AT&T May Dump Its Core Business

NEW YORK, Oct. 5, 2000 -- — The New Economy apocalypse may now be at hand: AT&T is ready to spin off its soul, forsaking a gloriously profitable past for the money-burning, growth-obsessed future.

At least that’s one way observers are looking at AT&T’s possible decision to dump its longtime core business, consumer long distance. A sale or spinoff would achieve three objectives, observers say: removing that Old Economy albatross, the slow-growth toll-calling business; goosing the remaining company’s growth potential; and offloading part of AT&T’s $57 billion debt load.

Most important, perhaps, a deal could temporarily quiet AT&T shareholders who are up in arms about the deep slide in the stock in recent years. And with tech investors focusing on growth to the exclusion of all else, most people think ditching the profitable yet growth-impaired long-distance business can’t hurt an already hurting AT&T.

Not Paying

“This is one of the greatest businesses in American history,” says Lehman Brothers analyst Blake Bath, who has a strong buy on AT&T. Lehman was an underwriter for the AT&T Wireless IPO. “But in financial markets today, it’s grow or die. [Long distance] is not a business with great growth characteristics. It’s a business with phenomenal cash flow, but the market is not paying for that.”

And as absurd as it may sound to cast off its legendary flagship service — a business that brings in annual revenue of $20 billion and some $8 billion in cash flow — observers say it’s necessary if AT&T hopes to emerge from its turnaround as the broadband player it has promised investors it would be.

AT&T has been mulling over ways it could separate its core long-distance business, especially as that business’s quickly evaporating revenue growth has helped drag the stock to a three-year low.

In June, AT&T hired Goldman Sachs to shop its long-distance business around, says a banker familiar with the situation. It’s not clear if a spinoff or a decision to sell will be announced at earnings time toward the end of this month, but a move could come soon, says the banker, who asked not to be identified.