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AT&T shares fall on CEO warning

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January 09, 2008|From Bloomberg News

Shares of AT&T Inc. had their steepest drop in nearly five years after Chief Executive Randall Stephenson said Tuesday that slowing economic growth had led to "softness" in the company's home phone and Internet businesses.

The shares fell 4.6%, helping to spark a broader decline in U.S. stocks, after Stephenson said AT&T was disconnecting more home-phone and high-speed Internet customers for failing to pay their bills.

"We're really experiencing softness on the consumer side of the house from the economy," Stephenson said Tuesday at an investor conference in Phoenix.

The disconnects in the home-phone business, which accounts for about a fifth of sales, have put more pressure on Stephenson, who became chief executive in June. Last year, he relied on the popularity of wireless handsets such as Apple Inc.'s iPhone to fuel growth, helping to make up for losses of home-phone customers.

AT&T shares fell $1.87 to $39.16, the largest drop since March 2003.

The nation's biggest phone company lost 468,000 primary home-phone lines in the three months ended Sept. 30, Stephenson's first full quarter since taking over from longtime leader Edward E. Whitacre Jr. The company ended the third quarter with about 32 million primary residential phone lines, a 3.9% decline from a year earlier.

"As people foreclose on houses, you're obviously going to have access-line disconnects," William Power of Robert W. Baird & Co. said in an interview from Dallas. "If the economy continues to weaken, that's going to continue to weigh on access lines."

Stephenson's comments underscore investors' growing concern that the U.S. economy is sinking into recession. President Bush said Monday that economic indicators were sending mixed signals. He urged Congress to keep taxes low to avoid aggravating the situation.

Investors are concerned that the slowdown may spread to business customers, Power said.

"It's the big unknown on the enterprise side," Stephenson said. "On the consumer side, we're seeing it. On the enterprise side, not yet."

The economy also isn't affecting AT&T's mobile phone unit, Stephenson said. The consumer business still can grow this year as more customers sign up for the company's new video and high-speed Internet services, he said.

"I'm hoping we can manage our way through this down cycle," Stephenson said.

Consumers simply may not have as much money in their wallets. Personal bankruptcy filings rose almost 40% last year as consumers failed to keep up with payments on their credit cards and mortgages for their homes, according to a report last week from the National Bankruptcy Research Center.

AT&T isn't changing its financial forecasts for 2008, company spokesman Michael Coe said, adding that Stephenson "was mainly talking about what we were seeing in December."

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