Oct. 20 (Bloomberg) -- AT&T Corp. Chief Executive Officer David Dorman is accelerating his plan to shed 20 percent of the telephone company’s workforce in an effort to reduce costs and stem a slide in profit.

About 1,600 union jobs will be cut this week, the biggest round of reductions by AT&T this year, said Ralph Maly, who represents the employees at the Communications Workers of America union. AT&T, the largest U.S. long-distance telephone company, slashed almost 90 percent of the 12,300 jobs earmarked for elimination by the end of the year.

Dorman, who became CEO in November 2002, is speeding efforts to lower costs as the company prepares to report its first net loss in nine quarters and a sales decline of 15 percent, according to analysts surveyed by Thomson Financial. Bedminster, New Jersey-based AT&T tomorrow may report third-quarter revenue of $7.32 billion, the analysts estimate. AT&T said it will write down $11.4 billion of assets, wiping out any income.

``They probably can’t cut fast enough to keep pace with the revenue decline,’’ said Mark Hesse-Withbroe, an analyst at U. S. Bancorp Asset Management, whose Minneapolis-based parent, U. S. Bancorp, owned 440,000 AT&T shares as of June 30.

Shares of AT&T have fallen 49 percent since Dorman, now 50, took over for former chief executive C. Michael Armstrong. In New York Stock Exchange composite trading yesterday, the stock fell 21 cents to $15.48.

Falling Asset Value

Dorman’s decision in July to withdraw from the consumer market prompted the job reductions and will cause AT&T to mark down the value of its network assets, recording the expense in the third quarter. The workforce reductions will also reduce third-quarter earnings by $1.1 billion.

Excluding those expenses, AT&T will probably report profit fell to 51 cents a share from 58 cents a year earlier, analysts estimate.

The 1,600 workers were notified yesterday that their jobs will be gone in 60 days, Maly said. They include about 200 people at a call center in Phoenix, Maly said. AT&T has also closed offices in West Virginia, Hawaii and Puerto Rico.

AT&T spokesman Andy Backover wouldn’t comment on the staff reductions. Dorman wouldn’t comment for this story.

Sales in AT&T’s consumer division, which generates 26 percent of revenue, probably fell 21 percent to $1.9 billion, Lehman Brothers analyst Blake Bath wrote in a note this month.

Shrinking Workforce

Some customers departed for regional carriers such as SBC Communications Inc. as AT&T exited the residential market. Mobile- phone operators such as Verizon Wireless also lured users.

``There’s almost no such thing as long-distance any more,’’ said John Krause, an Appleton, Wisconsin-based analyst at Thrivent Financial for Lutherans, which holds AT&T shares among $60 billion in assets. ``It’s hard to sell somebody on a $5 a month plan, plus 10 cents a minute. Nobody does that.’’

Dorman, who earned $3.91 million in salary and bonus last year, is shrinking the workforce to 49,000 from 300,000 a decade ago. After spinning off local-phone operations in a court-ordered breakup in 1984, AT&T four years ago abandoned an effort to transform itself into a one-stop provider of television, wireless and calling services.

Higher Margin

Eliminating jobs and reducing spending on residential advertising and marketing will make the consumer division more profitable, resulting in a ``significant improvement’’ in third- quarter operating margin, or operating profit as a percentage of sales, from 12 percent in the June period, AT&T said Oct. 7.

Expenses for the falling value of assets will decline by $1 billion in the second half because of the writedown, AT&T said.

The firings, which will bring AT&T’s workforce to about 49,300 by the end of the year, may reduce payroll by $490 million this year, and $675 million more next year, JPMorgan analyst Jason Bazinet wrote to clients this month.

The job cuts and decision to retreat from consumer calling are part of a ``long line of missteps the company has made,’’ said Maly, vice president for communications and technologies at the CWA.

AT&T had 30.3 million long-distance-only customers and 3.9 million customers with local and long-distance service at the end of 2003.

AT&T Business

Dorman is staking the future of the 127-year-old company on sales to large corporations. He’ll court consumers by selling a service that routes phone calls over the Internet.

Third-quarter sales in the unit that serves companies such as International Business Machines Corp. fell 14 percent to $5.4 billion, said UBS AG analyst John Hodulik in a Sept. 29 note.

AT&T Business, which accounted for 73 percent of second- quarter sales, is under price pressure from MCI Inc., the No. 2 U.S. long-distance operator, and newer entrants such as SBC and Verizon Communications Inc. The unit is becoming less profitable as it bears a larger portion of AT&T’s expenses, Hodulik said.

``Continued pricing pressure is being exacerbated by falling consumer traffic, which forces business services to cover a larger portion of network costs,’’ Hodulik wrote.

In a sign that regional carriers are becoming a more serious threat, San Antonio-based SBC in September won a $100 million contract from Ford Motor Co. to create an Internet calling network for 50,000 users.

``We do compete with the Bells in the business market, but they don’t have the coverage that we do and they’re not global,’’ Dorman said in an Oct. 8 interview. ``On the business side, we control more of our own destiny.’’

To contact the reporter on this story:
Chris Johnson at cjohnson24@bloomberg.net.

To contact the editor responsible for this story:
Emma Moody at emoody@bloomberg.net.
Last Updated: October 20, 2004 00:01 EDT