AT&T income down, company shifts focus

AT&T Thursday posted a drop in net income of $428 million from the second quarter of 2003 and said it will shift its focus away from residential telephone services.

Second-quarter net income was $108 million, or 14 cents a share, compared to net income of $536 million, or 68 cents per share in the second quarter of 2003, AT&T said in a statement.

On a per-share basis, AT&T, in Bedminster, N.J., beat analyst expectations of 7 cents per share, according to Thomson First Call.

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AT&T Thursday posted a drop in net income of $428 million from the second quarter of 2003 and said it will shift its focus away from residential telephone services.

Second-quarter net income was $108 million, or 14 cents a share, compared to net income of $536 million, or 68 cents per share in the second quarter of 2003, AT&T said in a statement.

On a per-share basis, AT&T, in Bedminster, N.J., beat analyst expectations of 7 cents per share, according to Thomson First Call.

The company blamed the drop in revenue on pricing competition and increased spending on marketing and new initiatives such as VoIP service.

Company officials, who called the company's plan to refocus a "historical shift," partly blamed FCC regulations for their decision to stop marketing service to residential customers. FCC rules protecting the incumbent carriers, often called RBOCs, allow the incumbents to offer bundled services, while putting competitors including AT&T at a disadvantage, AT&T Chairman and CEO David Dorman said. The Bells offer bundles including local, long-distance and broadband services.

The FCC is moving away from rules encouraging the Bells to share their networks, Dorman added. "Clearly, shifts in regulatory mindset have now eliminated AT&T's ability to maintain even a basic competitive bundle for consumers," he said. "There's just too much risk and uncertainty for AT&T to base our future on reluctant participants in a regulated environment that has been constantly in flux."

Second-quarter consolidated revenue was $7.6 billion, compared to $8.8 billion in the same quarter of last year, a drop of 13.2%, which the company said was primarily due to continued declines in long-distance voice revenue. The revenue from the quarter included $5.6 billion from its business division and $2 billion from its consumer division.

AT&T's second-quarter operating income totaled $348 million, compared to $1 billion year-over-year. Operating income included $54 million of net restructuring and other charges during the quarter, primarily related to employee layoffs.

AT&T said it will no longer focus on traditional consumer services, including residential telephone services, but concentrate instead on business markets and emerging technologies, such as VoIP, which can serve businesses as well as consumers. AT&T will market VoIP service to residential consumers, but growth in residential VoIP depends on growth in broadband adoption, Dorman said.

In June, AT&T said it would no longer compete for traditional local and long-distance voice customers in seven states across the U.S.

The shift plays to AT&T's strength of serving the complex networking and technology needs of businesses, the company said. Nearly 75% of AT&T's revenue is generated by business customers, it said. AT&T is well-positioned in the business market, with competitive pricing and a large customer base, Dorman said.

"Both AT&T and the industry at large are clearly moving through a period of profound transformation and change, which is never easy," Dorman added. "However, it does offer the opportunity to those who act quickly to changing markets."

The IDG News Service is a Network World affiliate.