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AT&T to tighten its belt
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December 19, 1997: 3:25 p.m. ET
Active trade follows reports of sweeping cutbacks and hiring freezes
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NEW YORK (CNNfn) - AT&T Corp. stock shot to a new 52-week high Friday after company officials divulged plans to freeze hiring and issue stringent guidelines aimed at slashing overhead costs by about $4 billion a year.
AT&T, the nation's largest telephone company, also scrapped plans to penetrate the $100 billion local telephone business by reselling services it buys wholesale from Baby Bells.
"Total service resale is the only game in the market right now, and it's become all too clear that this approach won't work," AT&T President John Zeglis said in a speech late Thursday at the American Enterprise Institute.
"The situation got so bad that AT&T has had to actively stop marketing local service in some states," he said.
Zeglis said the long-distance carrier's main focus now is on offering local service by leasing pieces of the Bell's local network, known as "unbundled network elements."
The moves come as newly-appointed Chairman C. Michael Armstrong tries to sharply reduce AT&T's expenses and shake up the telephone giant.
"It's fair to say that we're considering all our options as far as cost-cutting," said AT&T spokeswoman Ruthlyn Newell. "We're looking at everything from stationery to supplier relationships."
In heavy-volume trading, AT&T shares rose 1-1/2 to 60-5/8. AT&T's gain was one of the few bright spots in an otherwise down day for U.S. stocks with the Dow industrials falling as much as 269 points before recovering to 7,747, off 99 points.
The jump followed published reports that Armstrong planned a series of sweeping austerity measures to trim fat from the company's $45 billion a year expenses.
The cutbacks are said to include a redirection of more than $2 billion on local phone service spending, a freeze in new hiring, and stricter compensation guidelines at the company's highest executive echelons.
Armstrong, chagrined at AT&T's sluggish revenue growth, is reportedly looking to plow savings into new networks and services. Sales and administrative expenses currently absorb 29 percent of revenue. Armstrong hopes to save AT&T about $3.5 billion to $4 billion a year, by bringing that percentage down to the low 20s.
The added stock value from such savings could then be directed to future acquisitions, company officials said.
The redirected funding is seen as the catalyst behind yesterday's sale of AT&T's Universal Card Unit to Citicorp in a $4 billion deal. Citicorp executives said the bank had agreed to buy at least $700 million in communications services from AT&T over 10 years. It will also assume several billion dollars in company debt.
The hiring freeze is widely seen as a prelude to a further workforce reduction, one that could extend beyond the 17,000 job cuts planned two years ago. But Newell portrayed such a scenario as a last-resort option.
"There are many, many opportunities for us to drive costs out of this business before we are forced to take the step of a force reduction," Newell said. "But it is certainly not at the top of the list."
Among other steps Armstrong is said to be considering are plans to tie managerial compensation to company growth. Under the revision, 75 percent of a top managers' bonus would be linked to financial performance, with the remainder left to supervisors' discretion, according to the Wall Street Journal.
Company CEOs will also be required to drive their own cars to work rather than arrive in chauffeured limousines.
-- by staff writer Doug Herbert
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