Cranky investors were hanging up on

AT&T

(T) - Get Report

after another cold call.

The telephone giant's shares took a 14% hit Tuesday after the company met Wall Street's first-quarter earnings

estimates, but warned that earnings growth would

slow by 5%. Citing customer losses and falling prices, AT&T said its cash-rich long-distance business is sagging even more than expected, and growth from other divisions hasn't offset that decline.

Meanwhile, investors that were waiting to hear good news about AT&T's high-profile broadband efforts were disappointed. The soft results and dim outlook provide more evidence of AT&T's discomfort in the fast-evolving high-tech world, an unease that has kept a lid on the stock amid a roaring bull market in telecom shares.

'Darn Good Reason'

"There is a darn good reason I don't recommend AT&T, and you're looking at it," says

Wasserstein Perella

telecom analyst William Klein, who is bullish on new-generation networks

Level 3

(LVLT)

and

Qwest

(Q)

. His firm has strong buy ratings on those stocks and no rating or banking relationship with them or AT&T.

"These guys are lost in the new IP world," says Klein. "They are so focused on their core voice business, which is such a huge percentage of their revenues, and they are getting killed, and their answer is to be a glorified cable provider."

Critics have long charged that AT&T was too slow to respond to the threat of new Internet protocol and data communications networks. AT&T's initial reaction, as profits continued to erode from its calling business, was to begin acquiring cable companies two years ago. But that move has proven to be a difficult undertaking, as the company faces the complicated and costly task of re-engineering old cable systems to handle calling, Internet and TV service.

Which Track?

AT&T said Tuesday it is on track with its cable rollout, but the business is still in the building phase and rapid customer acquisition rates are still months away.

And while wireless growth remained strong, projected growth in the business services unit was cut by 2%, due to restructuring and the loss of a large government contract. In broadband, though AT&T met subscriber-number projections, the company advised that revenue from the pending

MediaOne

(UMG)

merger will be delayed due to the slower-than-expected close of the deal.

These nuggets can only add to shareholder anxiety, which has been on the rise in recent weeks. Several media outlets reported Friday that at the end of the first quarter, AT&T had signed up just 10% of its year-end subscriber target of 400,000 to 500,000 customers for phone service via cable. This news follows word of the second major executive departure from the AT&T Broadband division.

"AT&T has already seen the best market share they are ever going to see," says Klein. "From here on in, it's nothing but downhill unless they make a massive acquisition."