AT&T Corp., once one of the world's largest, richest and most powerful companies, announced third-quarter profit of $520 million yesterday in what may be its last earnings report as an independent company whose roots go back to the invention of the telephone in the 19th century.
The Federal Communications Commission could act as early as next week to approve SBC Communications Inc.'s $16 billion purchase of AT&T as well as Verizon Communications Inc.'s $8.5 billion purchase of MCI Inc., two huge mergers that will end an era in U.S. telecommunications.
SBC and Verizon have agreed in principle to a Justice Department requirement that they give rivals long-term access to high-speed lines that serve hundreds of large buildings with lucrative business customers, sources familiar with the matter said yesterday.
Over the past quarter-century, consumers have seen their phone service evolve from the "Ma Bell" AT&T monopoly, to a division between local and long-distance companies, to the current profusion of offerings from cable, Internet phone and wireless networks.
AT&T's third-quarter earnings themselves tell the story of the decline of a company that once provided phone service across the United States, owned the wires that carried the calls and built the telephones Americans used.
The company's total revenue slid to $6.62 billion from $7.64 billion, reflecting falling prices in its traditional voice and data service to businesses as well as the continued flight of long-distance customers, who are turning to other providers, mobile phones or Internet phone service.
Its $520 million profit, higher than some analysts expected, compared with a $7.15 billion loss a year earlier. That loss reflected a massive charge to write down the value of AT&T's network after it decided to stop marketing telephone service to residential customers.
"This has been a period of significant challenge and change for the entire telecom industry with dramatic pricing pressures, regulatory reversals and the lingering impacts of overcapacity and fraud," AT&T Chairman David W. Dorman told analysts, according to a transcript.
"While this will mark the end of an era in many respects, it is the start of a new chapter for the industry," he said.
Fierce competition has steadily cut long-distance prices for years. When AT&T began transatlantic phone service to London in 1927, it charged $75 for a three-minute call. Today, it offers the service for as little as 8 cents a minute. In one measure of how far the company has fallen, in early 1996 it had 80 million residential long-distance customers. Today, it has only about 16 million.
Regional telephone companies such as SBC and Verizon emerged victorious nearly a decade after the government tried to pit the long-distance companies against them to compete for local phone service.
While the regional giants have been relatively successful at getting into the long-distance business, legal challenges and regulatory decisions made it much harder for AT&T and MCI to win local telephone customers.
A new chapter will begin after the FCC and Justice Department issue separate decisions on whether to approve the two mergers. The Justice Department agreement is expected to be completed next week, the sources said.
AT&T said it expected its merger with SBC to be completed by the end of the year and telecom analysts do not expect the government to impose significant conditions.
The FCC has scheduled a Friday meeting at which it plans to take up the issue of the mergers. Despite putting both deals on its agenda, the commission could postpone a decision until its next meeting, Nov. 3. FCC Chairman Kevin J. Martin proposed approving both deals without conditions, sources familiar with the matter said last week, but he must win the votes of at least one of the two Democratic commissioners to get them through.
If the merger is approved, industry officials think SBC may adopt the AT&T name even though the new company will be a far cry from the global giant that it was at its peak.
"AT&T had a bunch of chances to reinvent themselves. AT&T could have been AOL, they could have been Google, they could have developed [voice over Internet] and they didn't, and they made a number of mistakes," said Blair Levin, a telecom analyst with Legg Mason Wood Walker Inc. "No matter how big and how powerful you are, everyone in this economy is subject to the powers of creative destruction."
AT&T shares, once called the stock for widows and orphans because of the predictability of the company's profits, closed 43 cents higher Friday, at $19.01.
Staff researcher Richard Drezen contributed to this report.