After years of dwindling numbers, AT&T's ( T) withering consumer long-distance business has finally landed on Wall Street's endangered species list.

Once a profit center reaping $20 billion in annual revenue, the consumer business is now in peril and likely to be shut down or sold late next year, says Lehman Brothers analyst Blake Bath. In cutting the stock to sell from neutral Monday, the analyst says the company's business services unit retains some value but is being dragged down by the staggering home long-distance business.

The discouraging words come just as AT&T investors prepare to face the brave old world of pure-play telecom stockholding. Bath's report coincides with the carve-out of AT&T's cable business in a merger with Comcast ( CMCSK) and an accompanying 1-for-5 reverse split of the remaining AT&T common shares. Those moves, expected to take effect later today, will reverse once and for all the company's four-year-old dalliance with the cable business and all the broadband synergies it once promised.

An AT&T spokesman declined to comment on the report, but Wall Street was bracing for a rough transition. AT&T shares, up more than 50% from their late summer low, fell 75 cents to $13.11 Monday.

Diminishing Returns

Severely challenged by cheap wireless calling plans and new long-distance offerings served up by the regional Bells, AT&T's consumer business has been evaporating at a rate of about 20% a year, according to the Lehman report. And despite the giant telco's efforts to cut costs, the revenue declines have been outpacing expense reductions.

Those trends will quickly turn what has been a cash cow even through the lean years into another source of red ink, Bath predicts. At the current rate, costs at AT&T's consumer business will start to exceed revenue sometime after the close of 2003, Bath says.

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