AT&T to Split Into Four Separate Companies

Updated from 9:34 a.m. EDT

In a widely anticipated attempt to make prominent the performance of each of its several business units, AT&T (T), the nation's largest telecommunications company, will voluntarily split itself into four separate companies, it said Wednesday.

Under the plan, details of which were reported all week before the AT&T board voted to approve it Tuesday, each of the company's major units would become a publicly traded entity.

After the restructuring, which AT&T hopes to complete in 2002, AT&T Wireless and AT&T Broadband would be represented by independent, asset-based common stocks. AT&T Consumer would be represented by a tracking stock of AT&T. AT&T's principal unit would be AT&T Business. AT&T shareholders would ultimately own all four.

The telecommunications giant hired four investment banks and a law firm to orchestrate the split. For months, it has cast about for ways to lift its stock price and to distinguish its rapidly growing data, Internet and broadband cable television units from its more famous, though struggling, long-distance business.

After a major court-supervised breakup in 1984 that followed a landmark antitrust trial and a voluntary reorganization in 1996, AT&T remains the nation's biggest communications company, though the new breakup may change that. Since the 1996 split, the company had pursued a strategy to become a so-called all-distance communications company, offering packages of local, long-distance, wireless telephone and Internet access services.

"This is a pivotal event in the transformation of AT&T we began three years ago,'' said C. Michael Armstrong, the company's chairman and chief executive. "Each of these new companies will move faster in meeting customer needs, but they'll serve them under one of the world's most recognized and respected brands and they'll still be able to offer bundled services through inter-company agreements."

Armstrong, 62, will continue as chairman and chief executive, the company said. He said in a statement that the board of directors would eventually name chief executives for the new AT&T Consumer, AT&T Broadband and AT&T Business companies. John D. Zeglis, 53, will remain chairman and chief executive of AT&T Wireless. Richard R. Roscitt, 48, is currently president of the Business Services unit, which the company said will become its linchpin.

Making stark the plan's impetus, the company simultaneously reported financial results for the quarter, showing dynamic growth in the broadband and wireless segments and shrinking consumer services revenue.

For the third quarter ended Sept. 30, AT&T reported operating income of $1.4 billion, or 38 cents a diluted share, compared to $1.6 billion, or 50 cents a diluted share, in the comparable quarter a year ago. Analysts polled by First Call/Thomson Financial had predicted earnings of 36 cents a diluted share.

Revenue increased 3.7% to $16.975 billion compared to $16.333 billion in the year-ago quarter.

At the broadband unit, revenue was $2.4 billion, a 10.8% improvement over the year-ago quarter. The company's foray into cable has been its most highly publicized move since the 1996 reorganization. It purchased Tele-Communications and the MediaOne Group, becoming the nation's biggest cable provider and positioning itself to offer packages of interactive television, telephone service and high-speed Internet access.

By the end of the quarter, the company was providing telephone service over broadband cable lines to about 350,000 customers in 17 markets, compared to about 224,000 customers at the end of the second quarter. The company has sought to emphasize that business, but the separation of the cable unit from the long-distance business and the cash flow it generates could make the service too expensive to remain viable.

AT&T's wireless unit reported revenue of $2.8 billion, a 36.6% gain over the year-ago quarter. Total subscribers, including those won in acquisitions of rival companies and those served by AT&T partners, numbered 15 million, a gain of 1 million over the prior quarter. AT&T already created a new stock to track the wireless unit in April.

The business services unit reported revenue of $7.1 billion, a 2.5% increase over the year-ago quarter.

Consumer long distance, the service that made AT&T a national icon, continued to fare poorly. Its revenue fell to $4.7 billion, a decrease of 10.9% from the $5.24 billion reported last year. As a percentage of revenue, operational earnings before interest, taxes, depreciation and amortization was 42.7%.

AT&T finished Wednesday regular trading down $3.50, or 13%, at $23.38.

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