AT&T to Stop Marketing Residential Phone Services to Consumers

AT&T Corp. on Thursday disclosed plans to stop competing for traditional residential phone customers, marking a momentous shift in the strategy of an ailing phone giant whose predecessor incorporated in 1885.

The No. 1 long-distance phone company will shift its resources to the business unit, which comprises roughly 70 percent of revenue. Its consumer unit has been under heavy attack for years, with billions of dollars in sales evaporating due in part to competition from the biggest local phone companies and the predominance of wireless service.

AT&T executives said the company would neither unplug existing customers nor turn people away seeking residential service, but it would no longer invest money to acquire new customers.

AT&T attributed the historic decision to regulatory changes after a federal appeals court threw out rules that have laid the foundation for local residential phone competition and been the center of a bitter debate for eight years among industry executives, consumer groups, Wall Street and industry analysts, lawmakers and regulators.

For years, AT&T has fought to preserve rules governing wholesale access to the biggest local phone networks on behalf of itself and smaller companies with fewer resources to lobby before regulators and lawmakers.

“We urge regulators and the [Bush] Administration to view AT&T’s decision as a wakeup call as to the adverse consequences of premature deregulation,” said Peter Karoczkai, Chairman of the Promoting Active Competition Everywhere (PACE) Coalition, a group representing telecom providers competing with the biggest local phone companies in the residential market by leasing their networks at discounted, government-mandated rates.

SBC Communications Inc., the second largest local phone company, said in a statement AT&T’s decision “underscores the fact AT&T left the traditional consumer business years ago when they decided against investing in their own local facilities and networks in order to compete.”

The FCC has pledged to write new leasing rules, but AT&T Chairman and CEO Dave Dorman emphasized during a conference call today new rules would not affect its decision to cease marketing residential services.

“That chapter is closed,” he said.

AT&T CFO Tom Horton said the company expects the new strategy to have a significant impact on jobs. The company has reduced its headcount by 8 percent this year, he said. AT&T had 61,600 employees at the end of last year.

Beyond the impact to its local and long-distance residential services, AT&T’s decision also will affect strategic initiatives the company has pursued, including Internet-based phone service and wireless service targeted for consumers, AT&T executives said. AT&T offers Internet-based phone service to consumers in 100 markets, but the service is limited by the number of homes with broadband connections.

The broadband phone market is “inherently limited by the current broadband penetration levels and therefore not a real substitute for traditional phone service in the mass markets until broadband penetration grows,” Dorman said. “As a result, AT&T must take a measured approach to acquiring customers, limiting our reliance on high-cost acquisition and mass marketing.”

“We look to be more cost-effective in our customer acquisition channels for VoIP such as retail and other low-cost partnerships, targeted wholesale provider relationships and leveraging our existing network infrastructure,” he added.

Today’s development also is likely to slow AT&T’s plans to offer millions of consumers wireless service.

AT&T in May struck an agreement with Sprint Corp. to provide AT&T-branded wireless service, and previously announced a similar agreement with AT&T Wireless that remains in trials. Although AT&T can offer homes a bundle of broadband phone service and wireless, “We’ll need to be measured in the timing of any such rollout linking it to the development of VoIP as a more broad-based local service alternative,” Dorman said.

Dorman said the company still plans to provide wireless services to enterprise customers by leasing other mobile networks, adding businesses are not satisfied with the coverage provided by any one wireless carrier.

With the shift away from the consumer segment, AT&T also is likely to ramp up its wholesale business.

Dorman said there is an opportunity to expand in the wholesale market through relationships with wireless carriers and cable operators. Another AT&T executive said the company landed a wholesale account last week with a company that wasn’t a previous customer but now rates among its top 20 clients.

“… We see a robust consumer-focused wholesale opportunity and I think frankly it’s enhanced by this decision as we step back as a retail competitor in the space,” Dorman said.

AT&T is among the world’s biggest wholesalers of minutes, carrying the long-distance traffic of other phone companies, but it has not been a business AT&T has been particularly fond of discussing in detail.

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