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AT&T sees pressure on core phone business

The long distance giant reports fourth-quarter earnings in line as revenue from its core business continues to slide under growing pressure from competitors.

AT&T reported fourth-quarter earnings in line with consensus estimates today, even as revenue from its core consumer long distance business continued to slide under growing pressure from competitors.

Shares fell early as the company also warned higher spending will drag on first quarter earnings. AT&T expects earnings per share to fall in the range of 92 to 95 cents in the first quarter of 1999. After the initial drop, shares ended the day up 1.25 to 89.5.

The company reported earnings of an even $1 per share, or about $1.8 billion, excluding one-time gains and losses, in line with a consensus of analyst estimates according to First Call. That marked a 45 percent earnings gain quarter-to-quarter, up from 69 cents a share in the fourth quarter of 1997.

Growth in AT&T's business and wireless units drove profits to nearly $2 billion in the fourth quarter of 1998, the company said.

"We took aggressive action in 1998 to strategically reposition AT&T for the future," said company CEO C. Michael Armstrong. "We will continue to build on that momentum this year, focusing on reducing costs, building top line revenue and investing to grow."

Total fourth quarter revenue was $13.5 billion, up 4.8 percent from the fourth quarter of 1997. For all of 1998, revenue was $53.2 billion, up 3.2 percent from the previous year.

The earnings figures come as AT&T is in the process of aggressively seeking to expand its markets to make up for falling profits in its consumer long distance business, which fell by 3.6 percent compared to the fourth quarter of 1997.

The company's biggest news this year was its planned acquisition of Tele-Communications Incorporated, the cable television company that also owns a controlling share in cable Net company @Home.

The long distance giant plans to use TCI's cable lines to provide local telephone access in an end run around the networks of the Baby Bell companies, which have long had a near-monopoly on the "last mile" of wires connecting phone networks with businesses and residences.

But in recent weeks, the acquisition also appears to be setting up a place for AT&T as an Internet powerhouse, a role it has sought with only limited success over the last several years. Last week, @Home announced it would buy Internet directory company Excite for $6.7 million.

Reportedly, AT&T also is considering transferring its WorldNet Internet access division to @Home. The combination of all of these Internet divisions under a single brand would give the long distance company an access-plus-content Net unit that could rival the success of market leader America Online.

WorldNet currently has about 1.4 million Internet subscribers, compared to AOL's 15 million. The company's total online services revenue climbed 59.3 percent last quarter to $108 million, compared to just $67 million in the fourth quarter of 1997.

The 1998 earnings figures do not reflect the company's purchase of TCI.

The company has already made long strides in expanding its wireless and business services. Its One Rate nationwide mobile phone plan has catapulted it to the top ranks of wireless providers, as it frees customers from roaming and long distance fees. The company added nearly 1.3 million wireless subscribers in 1998, boosting its total customer ranks by more than 36 percent.

Revenue for its wireless division rose by 25.1 percent to $1.5 billion in the fourth quarter of 1998. For the full year, the division posted revenue of 5.4 billion, an increase of 15.8 percent.

Efforts to obtain still more bandwidth for delivering local phone service via cable haven?t been going nearly as well.

Negotiations with Time Warner to gain access to the latter?s cable networks haven?t yet borne fruit, and the failure to reach an agreement is said to have stymied other deals, since cable companies want to study Time Warner?s lead before signing with the phone giant, according to the Wall Street Journal.

Sticking points include the amount of bandwidth Time Warner would give AT&T and Time Warner?s intention to limit AT&T to traditional voice services. The telco is interested in more bandwidth and also the ability to provide numerous digital data services, according to sources cited by the Journal. But Time Warner is hesitant to undermine its own Road Runner.

Business services, driven primarily by growth in demand for data services, contributed $5.74 billion to the company's fourth-quarter earnings, a rise of 4.7 percent from the same quarter in 1997.