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AT&T spinoffs meet skepticism

Even as the company prepares to unveil a radical restructuring, analysts doubt there will be much upside for its operations or its suffering stock.

AT&T is expected to announce Wednesday a significant restructuring of its operations, but analysts are more than a bit skeptical.

AT&T, which has been trading at 52-week lows for several months, is planning to spin off its cable and wireless operations into separate companies over the next two years, add a tracking stock to its consumer long-distance division, and focus its resources on business services, according to media reports.

However, the plans are failing to drum up enthusiasm among analysts. "AT&T is resorting to financial engineering," said Drake Johnstone, first vice president for investment firm Davenport & Co.

"It's an artificial shell game," said Jeff Moore, senior analyst for network services at research firm Current Analysis.

AT&T declined to comment on or confirm the plans.

The telecommunications giant has suffered through a number of business problems over the last two quarters as its consumer long-distance unit continues to post double-digit revenue declines, and growth in its business services unit has slowed.

AT&T also has stumbled in its efforts to introduce new services on time, and it is still working to absorb the enormous costs involved with integrating its various cable acquisitions, including MediaOne and TCI.

AT&T's woes are part of a larger trend afflicting the traditional Big Three of the telecommunications world. WorldCom and Sprint, two competitors, are also grappling with a consumer long-distance business that is in free fall, pondering whether to keep those assets--a drag on their books--in-house or isolate them as a separate entity.

But a consumer-oriented long-distance stock may not attract the type of investor interest one might think, according to analysts.

"Who would want to own that (tracking stock)?" Johnstone asked. "I don't see story: Weak business tracks spun off see that being worth too much, no more than $10 billion," a fraction of AT&T's market value.

Many believe a split of AT&T--once thought unthinkable for one of the world's best-known brands--could more accurately value the company's assets, particularly its cable network assets, the result of a buying spree by chief executive C. Michael Armstrong.

The market will "value the (split parts) higher than the combined company," said Brian Adamik, president of industry consulting firm The Yankee Group.

Still, Moore felt AT&T was "overreacting," while Bill Turner, analyst for Banc One Investment Advisors, argued that "a formal separation of business lines isn't going to by itself make the company worth more."

As for Armstrong, Adamik wanted to know what his role would be in the new company. Banc One's Turner said that "investors, probably also the board, Ma Bell mulls breaking up want a change" of leadership, but the job is so daunting there won't be many who would want it.

WorldCom also is expected to issue a tracking stock for its long-distance unit, an idea that was as soundly dismissed by the analysts as AT&T's proposal. Sprint, meanwhile, said it is preparing an announcement for next week that will outline its shift to become more focused on data services, an area in which it already has some expertise.

WorldCom is releasing its financial figures Thursday and could have an announcement on a tracking stock as early as then, but for now the focus is on AT&T, which will reveal its quarterly earnings, and most likely its restructuring announcement, Wednesday morning.

"The next 24 hours will tell all," Adamik said.