AT&T Rings Alarm Bells

AT&T (T Quote - Cramer on T - Stock Picks) is feeling the pinch as consumer spending dips amid hotter competition in its core phone business.

The nation's largest telco said it is seeing "softness" in its consumer business, while business services remain stable. The comments came during a presentation by CEO Randall Stephenson at Citi's Media and Technology Conference in Phoenix Tuesday.

The news blindsided investors, who quickly sent AT&T shares down 10%.

AT&T has seen numerous customers flee to cable companies like Comcast (CMCSA Quote - Cramer on CMCSA - Stock Picks) and Time Warner Cable (TWC Quote - Cramer on TWC - Stock Picks), which have been making strong inroads with rival phone service plans.

The company also has been a disappointment on the video front with its U-Verse offering. The network makeover project promised to add compelling video service to its service bundle, but the product has hit some challenges.

Without a compelling triple play bundle, AT&T is feeling outgunned in some markets, say analysts.

Late last year, AT&T was very interested in acquiring EchoStar (DISH Quote - Cramer on DISH - Stock Picks), the Dish network operator, as a quicker way to execute a national video strategy. Those plans ultimately deteriorated.

Telco rival Verizon (VZ Quote - Cramer on VZ - Stock Picks) has turned a corner on its own costly video project with solid growth and diminishing expenses. Verizon shares were also knocked down on the AT&T news, falling $2.01 to $40.91 Tuesday.