AT&T to Stop Marketing Traditional Service

Instead, AT&T will bet its future on providing telecom and data services to business, currently 75 percent of its revenue, and selling residential customers new technologies, such as phone service over the Internet.

The company will continue to serve its existing residential customers but will no longer pour roughly $1 billion a year into winning new ones, AT&T said as it reported sharply lower profits for the second quarter.

The announcement follows a regulatory decision that increases AT&T's costs to provide local service and compete with the regional Bells, once mere divisions of AT&T and now its most powerful rivals.

``This decision means that AT&T will focus on lines of business where we are a clear leader, where we control our own destiny and where we have distinct competitive advantages,'' said David W. Dorman, the company's chairman and CEO.

AT&T did not rule out the possibility of spinning off its consumer unit as a separate company in the future.

An ongoing price war has bled the company's profits. It said profits for the April-June quarter were $108 million, or 14 cents a share, down from $536 million, or 68 cents a share, in the same period a year ago. Revenue dropped to $7.6 billion, down 13 percent from $8.8 billion in the same period last year.

Investors were prepared for its earnings to be even lower. Analysts surveyed by Thomson Financial had expected profits of 7 cents a share.

The company's profits for the six months ending June 30 were $412 million, or 52 cents a share, down from $1.1 billion, or $1.41 a share, for the same period last year. Its six-month revenue was $15.6 billion, down from $17.8 billion for the same period last year.

The consumer marketing pull out is a dramatic shift for a company that, in the heat of long-distance competition in the late 1990s, sent prospective customers checks for $75 and $50, with the proviso that customers who cashed them would be switched to AT&T's service.

Its fortunes have fallen since then and its stock, once a mainstay of almost every investors' portfolio, has slid precipitously in the last four years. It hit $229 a share at the height of the Internet boom in 2000, but was down 7 cents at $14.25 in trading Thursday morning on the New York Stock Exchange.

The company has cut jobs by 8 percent this year and said it expects to make additional job cuts. The cuts are the latest in a long series: at the end of 1999, AT&T had 148,000 employees; at the end of last year, it had 61,600 employees.

Until now, the company seemed poised to focus its future consumer business on providing phone service over the Internet, a service called VOIP, for Voice Over Internet Protocol. But Dorman said Thursday that VOiP service depends on fast broadband Internet connections, which are not prevalent enough in homes for an aggressive marketing push to consumers to make sense.

Dorman said the company would not make an aggressive sales pitch for VOiP until more homes have broadband connections.

Arch-competitor Verizon Communications Corp., now the nation's largest phone company, said Thursday that it, too, would enter the VOiP market.

AT&T was the nation's main phone company and telecom equipment manufacturer until a federal judge ordered its break-up in 1984. Since then, its fortunes have ebbed and flowed. It spun off its equipment and computer business in 1995, then invested heavily in cable and wireless, only to sell the cable business and spin off wireless but kept the billions of dollars in debt it accumulated getting into the new businesses.

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