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AT&T Earnings Soar 41% Despite Decline in Revenue

October 17, 1986|BRUCE KEPPEL | Times Staff Writer

With the approach of the third anniversary of the breakup of the Bell System, Ma Bell's offspring appear to be advancing slowly but steadily as independent young adults while their former parent, American Telephone & Telegraph, continues to struggle to adjust to life without the kids.

According to earnings reports released Thursday, AT&T's third quarter showed a hefty 41% increase in net income, but revenue actually declined. The anomaly was explained, the company said, by a reduction in pension expenses stemming from a change in accounting procedures and from continuing efforts to slash overhead in an effort to get into shape to compete more effectively in the hotly contested world of computers.

On the other hand, San Francisco-based Pacific Telesis Group, parent of Pacific Bell, said its third-quarter earnings rose 12.3% on revenue that increased 7.6%. And quarterly profits were reported up 4.6% at Philadelphia-based Bell Atlantic, up 2.3% at Chicago-based Ameritech and up 6.3% at New York-based Nynex.

Solid Long-Distance Business

(The other three regional holding companies created in 1984 to take over the Bell local phone operations--St. Louis-based Southwestern Bell, Atlanta-based BellSouth and Denver-based US West--are expected to report earnings today.)

AT&T said net income for the three months ended Sept. 30 totaled $533 million, compared to $378 million a year ago, while revenue slipped to $8.43 billion from $8.66 billion. For the first nine months, net rose 24.4% to $1.48 billion, but revenue remained flat at $25.56 billion.

Telecommunications analysts found AT&T's long-distance telephone business growing solidly, with revenue up 7.2%, in contrast to the overall decline in sales of computers and telecommunications switches, which declined 15%. In the first eight months, pretax operating losses at AT&T's computer business reportedly exceeded $500 million.

James E. Olson, who became AT&T's chairman last Sept. 1, acknowledged the company's operational dilemma. "While our earnings improved over last year, we're still not seeing the overall progress we want and investors expect," he said in a statement.

Unregulated Activities Weak

Even the earnings failed to impress some analysts. Said Robert M. Morris III of Prudential Bache Securities:

"You'd have to say AT&T earned 28 cents (a share), on a continuing operations basis, compared to 33 cents for last year's quarter. Its telephone company is earning well over 20% on investment," Morris said. "What that means is that . . . the unregulated activities are just hemorrhaging.

"They have to stem this tide, but to stem it they have to give up growth opportunities," he added. "They're caught in a bind."

Olson said AT&T intends to focus its efforts on its core telecommunications business, develop its data network services and strengthen its international operations--all outgrowth of the regulated telephone business that it knows best.

To some degree, this means a pulling back from the unregulated business opportunities that, presumably, persuaded AT&T to go along with a government plan to break up the Bell system in settlement of a longstanding antitrust suit.

Meanwhile, the Baby Bells generally continued to benefit from a steady increase in telephone usage, which tends to resist economic sluggishness.

In San Francisco, Pacific Telesis reported that its quarterly earnings increased 12% to $285 million as revenue reached $2.31 billion, up 7.6%. For the nine months, earnings rose 16.8% to $842 million on revenue of $6.79, a 7.3% increase.

Toll revenue from its Pacific Bell and Nevada Bell phone companies rose 21.4% during the third quarter, mainly due to increased measured toll service, WATS traffic and optional calling plans, the company said.

Growth in other revenue resulted mainly from greater sales of directory advertising and expanded operations of the unregulated PacTel Cos. that as a group, however, remain unprofitable, according to Donald E. Guinn, chairman and chief executive.

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