AT&T to cut as many as 18,000 jobs Plan for buyouts, attrition announced by CEO Armstrong

Layoffs not ruled out

Effort to reduce costs continues

revenue growth wanted

January 27, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

The head of AT&T Corp. said yesterday that the company will cut 15,000 to 18,000 jobs -- about 14 percent of its work force -- this year, mostly through buyouts and attrition.

AT&T Chairman and Chief Executive Officer C. Michael Armstrong announced the planned cuts, which had been rumored since last week, at a New York meeting of managers and analysts.

Armstrong said the company plans to cut 10,000 to 11,000 employees through pension incentives. He said he hoped the rest of the reduction would come from what he called "managed attrition," including continuation of a hiring freeze.

He also did not rule out the possibility of layoffs. He said "involuntary separation" will be used if incentives and attrition fail to pare enough jobs.

Armstrong said the payroll cuts "will be management-skewed." He said the company expects to slash its officers' ranks by 25 percent and impose a salary freeze on the top 450 executives.

"They've set very aggressive cost-saving measures," said Scott Cleland, an analyst for Legg Mason Precursor Group in Washington. "Can he execute where the former team didn't? On that, we'll have to wait and see."

The former team at New York-based AT&T, led by previous chairman Robert E. Allen, is widely faulted for failing to react deftly to the dramatic shifts in the telecommunications market. Since Armstrong was picked to lead the world's largest telecommunications company last October, he has had a mandate to reduce costs and turn things around.

Earlier in the day, AT&T reported $1.3 billion in income from continuing operations for the fourth quarter of 1997, a 6 percent increase in income from the fourth quarter of 1996. Quarterly continuing-operations income per common share was 81 cents, up from 77 cents for the end of the previous year.

For the year, AT&T had $4.5 billion in income from continuing operations, down 20 percent from 1996. Yearly continuing-operations income per share fell 21 percent to $2.75.

The company's fourth-quarter revenue of $12.83 million was down slightly from the same period in 1996, when it took in revenue of $12.87 million.

For the year, revenue was $51 million, up only 1.5 percent.

AT&T uses continuing operations as a yardstick for income in order to exclude the results of the company's credit card business, which has been spun off. When net income is used, AT&T is down 18 percent for the quarter, compared with the year-earlier quarter, and was down 22 percent for the year.

Armstrong acknowledged the mixed picture the numbers present: "We beat [Wall Street] on the earnings and we need to grow on the revenue."

Cleland said, "AT&T is going to be able to cut costs, which is a good thing. The challenge is to grow revenue, which is essentially flat."

Analysts attribute this flatness to AT&T's declining share of an increasingly competitive long-distance market, in which small, aggressive companies with high-capacity networks are nibbling away at AT&T's once-impregnable market share.

"Everybody's cannibalizing them," Cleland said.

Armstrong also defended AT&T's new strategy for breaking into the $100 billion local-service market. Until recently, AT&T had sought to provide local services by renting pieces of the regional Bells' established local networks and reselling the service to consumers.

Now, though, AT&T and fellow long-distance carrier MCI Communications Corp. have decided to rely on their own network facilities, a strategy reflected by AT&T's recent purchase of Teleport Communications Group Inc.

Resale "is not economically viable," Armstrong said. "We're moving from a resale-driven strategy to a facilities-based strategy."

He said he was optimistic about AT&T's ability to compete for local-service customers in the disorderly new world.

"There's going to be plenty of competition for that local exchange dollar," he said. "Amid such confusion, I like my odds in that marketplace."

Pub Date: 1/27/98

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