AT&T Corp. announced pro forma earnings on Wednesday of US$0.05 per share for its fourth quarter, down significantly from the $0.24 per share earned a year ago but in line with analysts' estimates.
Pro forma revenue for the fourth quarter, adjusted for closed cable acquisitions and dispositions, and the deconsolidation of results from now-bankrupt Excite@Home Inc., declined by 6.1 percent, AT&T said in a statement.
AT&T's reported revenue of $12.59 billion for the quarter represents a decline of 9.5 percent over the year-ago quarter. Although AT&T showed a pro forma gain, the company will report a loss on continuing operations of $1.39 billion, or $0.39 per diluted share, compared to a loss of $0.52 per diluted share for the year-ago quarter.
The company took a $1 billion charge against earnings for restructuring in the fourth quarter, after laying off 5,100 employees in 2001 and planning to cut around 5,000 more jobs this year, mainly in its management divisions.
For the full year, AT&T reported earnings of $9.1 billion, or $2.50 per diluted share, reflecting the $13.5 billion after-tax gain from the spin-off of AT&T Wireless Services Inc. in 2001.
AT&T, like other big long distance companies, continues to lose revenue in long distance voice services. AT&T said the decline in voice service revenue was offset by growth in cable telephony and high-speed data, data and Internet Protocol services and its local phone service.
"For the first time, LD (long distance) voice is less than 50 percent of our revenue," said C. Michael Armstrong, AT&T chairman, on a conference call with investors and financial analysts Wednesday.
Long distance revenue over traditional phone lines is falling in part because many people increasingly make long distance calls from their cell phones and because e-mail messages are reducing the need to make long distance calls, executives said. Because these customers usually don't abandon their long-distance service, AT&T is in the unenviable position of having long distance customer service costs remain stable while revenue deteriorates, said AT&T President David Dorman.
Regional local service providers like Verizon Communications Inc. and BellSouth Corp. are entering the long distance business also, as state utilities commissions grant the Bell monopolies the right to compete for long distance service. Analysts on the call expressed some concern about AT&T's long distance service revenue in California if the state's public utilities commission grants long distance competitive entry to local phone companies. California is the most populous state in the U.S., with about 12 percent of the country's residents.
The company said it expects long-distance service revenue from business and consumer customers to decline further in 2002, with a slight acceleration in the first quarter of 2002.
AT&T expects first quarter earnings per share from continuing operations to be in the range of $0.02 to $0.05.
With an agreement reached in December to sell its cable television business to Comcast Corp. and plans to spin off its consumer long distance service as a separate tracking stock, the future AT&T will likely look very little like the past.
AT&T still owns its broadband division and is obligated to report its finances, but AT&T expects to close the $72 billion Comcast deal by the end of the year. AT&T Broadband was a bright spot in what was otherwise a fairly bleak year.
Though the main business of delivering cable TV to paying customers underperformed AT&T's expectations slightly in the fourth quarter, pro forma revenue increased to $2.4 billion, about 10 percent over the same period a year prior. Because AT&T Broadband sold off some cable assets, its reported revenue decreased by about 6.1 percent.
Compared to AT&T Broadband's revenue, the $56 million AT&T spent to get out of Excite@Home's Internet service network and into its own appears tiny. The company spent about $15 million to give free Internet service to customers during the network outage in December. The remaining $41 million went into hiring extra customer service representatives and building a new Internet service infrastructure for AT&T Broadband.
"We are now on a new more reliable network under our own control," Armstrong said. The new network will be able to support multiple Internet service providers and to support multiple tiers of service, with more expensive premium services providing faster connection speeds.
AT&T spent about $1.5 billion on cable-facility upgrades in 2001, most of which went to projects to add advanced cable services like phone service, digital video and Internet service. The company expects AT&T Broadband's capital expenditures for 2002 to be in the range of $4.2 billion to $4.4 billion in 2002. Of that total, about $3 billion will be spent on facility upgrades, with the highest spending expected to occur in Boston, Chicago and San Francisco.