AT&T Corp. said it would restructure its business, cutting 20 percent of its jobs and writing down the value of its network by $11.4 billion, as it winds down its residential telephone business.
The company previously said it would cut about 8 percent of its workforce this year but said yesterday that the restructuring would claim 7,400 additional employees by the end of the year. AT&T, based in Bedminster, N.J., started the year with 61,600 employees and will exit the year with about 49,000 workers.
Roughly three-quarters of those whose jobs will be eliminated have already been laid off or have received notification of termination, the company said. It will also take a $11.4 billion non-cash write-off -- which represents roughly a quarter of its assets -- in the third quarter to reflect the decline in value of its business. The company will take an additional cash charge of $1.1 billion for the layoffs during the quarter. The write-down would reduce its depreciation expenses by about $1 billion in the second half of this year.
For a century, AT&T was a monopoly that controlled all telephone lines into U.S. residential homes. In 1984 it was split from the regional Bell companies and became a long-distance company, and it has remained the largest provider of residential long-distance service, with 25 million subscribers. But earlier this year, AT&T said it would stop marketing to consumers. The decision resulted from a federal court decision that allowed regulators to end a system that allowed AT&T and other firms to lease local lines at deep discounts from the large regional companies and resell local service under their own brand.
Ashburn-based MCI Inc., another household name in the consumer telephone business, also has dramatically pulled back from marketing its popular consumer phone offering, the Neighborhood, although it has not announced plans to exit the business.
"In response to recent regulatory developments and a highly competitive market, we have made some tough decisions to reduce our workforce and cut costs," said David W. Dorman, chairman and chief executive of AT&T, which is focusing on selling its telecommunication services to large corporate customers.
Privately, analysts have speculated that the AT&T was paring down costs to try to make some of its divisions more attractive to prospective buyers.
"We're making these decision to position ourselves for success as a standalone company," said Andrew Backover, a spokesman for AT&T. "Clearly consolidation would be a healthy thing for the industry, but we're doing this as a way to serve our business customers better."
AT&T's consumer business has faced a tough battle on several fronts. In recent years, regulators allowed regional phone companies to start selling long-distance service, and Verizon Communications Inc. and SBC Communications Inc. have been eroding AT&T's core long-distance customer base.
In addition, AT&T faces added competition in the form of a new technology called Voice over Internet Protocol. That technology allows calling to take place over high-speed Internet lines. Within two or three years, cable companies such as Comcast Corp. will take over 10 percent of the phone business, analysts have said.
AT&T is staking its future on business customers. It has more than 3 million business customers that buy local, long-distance, Internet and other computing services. Those customers account for about 75 percent of revenue.
The announcement came after the stock market's close. Shares of AT&T closed down 16 cents, to $15.04 yesterday, but rose 38 cents in after-hours trading, to $15.42.