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  1. Technology
January 26, 1998

AT&T: A NEW NETWORK AND TRADITIONAL JOB CUTS : 18,000 TO GO

By CBR Staff Writer

AT&T Corp is to cut up to 18,000 jobs or 14% of the workforce, and freeze the salaries of the top 450 executives as Chairman C. Michael Armstrong looks to slash costs at the company by $1.6bn this year alone. Armstrong chose the day the company announced flat revenues for its fourth quarter and past year to set out for the first time his direction for the company that he took over in November 1997. (For results see Finance section). Wall Street clearly has faith in his capabilities to turn the company into a new competitive powerhouse with stock reaching an all time high earlier this month. Yesterday’s announcement saw Armstrong embracing new technologies as a way to refocus the business and cut costs. However, much of the new CEO’s strategy would look familiar to AT&T shareholders and anyone else who has watched AT&T’s repeated downsizing attempts. Armstrong announced between 15,000 to 18,000 jobs are to be cut over the next two years. AT&T said it expects to take a charge of approximately $800m to $1.2bn before taxes in the first half of 1998 to fund a voluntary early retirement program. The majority of the cuts will be made in the company’s core long distance business which has been losing market share to leaner, younger rivals for many years. As expected, the vast majority of managers at the company, excluding executives, will be eligible for the early retirement offer, as AT&T hopes to streamline its operations by eliminating layers of management and administrative positions. Armstrong, who took over in November, is aiming to reduce costs as AT&T spends more to enter the competitive local and internet markets. In the past seven years, AT&T has taken about $12.1bn in pretax charges, or about $8.1bn on an after-tax basis, primarily for restructurings and firings. The charges include those taken at Lucent Technologies Inc and NCR Corp, which were spun off from AT&T in 1996. Trying to motivate his executive team, which remains unchanged from when he took over, Armstrong set out that all members of the board would be expected to acquire $450,000 in company stock, over the next five years. Armstrong also failed to set out any bold new initiative on taking AT&T into the $100bn a year US local phone market. Although he confirmed that the company had halted its efforts at total services resale in the regional Bell operating company markets, but gave no new strategy to replace it. Armstrong said the only viable option in the short term would be if RBOCs unbundled their network elements and priced them low enough for resale with a worthwhile margin. Aside from that, somewhat vain plea, Armstrong added that the company’s long term residential strategy revolves around a mixed bag of alternative technologies including mobile spectrum, fixed wireless, broadband cable and power transmission. Armstrong said that AT&T plans to complete a new SONET network by the end of the year. The network will have 52 fiber rings which will also be linked to the local networks built by Teleport Communications Group Inc, a company AT&T aims to acquire. AT&T also says it will be the first company to test and deploy Lucent Technologies 80-wavelength Dense Wave Division Multiplexing system which, it says, will increase the capacity of its 40,000 mile network by a factor of ten. In addition, AT&T plans to offer IP phone services over the internet, with a trial to be carried out in the second quarter. Charges for the calls will be between 7.5 and 9 cents a minute. Two years ago, AT&T was harshly criticized when it unveiled a $4bn restructuring plan to cut 40,000 jobs and split into three companies. However, many of these cuts were never made and the core AT&T business still has 128,000 workers on its payroll, the same when the cuts were announced. The stock closed at down $3.9375 at $61.5625

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