive Stock

Directors of AT&T; Corp. on Monday seriously discussed splitting the company into four pieces as they met into the late afternoon to consider a restructuring aimed at boosting its depressed stock, according to sources with knowledge of the deliberations.

Under a plan presented to the board by AT&T; Chief Executive C. Michael Armstrong, the former Ma Bell would turn its cable-television and wireless-telephone businesses into separate companies, each with its own stock.

Its residential long-distance business--the nation’s largest--would be split off as well, with new shares issued to track its fortunes. A fourth company, the core of the refashioned AT&T;, would focus on serving major business customers. Sources said the restructuring would be phased in over the next 18 to 24 months.

For AT&T;, a company with roots in the beginnings of telephone communication, a self-instituted breakup would add another chapter to a history rich with surprising twists. In 1984, the federal government broke the Bell System into several local telephone fiefdoms and AT&T;, which was given control of the long-distance market.

More recently, AT&T; has transformed itself into a cable-television power, aiming to turn cable-TV wires into conduits for an array of telecommunications services--local and long-distance telephone connections as well as high-speed Internet links.

With AT&T; contemplating yet another metamorphosis, some investors worried that a once-steady industrial blueblood with a long-term view was now pursuing instant Wall Street gratification.

“This seems to be a company that doesn’t know who they are or what they want to be,” said J. Michael Gallipo, manager of the $20-million Monument Telecommunications Fund, which now owns about 9,000 AT&T; shares. “Here they are talking about breaking the company into four pieces when every other company in the world is trying to get bigger. Given their long-term track record, it’s hard to imagine that AT&T; knows something that nobody else knows. This smacks of panic.”

Analysts said the breakup could signal the end of the Armstrong era while perhaps slowing the drive of telecommunications companies to make themselves into full-service providers. For federal regulators, AT&T;’s renewed focus on business customers while de-emphasizing residential consumers is likely to become fodder in debate over the benefits of the Telecommunications Act of 1996, which was supposed to foster greater competition through deregulation.

When Armstrong took over AT&T; more than three years ago, he pledged to transform a bureaucratized giant into a nimble player focused on the Internet and wireless communications. He spent more than $100 billion to amass cable systems, earning plaudits as a visionary, even as some questioned the steep prices he paid.

But executing the cable strategy has proven a struggle. AT&T; has sunk billions into upgrading its cable systems to handle telephone and Internet services only to sign up paying customers slowly. Meanwhile, AT&T;’s core long-distance business--long the primary source of cash--has lost customers in the face of mounting competition.

Based on its stock price--AT&T; closed Monday at $27.63, up 63 cents--AT&T; has lost roughly half its value this year and is now worth less than it was on the day Armstrong took over. A new stock AT&T; sold this year to track its wireless holdings has lost one-fourth of its value.

In recent months, Armstrong has come to see a breakup as the best way to convince the market of the value of his company’s assets. AT&T;’s residential long-distance business produced about $20 billion in revenue last year, but that number is declining as its customer base erodes. On the balance sheet, long-distance is the dominant force: Its decline renders invisible the handsome growth rates of AT&T;’s wireless and Internet businesses. Thus, Armstrong told the board at AT&T;’s New York offices Monday, the company must separate its holdings so the market can evaluate them on their individual merits, giving AT&T; shareholders the full value of their holdings.

Such thinking is not confined to AT&T.; WorldCom Inc. is moving ahead with plans to partition its residential long-distance business--the second largest in the nation--from its other holdings. A decision to issue a tracking stock could come as soon as this week.

Some analysts and investors construed the breakup talk as an admission that the cable strategy has failed. Others suggested the restructuring would become Armstrong’s swan song: The Harley-riding executive will now preside over the dissolution of the business he was supposed to retool before riding off.

“He didn’t pull off the strategy that he intended to pursue and in the end Wall Street didn’t buy it,” said Brian Adamik, an analyst with the Yankee Group in Boston. “It’s the end of the AT&T; that we’ve all known. It could be a new beginning.”