Tuesday, January 8, 2008

AT&T Drops Most in 5 Years on Consumer `Softness' (Update2)

By Crayton Harrison

Jan. 8 (Bloomberg) -- AT&T Inc. dropped the most in almost five years in New York trading after Chief Executive Officer Randall Stephenson said slowing economic growth led to ``softness'' in the home phone and Internet businesses.

The shares fell 4.6 percent, helping to spark a broader decline in U.S. stocks, after Stephenson said AT&T is 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 today 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 CEO 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 fell $1.87 to $39.16 at 4 p.m. in New York Stock Exchange composite trading. The drop was the largest since March 2003.

AT&T lost 468,000 primary home-phone lines in the three months ended in September, Stephenson's first full quarter since taking the CEO job. The company ended the third quarter with about 32 million primary residential phone lines, a 3.9 percent decline from a year earlier.

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

Economic Concerns

Stephenson's comments underscore investors' growing concern that the U.S. economy is sinking into recession. U.S. President George W. Bush said yesterday that U.S. economic indicators are sending ``mixed'' signals, and that Congress should keep taxes low to avoid aggravating the situation.

AT&T was the second-biggest decliner on the Dow Jones Industrial Average today, helping to pull the index down 1.9 percent. The company also led other phone companies lower, with smaller rivals Verizon Communications Inc. and Sprint Nextel Corp. each dropping more than 3 percent.

Investors are concerned the slowdown may spread to business customers, said Power, who advises buying the shares.

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

Wireless Unit

The economy also isn't affecting the mobile-phone unit, said Stephenson, 47. The consumer business can still grow this year as more customers sign up for the company's new video service and more new high-speed Internet customers sign up, he said.

``I'm hoping we can manage our way through this down cycle,'' Stephenson said. ``I think we can grow through it.''

Consumers simply may not have as much money in their wallets. Personal bankruptcy filings rose almost 40 percent 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, said company spokesman Michael Coe.

``He was mainly talking about what we were seeing in December,'' Coe said.

IAC/InteractiveCorp Chairman Barry Diller today echoed Stephenson's comments, calling the slowdown in the consumer business ``a mixed bag.'' Its shares fell 3.5 percent.

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