Interview: AT&T
at&t two decades ago employed more than a million people across the u.s. yesterday’s decision to cut their work force 20% by year end reflects its decline. the move comes as it retreats from the residential phone business.% of course, the residential phone business alive and well with at&t spinoffs including the regional bells, bellsouth, s.b.c. and others. brian sullivan spoke with david dorman about the change.
>> it was related to a regulatory decision that made it difficult for us to compete with the incumbent bell companies. on the business side, we control more of our own destiny and it’s about scale. we have the scale of operation to have low unit costs and our profitability is significantly above all the other players in the traditional long distance space. we compete with the bells in the business market but they don’t have the coverage we do and they’re not global.
>> let’s talk about internet telephony, then. how do you avoid price deflation on a massive scale in voice-over i.p.
>> if you look at the bask cost drivers around the internet telephony application, voip, than what you see in dracial telecom, there are big differences. prices are lower because the technology offers a lower cost so you can’t relate one to the other except at the consumer level, they’re paying dollars so right now you see i.p. services undercut traditional services dramatically. i think that trend will continue and as players get scale, prices will come down more.
>> i asked you this a couple of months ago, so many people in america are at&t stockholders right now. why should they hold on to at&t stock?
>> what at&t is today and very different than what we have been in the past, we are the premier business communications services provider.
>> even with the exit out of consumer?
>> absolutely. businesses services to people like the i.b.m.’s of the world, the exxon-mobils of the world, chevrontexacos, the large global enterprise customers depend on us for data communications, voice communications and the like. that’s not a market that will go away. it’s transforming and we’re transforming with it. we believe that over the next several years, consolidation in this industry will occur, not necessarily through business combination but through the fact that the number of players out there will go down, just basic economics will drive it.
>> you said that you’re going to analyze uses of what you call surplus cash. can we expect a dividend increase coming from at&t?
>> i wouldn’t go that far but our objective has been to have maximum financial flexibility meaning we are not a slave to our balance sheet. we have paid off more than 50% of our debt over the last couple of years from our peak several years ago, going from $65 billion down to as we said in our announcement last night, less than $7 billion of net debt.
>> are you done issuing debt?
>> we don’t have plans to issue debt. we’re buying debt back and will complete debt buyback this year and once that’s complete, then we’ll decide how we’ll deploy the excess cash, whether buyback stock, dividends, investing more in the business.
>> are you in active talks to sell the company?
>> no.
>> would you listen if approached?%
>> if someone looks at our company and says, gee, this is a terrific business. we are obligated in working for our shareholders to entertain things that make sense and have our board think about it but at the current time, our view is we have to be really focused on what we’re doing and our announcement yesterday indicates we are.
>> verizon gave optmim to the telecom industry a couple of days ago, saying they’ll increase capital spending. you have excess cash flow. where is your money going to go in reinvesting into the capital structure of at&t?
>> the most important thing for us is to have a new set of products and services that meet the needs of global customers so we’re investing in that―i.p. services, managed services and hosting and the like centered around i.p., and secondly, having an operating environment, systems and support that touch our customers that are the most efficient and effective. we’ve been spending our money to get easier to do business with and that’s paying big dividends for us. we don’t feel constrained in our ability to do that based on our current cash positions and we are significantly outspending our peers. verizon announced they will build fiber to the home in certain markets that are capital intensive and their wireless business is growing dramatically and i wouldn’t be surprised if they increased capital spend as a result.%
>> that was david dorman earlier today on bloomberg television. shares up on the day by 14 cents at $15.18. at&t has declined about 25% this year as profit tumbled. oracle chief executive larry ellison testified that he considered lowering his $7.7 billion hostile bid for peoplesoft because of a shrinking market for business software. ellison is testifying in a lawsuit against peoplesoft over the company’s poison pill defense which could make the takeover too expensive to pursue. ellison has been pursuing peoplesoft since june of 2003. shares in friday’s session fell more than 2.5%. the nasdaq composite suffered its largest decline in almost two months friday. coming up, we’ll look at the day’s biggest movers there at the market site. and shares of krispy kreme fell more than 8% during friday’s session. a formal investigation into the donut maker’s accounting practices has been opened like a box of doughnuts.
