Sales Erosion Wears Thin at SBC, AT&T

Executives said the company could meet or exceed the full-year profit and sales predictions, which call for earnings of $2.26 per share on revenues of $34.9 billion. That represents an 29% earnings decline and a 8% drop in sales from the year-ago period.

Still, investors were clearly disappointed with reports that a new round of price wars has broken out amid the business services sector. This alarming trend came to light last month as phone wholesaler Level 3 (LVLT Quote) reported cutthroat pricing had returned, thanks largely to restructured postbankruptcy telcos like WilTel (WTEL Quote) and ICG.

Making matters worse, industry observers have watched as service integrators -- the outsourcing teams from IBM (IBM Quote), Accenture (ACN Quote), EDS (EDS Quote) and other outfits -- have started to supplant AT&T in its role as a business communications manager. The outsourcing crowd will buy wholesale phone and data services for their clients and take a cut of the price savings.

Ma Bell President Betsy Bernard tried to downplay the idea that AT&T is getting boxed out of big companies. This is "not a new trend" and it has "not been successful," says Bernard. "We have great relationships with key system integrators," she said, referring to the dual role AT&T has with consultants in a company's service management.

AT&T also said it fired four employees who had "circumvented the internal controls process," resulting in a $125 million past understatement of a cost-related liability. As properly recorded, the expense would have reduced 2001 and 2002 net income by a total of a dime a share. Executives said it was determined that the error was not done for personal gain and that it had no affect on the amounts it billed and received during that period.

Expenses and layoffs continue to be watchwords at AT&T. The company said it expects to have 8% less employees at the end of the year, roughly 65,000 compared to the 71,000 at the beginning of the year. The company declined to answer a question about job cuts next year.