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AT&T plan fails to connect
By Compiled from Times wires © St. Petersburg Times, published October 26, 2000 Running out of time with impatient investors, AT&T unveiled a complicated two-year plan to break out its business, wireless, consumer long-distance and cable broadband units into separate companies and tracking stocks. AT&T aimed its announcement Wednesday at the investment world. But investors in AT&T were not delighted. Concerns about the plan, especially the fact that the newly separated units would pay a lower combined dividend than the company does now, were one reason. Also, on Wednesday, while AT&T announced earnings for the third quarter that exceeded predictions, it released forecasts for the fourth quarter and for next year that appeared to fall short of analysts' expectations. The earnings announcement helped send AT&T's shares down by about 13 percent Wednesday, to $23.38. Some communications experts said the overhaul plan, dubbed "Project Grand Slam," was misguided. "This is one of the silliest reorganizations in communications," said Howard Anderson, founder of the Yankee Group, a communications research firm, and senior managing director of YankeeTek, a venture capital firm based in Boston. "They have essentially genuflected to the financial markets when in reality staying the course would have gotten them to where they want to be." Since January, AT&T stock has dropped over 45 percent on fears that competition and cheap Internet-based calling are wiping out its core consumer long-distance business faster than expected. Despite one of the strongest bull markets in history, AT&T is now worth 11 percent less than when chairman C. Michael Armstrong took over in October 1997. AT&T officials bristled at suggestions they capitulated to pressure from Wall Street. "It seems to be a lot of fun to write that this is a rejection or repudiation of our strategy. I find that to be not only wrong, but offensive," Armstrong said in a meeting with analysts and media. He asserted that some sort of breakup always was a possibility, and that the four new AT&T companies will still benefit from cross-marketing their services. Under the plan, AT&T will spin off the cable TV and wireless units. The remaining telephone and network operations will form the core of a new AT&T Corp. The consumer long-distance part of that core will be represented by a separate "tracking" stock to keep it from contaminating the healthier financial results of the unit that provides communications services to business customers. "Of those four companies, I think there is one star and three question marks," said Brian Adamik, president of The Yankee Group in Boston. "The star is AT&T Wireless, and I think AT&T Broadband will probably do fine." But Adamik said the consumer business appears to be "a dying dinosaur" and the business unit seems to be struggling to keep a strong market presence. - Information from the Boston Globe, New York Times and Associated Press was used in this report.
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From the Times Business report
From the AP
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