AT&T; Profit, Revenue Decline in 1st Quarter
Beset by competition that has driven down the price of long-distance calls, AT&T; Corp. on Thursday reported a 47% drop in net income and an 11% decline in revenue for the first three months this year.
The nation’s biggest long-distance carrier earned $304 million, or 38 cents a share, for the first quarter, compared with a profit of $571 million, or 73 cents, for last year’s first period. Sales sank to $8 billion from $9 billion.
AT&T; shares fell 56 cents to $18.03 on the New York Stock Exchange.
After AT&T; lost ground late in 2003, Chairman David Dorman set the company on a course to maintain and build market share in both its business and consumer segments. But in using aggressive pricing to stem big drops in sales, the company saw its profit margins erode, especially in local phone service competition, where the company has picked up 4.3 million customers in 46 states.
Dorman said the company was seeing signs of success in retaining customers as it continued “transforming operations to be leaner, faster and smarter than ever before” so it could remain a long-term player. The company expects to pare 8% of its 61,600 workers this year, firing 40% of them in the first three months.
Analyst Richard G. Klugman at Jefferies & Co. said “pricing and competitive trends appear to be getting tougher, not easier, while demand remains weak.” The cost for AT&T; and other Bell rivals to compete for local customers may go up if regulators allow wholesale costs to rise and if the rivals are pushed to rely too soon on new technologies, he said.
AT&T; already is offering service over broadband connections, either cable modem or digital subscriber lines, or DSL. The company is using a technology known as voice over Internet protocol, or VOIP, to send conversations over data lines much like e-mail is sent. Other phone and cable companies are preparing to launch similar services.
Dorman said AT&T; expected to have 1 million VOIP customers by the end of next year. It started offering the service this month in four states, including California, and plans to enter 100 markets by the end of the year.
Klugman said “it remains to be seen whether this would be enough to offset AT&T;’s myriad of difficulties in other areas.”
He pointed out, for example, that the company was “essentially a non-participant” in the two biggest growth areas -- wireless and DSL. Four years ago, it spun off AT&T; Wireless Services Inc., now being acquired by Cingular Wireless, and will need to find another partner. It resells DSL through Covad Communications Group Inc. but has been slow to roll out the service, especially in high-speed-hungry California.
Separately, SBC Communications Inc., California’s dominant local carrier, filed a federal lawsuit in St. Louis claiming that AT&T; owed it $140 million in access fees since 2000.
AT&T; had been withholding some fees charged by the Bells to complete long-distance calls while asking federal regulators to declare that calls going over the firm’s VOIP-enabled long-distance lines were exempt from access charges.
But the Federal Communications Commission this week rejected AT&T;’s claim. The agency, however, specifically declined to make its order retroactive, leaving it up to the Bells to sue for any past due amounts.
