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Pricing Pressure Hits AT&T In The Wallet

First-quarter profits fell 47% and revenue dropped for the eighth consecutive quarter.
NEW YORK (AP) -- AT&T Corp.'s first-quarter profits plunged 47 percent, but still beat cautious analysts' estimates, as pricing pressure continues to eat into its profits.

Revenue fell for the eighth straight quarter as price wars and defections from land lines to cell phones continued to slice away revenue from calls and data.

The nation's largest long-distance phone company said it earned $304 million, or 38 cents a share, for the quarter ended March 31, down from $571 million, or 73 cents a share, in the same quarter a year ago. That was better than the 33 cents a share estimate of analysts surveyed by Thomson First Call.

Revenue dropped 11 percent to $7.99 billion from $8.99 billion a year ago. Analysts had been looking for revenue of $7.96 billion.

David W. Dorman, the company's chairman and chief executive officer, said the telecom industry's woes would not last as long as the airline industry's have.

"I don't think you have a 20-year situation of zombies and serial bankruptcies," Dorman said. "This will shake itself out."

The price decline was evident in AT&T's core long-distance business, where revenue declined 12.4 percent over last year's first quarter, even as volume grew 2 percent.

The Bedminster-based company's business revenue fell to $5.87 billion from $6.46 billion a year ago. Consumer revenue fell to $2.12 billion from $2.51 billion a year ago.

UBS Securities LLC analyst John C. Hodulik, wrote in a research note, "We believe fundamental changes are occurring in the industry that cannot be reversed and we remain cautious of the long-distance industry."

Dorman said the company's investment in new technology enabling it to send calls over high-speed Internet connections would help improve service and results.

"We continue to invest and integrate to improve the customer experience," he said. "We remain confident that we have the right strategy in place to position the company for leadership and success in the long term."

Jeffrey Kagan, an independent telecom analyst and consultant, said voice-over-Internet calling would boost AT&T if the company's marketing can win it new customers.

"They have an equal shot at greatness," Kagan said.

Dorman also said the pending sale of AT&T Wireless Services Inc., a spinoff that no longer has ties to AT&T Corp., to Cingular Wireless leaves AT&T free to use the AT&T Wireless name. He said the company intends to become a reseller of other's wireless services.

AT&T continues to struggle with debt amassed when former CEO C. Michael Armstrong attempted to remake the company into a cable powerhouse. Armstrong's bold purchases of MediaOne Group and TCI in the late 1998 and 1999, left AT&T with more than $60 billion in debt. AT&T sold the broadband business to Comcast Corp. in 2001.

AT&T retired $1.2 billion worth of debt during the quarter, and ended the quarter with net debt of $8.4 billion.