Ma Bell Gets Wired

For more than 110 years there were three things American investors could count on: death, taxes and a profit at AT&T. Now they are back to two. For the first time since 1877, when Alexander Graham Bell founded what was then called the Bell Telephone Co., the telecommunications empire will post a loss for the year. The deficit, which could run as high as $1.7 billion, will be the result of AT&T's decision last week to scrap $5.6 billion worth of outdated equipment. In a drive to modernize, the company is replacing 2 billion miles of telephone connections with higher-capacity fiber-optic lines. AT&T will also install more digital switchboards and other advanced gear, which will eliminate 16,000 jobs. In the fourth quarter alone, the cost to the company will be $6.7 billion.

Competition from rivals MCI and Sprint hastened the move. Both companies can undercut AT&T's tolls on long-distance calls because their networks use fiber- optic cable almost exclusively. The light-wave lines, which transmit a signal faster than ordinary cables and produce clearer sound than satellite communications, form less than half of AT&T's telephone grid.

Ma Bell's pain could become the consumer's gain, since the improvements may allow the company to keep lowering its toll charges. AT&T still commands 70% of the $50 billion long-distance market, but has grown increasingly price conscious in its rivalry with MCI and Sprint. Even so, the lateness of the move has shaken some investors' confidence in Ma Bell. Says James Meyer, a telecommunications analyst with the Philadelphia investment firm Janney Montgomery Scott: "My question is, Is this it? Or will we have to go through this again?"