AT&T Corp. to lop off 40,000 jobs 'A big number, much larger than I expected,' one analyst observes

Stock market applauds

Reduction is in addition to buyout package offered in November

January 03, 1996|By Mark Guidera | Mark Guidera,SUN STAFF

AT&T Corp., the nation's largest long-distance phone company, opened the New Year yesterday with a showstopper, saying it plans to eliminate 40,000 jobs as it gears up to split into three companies and prepare for deregulation of the telecommunications industry.

An estimated 30,000 of AT&T's 300,000 workers will be fired under the job-reduction plan -- one of the largest U.S. corporate downsizings since General Motors eliminated 50,000 jobs in 1993.

Other jobs will be shed as the company divests itself of several units, including AT&T Paradyne, a computer modem maker, under a previously announced plan to split into three companies focusing on communications services, manufacturing communications equipment and manufacturing large computers.

"This is a big number -- much larger than I expected," said Daniel Briere, senior consultant with Telechoice Inc, a Verona, N.J.-based research company, who had thought the company would trim 25,000 jobs.

"Telecommunications companies around the world are watching this to see how a phone monopoly reinvents itself and stays competitive in a fast-changing market," he added.

The cutbacks are in addition to a buyout plan the company announced in November.

The phone giant, which earned $2.82 billion during the first nine months of 1995, said it would take a $4 billion charge on its fourth-quarter earnings as a result of the layoff plan.

The cuts should help AT&T be even more profitable in 1997, predicted Michael J. Balhoff, an analyst with Legg Mason Wood Walker in Baltimore. He estimated that the job reductions would help the company save about $2 billion a year. Mr. Balhoff said the restructured company, as a whole, also should see earnings growth of 10 percent to 15 percent next year.

The stock market approved of the announcement, too, driving AT&T's stock up $2.625 per share to $67.375 on very heavy trading of more than 5.1 million shares.

Industry experts said the staff reduction is a key step for AT&T as it repositions itself to compete in the local phone market with the Baby Bells and prepare for ferocious competition for its share of the long-distance market if Congress loosens the reins this year on who can compete in telecommunications.

The company is planning to enter nationally the local phone market and expand its wireless phone business as key future revenue generators.

"What AT&T is trying to do with this reduction is flatten itself out so it can move more of its decision-making responsibilities out into the field and to its regional offices," said Mr. Briere. "It's going to have to be a much more nimble company if it hopes to compete with the smaller start-ups after deregulation."

Mr. Briere said AT&T's downsizing should make its organizational structure look a bit like those of its chief long-distance telephone competitors, Sprint and MCI, both of which have fewer layers of management.

The announcement drew sharp criticism from Morton Bahr, president of the Communications Workers of America, a union representing 600,000 telephone industry workers.

"This is yet another case of mindless job destruction that has terrorized Americans in recent years as corporate executives play to Wall Street and manipulate their stock prices," he said.

Jeffrey Miller, a CWA spokesman, said the layoffs come at a particularly bad time for the industry.

"Many phone companies are downsizing," he said. "As a result, phone service all across the country is declining and customer complaints are increasing."

Mr. Balhoff, the stock analyst, noted that the staff reductions and the restructuring would place more pressure on AT&T to show stronger earnings in its network systems and communications equipment businesses where profit margins haven't been as strong as those of competitors.

However, he noted, the company might see strong profit margins in the local phone business where margins are higher than in the long-distance trade.

More than 50 percent of the jobs to be cut are supervisory, administrative and marketing roles. The rest are clerical and technical positions.

"I truly wish we didn't have to do this downsizing," AT&T Chairman Robert E. Allen said in a prepared statement to employees. "I understand how wrenching it will be for employees and their families. But the actions are absolutely essential if our businesses are to be competitive."

Maryland is not expected to be hard hit by the job reduction plan, said AT&T spokesman Al Wann. The company has offices in Cockeysville and Linthicum. Many at those offices are employed as phone-service and equipment-sales representatives and will be given greater freedom to make decisions in the field, he said.

The hardest hit state is likely to be New Jersey, AT&T's home, where as many as 7,000 workers are expected to lose their jobs.

Mr. Wann said it was unclear yet exactly when layoff notices would start going out. The picture should be more clearly defined by the end of the month, he said. But most people affected should be notified before the end of March.

The layoff plan announced yesterday is separate from a buyout package offered by the company to 72,000 supervisory employees. That offer, accepted by 6,500 people, ended Friday.

The company said yesterday it would offer a buyout package to other employees to decrease the number of layoffs needed, but those offered the original buyout would not qualify for the new offer.

Mr. Wann said fired employees would be given severance packages, as well as job-search assistance and stress counseling.

Managerial employees, for example, will be offered severance of up to 35 weeks of pay plus 20 percent, depending on seniority. Managers and clerical workers also will receive health insurance coverage and other benefits for at least a year, said Mr. Wann.

But for those employees whose jobs are cut, finding a new job in the same industry is expected to be tough going.

"You can't just dump 40,000 people into the same job market and expect them all to find jobs at similar salaries easily," said Mr. Briere.

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