Newspaper article THE JOURNAL RECORD

Sour Outlook Raises Tough Questions for AT&T

Newspaper article THE JOURNAL RECORD

Sour Outlook Raises Tough Questions for AT&T

Article excerpt

NEW YORK -- AT&T Corp. said earnings in the second half will fall as much as 10 percent below analysts' estimates as the company revamps its long-distance strategy to stem declining market share.

The news sent AT&T shares tumbling at early afternoon, lopping $8.25 billion off AT&T's market value and putting more pressure on Chairman Robert Allen to turn the company around. Shares of AT&T, the most widely held U.S. stock, are down 24 percent since January.

The gloomy outlook comes a year after Allen wowed Wall Street with a plan to increase shareholder value by splitting AT&T into three companies. Since then, growth in calling volume has lagged rivals' and investors are growing impatient with promises that new ventures, such as Internet access, eventually will bolster the bottom line. "AT&T is dead money until they get their act together," said Scott Vergin, portfolio manager at Lutheran Brotherhood in Minneapolis, who Tuesday sold 200,000 AT&T shares, or a third of its holdings. "They need to hire a chairman who will do radical things. Allen hasn't done shareholders any service." Investors have been closely monitoring whom Allen, 61, will tap to succeed him since his likely successor, Alex Mandl, quit Aug. 19. Mandl, AT&T's former president, left to head Associated Communications LLC, an little-known wireless telecommunications company. "People are less than enchanted with this story right now," said Sally Anderson, senior portfolio manager at Kopp Investment Advisors in Edina, Minn., which owns 100,000 AT&T shares. To address the decline in long-distance market share, AT&T unveiled a new 15 cents-a-minute discount calling plan. Analysts said the flat-rate plan will help the business around by reducing the number of customers who switch to rivals, but that won't happen for a while. "AT&T is in trouble in a number of key operating segments," said Daniel Briere, president of TeleChoice Inc., the Verona, N.J.-based market research firm. "The main problem is its consumer business is really bleeding. …

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