AT&T Corp. Wednesday forecast an 8 percent cut in its work force and a decline in cash flow this year, but promised to stop a slide in consumer revenues by 2006.
The largest U.S. long-distance phone company told analysts it wants to transform itself into a networking company, moving data into homes and businesses over high-speed Internet connections. But first it must face declining margins in its long-distance business, which still accounts for more than half of its revenues.
Those revenues have been targeted by a host of competitors, including regional and wireless phone providers. To help maintain profits, AT&T said it would continue cutting costs, saving about $400 million through 4,600 job cuts; the company had said earlier this year that cuts were likely, but had not given specifics.
“Clearly we are seeing continued margin pressure across our business,” said AT&T Senior Vice President and Chief Financial Officer Thomas Horton. “I don’t see that abating any time soon. I suspect it gets worse before it gets better.”
Horton said AT&T was forecasting cash flow -- defined as earnings before taxes and depreciation, minus capital spending -- of more than $4.5 billion in 2004 and about $4 billion in 2005. Last year, AT&T’s cash flow totaled $5.4 billion, and its net earnings were $1.8 billion
Several analysts have recently turned bearish on AT&T’s prospects, downgrading the company’s stock ratings after a disappointing fourth-quarter earnings report last month. Some have even questioned how long AT&T could survive as an independent company.
But AT&T sought to fight such perceptions on Wednesday, saying its old long-distance businesses were still generating enough cash to fund its expansion into new ventures such as Internet-based phone services.
Consumer turnaround
AT&T has forecast a decline of 15 percent to 17 percent in consumer revenue in 2004, after a 17.7 percent decline in 2003 to $9.5 billion. But John Polumbo, president and chief executive of the AT&T consumer unit, said AT&T could stop the decline of its consumer revenues by selling a wider variety of services, such as wireless phones and Internet access.
He said the company was forecasting at least a quarterly increase in revenue by 2006, with a full year of consumer revenue growth by 2007.
To do that, AT&T would need to continue offering wireless phone service under its brand name. It currently uses AT&T Wireless, but that deal will likely end once Cingular finalizes its $41 billion purchase of AT&T Wireless.
Executives said it was essential for AT&T to continue selling wireless services, and that the company was looking at reselling service from another wireless company’s network.
“The AT&T brand remains very strong in this space, and we have the opportunity to sell directly,” said AT&T Chairman and Chief Executive David Dorman.
Dorman did not offer many specifics, but did say AT&T would likely continue working as a reseller. Some analysts have speculated that AT&T might try to buy its way into the market again, by taking over a smaller wireless provider.