It's spring (or rather, fall) cleaning at AT&T (NYSE: T), as the once-dominant phone giant takes a $12.5 billion charge in the third quarter to write down assets and lay people off. Continuing a theme I brought up a couple months ago, and W.D. Crotty touched on recently, the charges are just another step toward selling the company.
The death of expensive long-distance calling is why AT&T made the decision to exit the residential market earlier this year. The company has refocused on its most lucrative market -- business customers -- to generate cash for debt reduction. A write-down was inevitable as the value of AT&T's long-distance network is significantly lower without residential customers.
Think about it for a moment. The telecommunications market is finally "converging" with other mediums, as predicted. Cell phones, broadband Internet, and wireless connectivity have all made land-based phone lines a relic of the past. Long-distance calling isn't an expensive proposition anymore, and at least in the U.S., it's usually indistinguishable from a local call.
Communication convergence is happening right before our eyes, and there's no longer a need for multiple communication providers. Consumers can get a full suite of local and long-distance calling services, Internet, and even television all from one company. The competitive landscape has changed, and either now or very soon, cable companies such as Comcast (Nasdaq: CMCSA) and baby bells such as Verizon (NYSE: VZ) and SBC (NYSE: SBC) will profitably offer the same services as AT&T, and then some.
Wireless and voice over IP (VoIP) are the technologies of the future. Sprint (NYSE: FON) recently announced a 700-person reduction in its workforce as it focuses more attention on its wireless business. Broadband Internet is slowly reaching critical mass, and IP-based communications are preparing to replace traditional landlines. AT&T does offer a VoIP service, but it sold its wireless business early this year.
The old Ma Bell has two valuable assets: its VoIP service and a huge base of business customers that a company such as Comcast or Time Warner's (NYSE: TWX) cable arm would love access to as they ramp up their telecom offerings. Fixing up a balance sheet takes a lot of energy, and with $7 billion of debt remaining at the end of this year, AT&T needs the stronger financial position a takeover would likely bring to truly capitalize on its remaining opportunities.
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Fool contributor
Chris
Mallon
finds the slow decline of Ma Bell both sad and fascinating at the same time. He owns none of the companies mentioned in this article.
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