Intense competition among residential long-distance providers and a lagging market for business telecommunications make AT&T ( T) a sell, Merrill Lynch argued Tuesday. Merrill cut AT&T from neutral, saying it expects 2003 revenue to fall 7.9% and another 4.8% in 2004. The shares were recently down $1.06, or 5%, to $20 on the Instinet premarket session. "Valuation remains hard to pin down as revenues and earnings decline for the next several years -- yet near term free cash flow and the dividend yield provides support -- interestingly, as with the regional bell operating companies, AT&T has recovered strongly having passed way beyond the 5% dividend level," the brokerage wrote. "That said, as we assess it, at last night's close of $21.06 a share the stock now offers a less attractive risk/reward profile and we are downgrading our opinion to sell from neutral." Merrill said its discounted cash flow model implies intrinsic value of $20.74 a share. Merrill also noted that the likelihood that MCI will emerge from Chapter 11 before the end of the year creates additional competitive pressure. It recommended Verizon ( VZ) as a superior play for investors looking for yield.