NEW YORK — A drive by AT&T Corp. to lure first-time customers with free phone calls contributed to a 38% decline in net income in the second quarter.
The nation's largest long-distance phone company on Monday reported that it earned $959 million, or 59 cents a share, in the quarter ended June 30, down from $1.5 billion a year earlier, partly due to the company's offer of up to 250 free minutes of calls to new customers.
The results were also hurt by competition with long-distance rivals, notably MCI Communications, that kept a lid on prices AT&T was able to charge. AT&T also spent heavily to expand into local, wireless and overseas markets.
But the company stressed that the free calls helped inspire more loyalty among customers than the more expensive giveaway it is replacing: free checks of up to $100 to people signing up for service. The old system encouraged some people to sign up for the money, then switch to another company for more freebies.
"We are seeing a company very actively managing its expenses," said Scott Wright, an industry analyst at Argus Research. But, he added, "We have a fairly unimpressive revenue picture here."
The sluggish results come less than a week after AT&T President John Walter, touted as AT&T's future leader, quit after the company's board lost confidence in his ability to guide the long-distance operator.
AT&T, based in Basking Ridge, N.J., said revenue rose 2.3% to $13.17 billion from $12.87 billion.
While the results slightly beat the average expectation of Wall Street analysts--surveyed by IBES International--who forecast a profit of about 58 cents per share, AT&T Chairman Robert E. Allen expressed disappointment.
"While we are making good progress against the commitments we made to our investors earlier this year, we're certainly not pleased with the year-over-year decline in our earnings," Allen said. "Our results reflect the short-term effect of our strategy to strengthen and grow the business over the long term."
AT&T's stock slipped 13 cents to $34.25 on the New York Stock Exchange.
Revenue from AT&T's core long-distance business grew only 1.5% to $11.58 billion. But at the same time, calling volume grew 9.7%, partly reflecting the free calls.
Still, Wright said, AT&T's growth in call volume lagged that of Sprint Corp. and other long-distance rivals, Wright said.
AT&T Chief Financial Officer Dan Somers said recent setbacks wouldn't hurt the firm's plans to expand its local offerings. On Friday, a federal appeals court threw out key parts of new regulations aimed at opening the $100-billion local phone market to long-distance companies and other rivals.
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AT&T's profit dropped 38% in the second quarter. The company's operating earnings over the last two years, in billions:
(Please see newspaper for full chart information)
Second-quarter 1997: $0.96
Source: Company reports
MORE EARNINGS: D3