As

AT&T

(T) - Get Report

flies the banner over its four-part

breakup plan, the besieged telecom hulk is trying desperately to convince Wall Street it isn't waving a white flag of surrender.

Vote of Confidence
Investors recoil from splitup plan

Having failed to persuade investors that its turnaround as a unified company held great value, AT&T now has to prove four businesses -- wireless, cable, consumer telephone and business services -- can add up to something more effective.

Sounding uncharacteristically solemn and deflated, AT&T Chairman and CEO C. Michael Armstrong summed up his comments to investors during an analyst conference Wednesday by saying his ambitious corporate reinvention efforts have been misunderstood and underappreciated, and reiterating that the "outcome is going to be very successful."

Transcendant

Unfortunately for Armstrong, the company's third-quarter numbers spoke so loudly that investors couldn't hear what he was saying. AT&T shares fell $3.31, or 12%, to $23.56 in midday trading Wednesday. Rapidly declining long-distance revenue nearly wiped away all the profits in the business services division -- a problem that analysts expected to have been brought under control.

Turnaround?
AT&T returns to early '90s levels

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So another soundly disappointing quarter made it hard for AT&T to sell its complicated two-year breakup strategy, which includes an entry into the troubled digital subscriber line business.

"To some extent, this is an admission that the Street wasn't buying his strategy," a prominent Wall Street analyst who asked not to be identified says of Armstrong's splitup plans. "And recognition that he didn't have a lot of time to wait to see if the strategy worked because the core biz was doing so poorly."

Concord

Armstrong took issue with the charges that the breakup amounted to a collapsed strategy or a departure from the all-communications-service-provider charter he rallied the company around when he took charge three years ago.

"There seems to be a lot of fun writing that this is a reversal or repudiation of our strategy," the executive said. "I find that not only wrong but offensive. We set out to transform this company from a point-to-point long-distance company. We laid the strategy out pretty clearly.

"Each step wasn't perfect, but we have been doing it with all the hard work we know how to do," Armstrong said.

Armstrong then drew a parallel to his previous job of transforming the defense contractor

Hughes Electronics

(GMH)

into a diversified service company. And reiterating a point he made four times during a nearly two-hour discussion, Armstrong said: "What we are separating in the creation of the new structure is going to add tremendous value."

But as many analysts and industry observers point out, if the stock wasn't at a three-year low, we wouldn't be seeing any of this tracking stock and breakup happening.

"When the stock is not doing well and you have more lousy results to report to the Street in your core business, Armstrong has to show he's a man of action rather than maintaining the status quo," says the Wall Street analyst.