AT&T Cutting Deeper

The wave of consolidation that was supposed to sweep through the sector after the industry's postboom collapse never materialized. WorldCom failed, but didn't go away, emerging from scandal and bankruptcy as MCI earlier this year. AT&T and BellSouth (BLS) canceled merger plans after the two companies failed to agree on a price.

Analysts say there are few options for AT&T and MCI beyond the shrinking strategy, until one of the Bells -- Verizon (VZ), SBC (SBC) or BellSouth -- takes an acquisitive interest.

"They just have to keep right-sizing, streamlining and beautifying themselves until they get beyond the ugly duckling stage," says one Wall Street analyst who asked not to be named.

For its part, AT&T has been busy trying to cultivate an image of an advanced network service provider.

AT&T Technology Chief Hossein Eslambolchi has spent the better part of the year sharing his vision of a more automated networking future for AT&T. In an interview with TheStreet.com Wednesday, Eslambolchi said many of the employee cuts are the result of the network's increasing automation, and not simply a function of declining sales.

But with the stock down 29% this year, hitting an all-time low last month, investors haven't exactly been seeing the silver lining around Ma Bell's gloomy revenue cloud.

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