12/20/00- Updated 07:24 PM ET
 

AT&T cuts dividend, issues earnings warning

NEW YORK — AT&T is slashing its quarterly payment to shareholders by 83%, the first reduction ever for the beleaguered telephone company, and a drastic measure punctuated by yet another warning about weak profits.

While AT&T had said in October it would lower its dividend "substantially" as part a plan to split into four companies, the reduction announced Wednesday was even more severe than expected.

"While we did not make this decision lightly, we believe it is necessary and in the best long-term interests of our shareowners to adopt a dividend policy comparable to the policies of our competitors," said AT&T Chairman C. Michael Armstrong.

AT&T's battered stock price was hammered anew after the announcements, sliding as low as $17 per share in extended trading after falling $1.63 to $18.94 on the New York Stock Exchange. The company's shares have lost about 70% of their value hitting a 52-week high of $61 in April.

The dividend cut, designed to help AT&T pay off some of its $62 billion debt, was announced as the company warned of disappointing revenues and profits for the third time in as many quarters.

The old quarterly dividend of 22 cents per share, which many long-term AT&T investors rely on for income, costs the company about $3.3 billion a year. That's almost equivalent to the $3 billion in annual interest AT&T would pay on its current debt load.

The new quarterly dividend of 3.75 cents per share will begin with the next scheduled payment on Feb. 1. That rate is expected to stay the same after AT&T spins off its wireless and cable TV as independent companies under the dramatic breakup plan announced two months ago.

Once again, the company blamed its troubles on the rapid decay of its core long-distance calling business, a problem that has also plagued rivals such as WorldCom and Sprint. All three have been losing business to mobile phones and Internet-based calling, as well as new rivals such as the Baby Bell local phone companies.

"Companies are being a little more thoughtful and cautious as they make major decisions on spending," Charles Noski, AT&T chief financial officer, said in an interview, stressing that many customers are only delaying their orders until the new year. "These are all relationships with important and major companies that we are pretty confident that we can achieve."

As a result, the company said, total revenues in the current quarter are expected to show growth of only 2.5% to 3% from year-ago levels, down from the previous forecast of 4% to 5%.

Broken down, revenues from long distance and other consumer services are expected to decline "at a mid-teens rate," greater than the 11% drop AT&T had previously projected.