AT&T Corp said on Thursday it would no longer compete for traditional residential customers, a historic retreat the once-dominant "Ma Bell" blamed on changing government regulations and consumer demands.
The move by the largest US long-distance telephone company, which traces its heritage back to Alexander Graham Bell and the invention of the telephone, will likely mean billions of dollars in lost revenue and deeper job cuts.
It may also pave the way for AT&T's corporate descendants, such as Verizon Communications Inc and SBC Communications Inc, to win back millions of customers.
AT&T Chairman and Chief Executive David Dorman said the decision stemmed from changes in federal policy that govern how the Baby Bells allow competitors to lease their phone lines and offer local phone service.
New rules are expected to allow the Bells to raise the rates they charge competitors, and AT&T has loudly complained that the Bells were unwilling to negotiate fair terms for new access deals.
Dorman said with more that 40 percent of US consumers buying bundles of local, long-distance and other services, AT&T could not market its consumer long-distance service as a stand-alone product, and would focus on business services instead.
"Without pro-competitive, commercial arrangements, there are simply too many risk factors for AT&T to base our future with reluctant participants in a regulated environment that has been constantly in flux," Dorman told analysts.
Dorman said AT&T would still offer service to current residential customers and to those who sign up for AT&T unsolicited. He also said the company would continue rolling out its Internet phone service to customers with high-speed Internet access.
AT&T executives said the move would improve the profits in their consumer business this year, but otherwise have little effect on the company's gloomy financial outlook for the remainder of 2004. While many analysts hailed the move, some said it was no panacea for all of AT&T's troubles.
"We believe that Dave Dorman has found the correct eject cord to pull in order to save Ma Bell," said analyst Greg Gorbatenko with Marquis Investment Research.
AT&T's second-quarter earnings released on Thursday illustrated many of its challenges. Its profits fell 80 percent to $108 million, or 14 cents a share, from $536 million, or 68 cents a share, a year earlier.
Revenue declined 13.2 percent to $7.6 billion, thanks to a bruising price war in markets for business services from a revived MCI Corp and the Bells, which have successfully garnered a sizeable share of the residential long-distance business and have now set their sights on high-margin business clients.
AT&T Chief Financial Officer Tom Horton said the company had increased its share of corporate customers, but had lost some smaller and medium business clients to the Bells. Business revenue fell 13 percent to $5.6 billion, driven by an 18 percent decrease in long-distance revenue.