NEW YORK -- AT&T Corp. is cutting 7,400 more jobs and slashing the book value of its assets by $11.4 billion, drastic moves prompted by the company's plan to retreat from the traditional consumer telephone business.
AT&T now plans to shrink its work force by a fifth, or about 12,300 jobs, during 2004 -- up from a previous target of about 4,900 jobs.
About 9,000 of the people affected have already left the company or been notified. AT&T now expects to finish the year with about 49,000 workers, down from nearly 62,000 at the start of 2004. Severance costs and other expenses related to the job cuts will reduce third-quarter earnings by $1.1 billion, the company said. The asset writedown of $11.4 billion -- about a quarter of the company's assets -- reflects the reduced value of AT&T's network now that it will carry less voice traffic. It will be charged against third-quarter earnings.
While the writedown is an acknowledgment AT&T wasted billions of dollars upgrading its network and marketing to consumers, the sharply reduced value of the company's assets will mean tremendous savings on paper in terms of depreciation expense.
To begin with, AT&T said, the writedown will reduce depreciation expense by about $1 billion in the second half of 2004.
Many analysts have speculated AT&T will make itself a more attractive takeover candidate by cleaning up its books and reducing depreciation expense.
AT&T, still the nation's biggest long-distance carrier, with about 30 million customers, said in July that it would no longer spend money to sell long-distance or local service to consumers. That followed a federal court decision that will make it more expensive for AT&T to sell local service by leasing residential lines from the regional Bells, who at the same time are luring away AT&T's long-distance customers. Federal rules struck down by the court had let AT&T, MCI Corp. and Sprint Corp. lease Bell lines at appealing rates.
Based on those regulations, AT&T invested heavily in advertising bundles of unlimited local and long distance, signing up 4.6 million homes for local service by the end of June.
But in an August filing with the Securities and Exchange Commission, AT&T warned the value of its national phone network would need to be recalculated, since it could no longer be relied upon to generate as much revenue.
The company said job cuts, reduced marketing and other efforts are having a positive impact on profitability and that it continues to generate significant cash flow. The company is on course to finish the year with net debt of under $7 billion, a reduction of almost 50 percent over two years.