March 7, 1997 6:45 PM ET
AT&T; prepares to move ahead on Internet, wireless services
By Stephanie LaPolla

  AT&T; Corp. is counting on investments in the Internet and local wireless telephone services to give a long-term shine to its bleak short-term outlook.

In an uncharacteristically blunt meeting with securities analysts this week, CEO Robert Allen and Chief Operating Officer John Walter admitted to past mistakes but promised a much brighter future.

The short-term forecast is dreary. As the telecommunications giant dishes out between $8 billion and $9 billion in new areas of technology, a profit plunge could result this year.

But as AT&T; recovers from its divestitures last year that unleashed NCR Corp. and Lucent Technologies Inc. from its grip, it's turning its attention to new partnerships. One such ally is expected to surface next week at Internet World in Los Angeles, when AT&T; announces a relationship with a financial firm to use AT&T;'s EasyCommerce Services, sources said.

AT&T; also plans to deliver the kind of service business users and consumers want-bundles that pull together voice, data, Internet and wireless services into one package.

IT executives, for their part, are looking for less talk and more action. "We've been getting a lot of promises that things are getting better and more integrated [since the Telecommunication Deregulation Act of 1996]," said Larry McAferty, CIO at Source Informatics America, in Phoenix. "But in terms of tangible offerings, we haven't seen a lot of significant changes."

People attending the meeting, which took place at the company's Basking Ridge, N.J., headquarters, were pleasantly surprised by the new president and COO who will eventually succeed Allen.

"It was refreshing to get some candid, hard numbers and some look-ahead forecasts with stakes in the ground from a company that historically has not done that," said Scott Wright, tele-communications analyst at Argus Research Corp., in New York. "They did it right: They let us hear the bad news up front."

That bad news: an expected earnings per share of $3.45 to $3.75 for the core long-distance business in 1997. It will be on par with the earnings of $3.47 per share last year. But if stockholders can ride it out, Walter and Allen are committed to earnings of $5 to $6 per share in the next five years, they said.

"Last year, on the consumer side, we were going in the wrong direction," Walter admitted. "That triggered decisive action in personnel and organizational changes."

This year, AT&T; is taking back ownership by incorporating stock option targets for senior management and basing promotions on business contributions, Walter said. AT&T; also will get rid of outside consultants as part of an effort to reduce business costs by $2.6 billion over the next two years.

Current AT&T; consultants take issue with the last point, however.

"In my opinion, I don't think they will ever get rid of 100 percent of their consultants. They are a necessary evil in this industry," said Timothy O'Brien, president of O'Brien & Associates Inc., in Marietta, Ga. "I went through it in 1983 when [AT&T;] broke up and again in 1988 when they decided to reduce the number of consultants. I never saw one person disappear who didn't want to. ... Consultants bring current knowledge."

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