Residential Service Is History For AT&T :: Namibia Internet Gateway cc ::

Articles: Residential Service Is History For AT&T

Posted by admin on Friday, July 23, 2004 - 12:44 AM

AT&T (T) on Thursday said it would no longer sell traditional voice services to new residential customers, ending a 120-year run.
The move should ease competitive pressure on local phone companies, at least until the cable TV industry ramp ups phone services using voice-over Internet protocol technology, say analysts. AT&T said it was exiting the consumer business largely because of recent decisions by federal regulators that went against it. It will continue serving existing customers, but will no longer sign up new ones. "Clearly, shifts in regulatory mind-sets have now eliminated AT&T's ability to maintain even a basic competitive bundle for consumers," said AT&T chief executive David Dorman in a conference call. AT&T's shares fell 0.5% Thursday to 14.24 as it reported that second-quarter profits fell to 14 cents a share, down 80% from 68 cents a share a year ago. Its revenue slid 13% to $7.6 billion, continuing a five-year plunge. Spinoff Or Sale? The demise of its consumer unit has largely been factored into AT&T's stock price, analysts say. Ma Bell's shares are hovering near an all-time low. AT&T may spin off its consumer unit or sell it to a local phone company. It still hopes to survive the industry's shake-out by selling telecom services to large companies and supplying wholesale network capacity. "AT&T's surrender in the consumer market may improve overall cash flow in the near term, but the rate of revenue decline and margin erosion in consumer is likely to accelerate," wrote Michael Rollins, a Smith Barney analyst, in a note to clients. Bond rater Fitch cut AT&T's debt status to junk Thursday. Moody's and Standard & Poor's said they may do the same. AT&T has about 35 million long-distance consumer customers and 4 million that buy local and long-distance calls. Shares in the three biggest local phone companies, Verizon, (VZ) SBC Communications (SBC) and BellSouth, (BLS) rose after AT&T's announcement, which had been expected after a Federal Communications Commission ruling last month. That ruling would result in AT&T paying higher fees for leasing local Bell networks. Verizon's stock rose 1.9% to to 23.48, SBC's shares climbed 1.2% to 23.48. BellSouth's stock fell 0.1% to 25.36. MCI, (MCIP) which recently emerged from bankruptcy, may also exit the consumer market, analysts say. AT&T's retreat from the consumer market, with MCI possibly following, should help local Bells, analysts say. 'Kidding Themselves' However, the Bells still face a growing threat from cable TV companies. Time Warner, (TWX) Cablevision (CVC) and Cox (COX) have rolled out VoIP services. The biggest cable firm, Comcast, (CMCSK) is expected to roll out VoIP in 2005. VoIP calls are driving down the price of consumer voice services, Dorman said. He said VoIP pricing pressure factored into the decision to exit consumer as a retail service. He said telecoms would be "kidding themselves" if they believe consumer VoIP services will bring more than $40 per customer monthly. "If you're a cable company or you're a telephone company, I think you've got to reassess what the retail price point for voice services is going to be in three years," he said. AT&T said it would continue to offer its consumer VoIP service, called CallVantage. But, analysts expect Ma Bell to market CallVantage only through low-cost channels. AT&T said it was re-examining its plans to resell wireless phone services. It's likely to shelve those plans, many analysts say. Dorman said that AT&T would be willing to supply wholesale VoIP services to cable firms, Internet service providers or others planning to sell VoIP calling directly to consumers. VoIP services require high-speed Internet lines. Third party providers already do so. Vonage, for instance, sells VoIP calls for $29.99 monthly. Primus rolled out a $19.95 plan in June. For its part, Verizon unveiled a consumer VoIP plan Thursday. Its pricing is similar to cable firms' VoIP plans. Verizon will sell unlimited local and long-distance VoIP calls to its Internet service customers for $34.95 monthly. Falling Business Revenue While Verizon and other Bells are launching their own VoIP products, some analysts wonder about their strategy. Those analysts say that the Bells do not want to cannibalize their own traditional voice services with VoIP products. Instead, the Bells would like to see VoIP services from the likes of Vonage and the cable TV firms regulated in the same way that traditional voice services are. AT&T's second-quarter business revenue fell 13 percent to $5.6 billion. Early this year, AT&T said it would try to regain business market share by lowering prices. That strategy is also designed to put pressure on MCI, which is losing money. AT&T's goal is stimulating mergers among long-distance firms. Consolidation could ease pricing pressure on business services. However, Ma Bell's strategy may not be working. "AT&T's attempt to regain share has been met by stiff resistance, re-igniting price competition," wrote Goldman Sachs analyst Frank Governali in a note to clients.

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