Wednesday, July 21, 2004

AT&T to Withdraw from Consumer Circuit-Switched Services

AT&T announced an historic decision to shift its focus away from traditional consumer wireline telephony. Going forward, the company will concentrate its efforts on business customers and emerging IP services, including consumer VoIP.

David W. Dorman, AT&T's Chairman and CEO, said the recent changes in regulatory policy governing local telephone service, meant that AT&T could no longer compete in residential local and standalone long distance (LD) consumer markets.

AT&T also reported its Q2 financial results. Some highlights:

  • consolidated revenue of $7.6 billion, declined 13.2 percent versus the second quarter of 2003, primarily due to continued declines in LD voice revenue.

  • operating income totaled $348 million, resulting in a consolidated operating margin of 4.6 percent. Operating income included $54 million of net restructuring and other charges taken during the quarter primarily related to employee separations.

  • $1.1 billion in cash from operations while spending $0.5 billion on capital expenditures.

  • net debt of $7.9 billion, a $0.5 billion decrease from the end of Q1 2004.

AT&T Business

  • Revenue was $5.6 billion, a decline of 12.7 percent from the prior-year. Pricing pressure and mix shift from retail to wholesale negatively affected the unit's revenue performance.

  • Long distance voice revenue decreased 17.6 percent from the prior-year second quarter, driven by continued pricing pressure as well as a continued mix shift in volume from retail to wholesale. Volumes were flat on a quarter-over-quarter basis, with growth in wholesale volumes offset by a decline in retail volumes.

  • Local voice revenue grew 5.0 percent from the prior-year second quarter. Local access lines totaled more than 4.6 million at the end of the current period, representing an increase of over 85,000 lines from the end of the first quarter of 2004.

  • Data revenue declined 10.4 percent from Q2 2003 Revenue was negatively affected by pricing pressure, weak demand and technology migration.

  • IP& Enhanced Services (IP&E-services) revenue grew 2.3 percent over the prior-year second quarter. The quarter-over-quarter growth was primarily driven by strength in advanced services, including Enhanced Virtual Private Network and IP-enabled Frame Relay.

  • Outsourcing, professional services and other revenue declined 18.9 percent from the prior-year second quarter, due to customers reducing scope and terminating outsourcing contracts.

AT&T Consumer

  • Revenue was $2.0 billion, a decline of 14.6 percent versus the prior-year second quarter, driven by lower standalone LD voice revenue as a result of the continued impact of competition, wireless and Internet substitution and customer migration to lower-priced products and calling plans, partially offset by targeted price increases.
http://www.att.comIndustry Reactions to AT&T's Withdrawal

PACE: "AT&T's withdrawal from consumer markets is a blow to residential and small business consumers across the nation. The goal of the Telecom Act was robust local competition, with more choices, greater innovation and lower prices. If not soon moderated, the same ideological zeal that brought the nation the California energy crisis will have a similarly devastating impact on the telecommunications industry." Peter Karoczkai, Chairman of the Promoting Active Competition Everywhere (“PACE�?) Coalition, which does not include AT&T or MCI.

SBC: "Today's announcement underscores the fact AT&T left the traditional consumer business years ago when they decided against investing in their own local facilities and networks in order to compete. It also underscores the reality of today's competitive marketplace. Vigorous competition is flourishing and will only intensify as wireline, cable, wireless, satellite and VoIP companies slug it out. Consumers today have more choices than ever before and that will not change, especially if AT&T is serious about pursuing new technologies like voice over IP."


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