AT&T Revenues Sink Lower

With its future growing bleaker, AT&T replaced the leader of its Broadband unit in preparation for an apparent sale of cable operations as the company's revenues continue to decline.

With its future growing bleaker, AT&T replaced the leader of its Broadband unit in preparation for an apparent sale of cable operations as the companys revenues continue to decline.

AT&T reported third-quarter earnings of $3.13 per share on revenue of $13.1 billion. On a pro forma basis, which adjusts for the consolidation of [email protected] and closed cable partnerships, revenue decreased 5.8 percent. Revenue, on a reported basis, declined 7.7 percent from the year-ago quarter.

Dwindling revenues from long distance voice services, compounded by a softening in the economy was partially offset by growth in AT&T Broadband and AT&T Business data/IP and local services, officials said.

"Every part of our company felt the impact of the slowing economy," Armstrong said. "Weve made and will continue to make adjustments to our business to navigate the changing economic and industry landscapes.

With rival Comcast expected to buy AT&Ts cable operation at roughly half its original value before the end of the year, AT&T Chairman C. Michael Armstrong will be left with business and consumer units struggling to maintain profits in a severe economic slump.

Replacing AT&T Broadband Chief Executive Dan Somers with financier and former cable executive William Schleyer is the clearest signal so far that AT&T plans to accept Comcasts low-ball offer for the cable properties AT&T acquired over the past three years at a cost of more than $100 billion.

While Armstrong acknowledged speculation that Schleyer, 50, represents a transition to a Comcast-AT&T cable combination, he would only say that the new appointment "will neither deter nor defer that process."

Somers previously served as AT&Ts chief financial officer and became head of the cable unit in December 1999.

While some critics said Armstrong bought a bill of goods when he took AT&T into the cable business, others praised his plans to create a powerful broadband unit that could challenge the regional Bells. But Armstrong never came close to achieving his plans to integrate AT&Ts cable, wireless, long-distance, business and consumer services under one roof. Before the new cable properties could be assimilated, investors began fleeing the communications and tech sectors in the middle of last year. That led Armstrong to propose instead the breakup of AT&Ts businesses units into four distinct companies.

While the Wireless business successfully spun away in the spring, the unit is doing some housecleaning of its own. AT&T Wireless said it would abandon its fabled Project Angel, the internal name originally given to AT&Ts effort to develop a fixed wireless offering. Originally shrouded in secrecy and expected to give AT&T a significant and crucial edge up on competitors, the offering hit the market March 2000.

"Weve made a strategic decision about a non-strategic business," said John Zeglis, chairman and CEO of AT&T Wireless. AT&T Wireless will shut down the fixed data and voice network and transition its 47,000 customers to other service providers.

Zeglis said that once AT&T Wireless became an independent company, it pursued the fixed wireless business as a non-strategic opportunity to create value. But the business failed to meet its objectives. By the third quarter it became clear that it wouldnt reach the goal of 100,000 customers by year-end, he said. In addition, the service was more expensive to deploy than anticipated, with tower site issues adding unexpected costs and installation prices increasing.

Originally, fixed wireless gave AT&T a broadband solution and an opportunity to deliver local voice services. But AT&T Wireless no longer had an obligation to pursue fixed wireless for the benefit of AT&T once it was spun off.

"If anything, local voice calling is something theyd rather displace with wireless mobile, not the fixed," said Charles Golvin, senior analyst at Forrester Research. "So its not strategic."

In addition, the fixed business was using valuable spectrum that AT&T Wireless could use for mobile services. "AT&T [Wireless] needs all the spectrum they can get, so using it for a non money making business when they could re-deploy it for mobility where they know the returns doesnt make sense," Golvin said.

AT&T Wireless looked for a buyer for the business but couldnt find one, likely because the network and customers arent worth much without the spectrum, which wasnt for sale.

In tying up loose ends before selling AT&T Broadband, Armstrong moved to acquire the key operations of Broadbands bankrupt Internet Service Provider [email protected] That has allowed the cable unit to continue adding subscribers to its cable Internet service, Armstrong said.

Meanwhile, Armstrong ended a joint venture with British Telecom called Concert, freeing the Business unit from entangling alliances.

In joining AT&T Broadband, Schleyer brings with him former colleagues from MediaOne and Continental Cablevision to serve as the units chief operating officer and chief technology officer.

Despite the possibility AT&T Broadband could be sold or merged with another company, Schleyer believes there is plenty of time to improve the company and make his mark.