Pulling the Belt Tighter At At&T

By Janice Castro

Rumors of sweeping layoffs and cost cuts had been causing high anxiety at the company for weeks. Even so, when AT&T announced last week that it would close some of its plants, eliminate 27,400 jobs and take a $3.2 billion write-off against its fourth-quarter earnings, the sheer magnitude of the reductions was stunning. The job cuts alone were the largest in the firm's history, and the write- off will all but wipe out 1986 after-tax earnings, which had been expected to approach $2 billion. While one spokesman for the Communications Workers union accused the company of "mean and inappropriate" behavior for breaking the news during the holiday season, Chairman James Olson insisted that the belt tightening was necessary to counter growing competition in the communications industry. Said he: "This is no longer the old, stable monopoly business."

The AT&T write-off is the second largest in the company's history, trailing only the $5.5 billion reorganization charge the company took in the fourth quarter of 1983, when the breakup of the Bell System was just starting. Like many other large U.S. corporations, from Exxon to General Motors, AT&T has been forced to slim down to compete more effectively in an increasingly fierce global marketplace. Last week IBM said it had reduced its 242,000 American payroll by 10,000 jobs in 1986 by offering employees incentives for early retirement. The computer company says it sees "no signs of improvement" in its general worldwide business climate as 1987 approaches.

For its part, AT&T has eliminated 75,000 jobs since divestiture, reducing its headcount by about 20%, from 365,000 employees to the 290,000 who will remain after the new layoffs. It has been a revolutionary development for a company that once offered lifetime job security. Of the 27,400 jobs to be cut under the new plan, 10,900 are designated as management positions and 16,500 are nonmanagement jobs. "The pain will not be felt at just the bottom," Olson emphasized. "It will be painful all around." No division -- not even venerable Bell Laboratories -- will be spared. Since only about 30% to 40% of the employees targeted for termination have been informed, much of the work force remains in suspense.

The cuts became inevitable because of the company's uneven performance. AT& T's long-distance service has remained lucrative (an estimated $1.8 billion in profits this year), as have equipment sales to phone companies (1986 earnings: $375 million), but many new lines of business are lagging. AT&T lost between $700 million and $1 billion this year on sales of computers and large computerized phone systems. The firm's 7300 series personal computers and its Unix computer operating system, which were introduced in 1985 just as the industry-wide computer slump was deepening, are still selling slowly. In addition, the phone- rental business has been weakened. During the past two years, as business and residential customers returned their rented AT&T phones to the company in favor of buying their own equipment, often from other suppliers, the firm's rental income declined by some $2 billion. Says Jack Grubman, a telecommunications expert with PaineWebber: "AT&T has not delivered on the promises of divestiture."

Olson, 61, who succeeded Charles Brown this fall, is seen as something of a caretaker chairman who has been given the painful task of shaping up the company before a long-term successor is named. Some Wall Streeters expect that Olson will pare an additional 15,000 or so jobs next year. Last week he was optimistic but wary: "We have no plans for another downsizing, but we can never say never."

With reporting by Thomas McCarroll/New York