While many investors have fled New Economy stocks for the safety of the old, AT&T (T) - Get Report is one Old Economy standby that is confounding investors more than it is providing relief.

The AT&T File

Current P/E: 13.9

52-week range:
$61- $16.50

Change From 52-Week
High: - 61.3%

Shares Outstanding:
3.7 billion

Source: Morningstar

After spending $110 billion during the past two years buying cable, wireless and local phone companies to offer bundled services, AT&T did an about-face Oct. 25 when it said it would break into four separate stocks by the end of 2002.

What this means for investors is a question this week's Gut Check put to AT&T watchers, and the answers from mutual fund managers and analysts turned up divided.

Leading to the breakup decision was the news that AT&T's pro forma revenue growth slowed to 4.1% in 2000; the company had been predicting growth in the 8%-9% range. What's more, net income fell 43% from $5.45 billion in 1999 to $3.11 billion in 2000. The final straw came at year-end, when AT&T said it would slash its dividend from 88 cents a share to 15 cents a share. Amid all this, AT&T chairman Michael Armstrong called a senior management retreat in October where the breakup, or project "Grand Slam," was hatched.

Fund skippers with big stakes in AT&T said they generally applaud the breakup. Rapidly declining revenue in the business and consumer long-distance businesses gave AT&T no choice but to split off its more successful wireless and cable divisions, they say. And the split will bring additional value to AT&T shareholders, they insist, pointing to breakup analyses that project the stock, now trading in the $22 range, being worth $30 or $40 as separate companies. (Today's

10 Questions turned up an AT&T fan in

Oakmark Global

fund skipper Greg Jackson.)

On the other hand, some skeptics believe AT&T, which is down some 60% from its 52-week high of $61, will remain in the low $20s for the foreseeable future. They also dismiss breakup analyses as being little more than speculative and are skeptical of the move away from bundled services. (Some of AT&T's own workers, who have much of their retirement money in AT&T stock, seem to agree; a major union representing AT&T workers held a press conference last week blasting the plan as ill-conceived).

On the bullish side, managers like Ed Paik of the

Liberty Utilities

fund are holding on to and even increasing their stakes in AT&T. Paik says he welcomes the opportunity to trade AT&T stock for specialty AT&T wireless and cable securities. Until that happens, Paik expects the stock to hold steady, as long as AT&T's consumer and business divisions continue to meet lowered expectations.

Diane Jaffee, director and senior portfolio manager of the

SG Cowen Large Cap Value

fund, says she came close to selling her 2.5% position in AT&T the day after the breakup announcement, when the stock fell to $23.38. Though AT&T has not returned to the high $20s where Jaffee bought the stock, she says she's very glad to own the stock because of the future possibilities of its wireless technology. "We think AT&T's wireless unit is superb, that it is going to become the global player," she maintains.

Primary Trend's

Barry Arnold, who calls himself a "contrarian value-oriented investor," took a 2.56% stake in AT&T late last year precisely because of all the negative reaction to the breakup. While some experts have harped on the $48 billion of debt AT&T still holds, Arnold says they've overlooked the huge investments AT&T holds in

AOL Time Warner

(AOL)

,

Comcast

(CMCSK)

,

Cablevision

(CVC)

and

Microsoft

(MSFT) - Get Report

(estimates put these holdings at more than $50 billion). Arnold also believes

AT&T Business

might be bought by one of its competitors, like

Verizon

(VZ) - Get Report

or

SBC Communications

(SBC)

.

Arnold's own breakup analysis shows AT&T being valued in the $32 range within the next four to six months.

On the side of the bears, though,

Jack Grubman,

a telecommunications analyst with

Salomon Smith Barney

, points out that a year ago, these same kinds of breakup analyses valued AT&T in the $60-$70 range. (Salomon Smith Barney has done underwriting for AT&T.) Today, breakup analyses of AT&T have been significantly reduced, primarily due to disappointing numbers in AT&T's long-distance and business divisions, Grubman says.

Last month, AT&T projected business services, which accounts for nearly half its revenue, to be flat in 2001. Long-distance rates are falling faster than the company can predict, and consumers are also increasingly using cell phones for their long-distance calls, analysts note.

As a result, Grubman maintains that continued deterioration of AT&T's long-distance business "will outweigh any sum-of-the-parts exercise until those parts are, in fact, distributed."

Bill Klein, a director at

Wasserstein Perella

, agrees. "The trouble with the breakup is you don't quite know what you're getting because they haven't fully disclosed" how the

IPOs and stock distribution will be handled, Klein says. The split will also create redundant overhead and is counterintuitive to Armstrong's original plan to provide customers --particularly business customers -- with the bundled voice, data and Internet services they want, Klein says

What's known about the breakup plan thus far is that

AT&T Wireless

(AWE)

will be converted from a tracking stock to a fully separate stock, and T will be converted to a stock solely representing AT&T's business division. A separate stock will be created for AT&T's broadband division, and a tracking stock will be created for AT&T's consumer business.

The first stage of the breakup could happen this summer, at which time AT&T investors will be given the opportunity to swap their stock for $10 billion worth of shares of AT&T Wireless. But the company hasn't given any details of how the other stock swaps will be orchestrated and has withheld 2001 earnings and revenue guidance in light of the many details about the breakup that have yet to be determined.

One thing's for certain, though: The breakup of AT&T will have a huge psychological impact. "AT&T will lose its status of being an American icon," says Jeff Kagan, president of

Kagan Telecom Associates

in Atlanta. But in the end, Kagan believes the breakup will be successful and that even AT&T's core consumer and business divisions will become significant players.