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AT&T Pays a Price for Profit

By Dave Mock - Updated Apr 5, 2017 at 8:04PM

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On the road to leaner, meaner business.

Getting in shape for the holidays is no longer just personal vanity -- with an economy growing uglier by the day, it's gone corporate in a big way. Bellwether telecom AT&T (NYSE:T) is doing its part by shedding 12,000 jobs -- 4% of its workforce -- throughout next year to weather the recession. While the move to slash jobs is unsurprising, it's a little more unnerving with the revelation this morning that employers cut a whopping 533,000 jobs in November.

And AT&T certainly has company. Sprint Nextel (NYSE:S) is offering buyout packages to some of its workers as it continues to bleed wireless customers, and even Google (NASDAQ:GOOG) is right-sizing its workforce. But unlike Sprint, AT&T's wireless business is still growing, with a 14% increase in its customer base last quarter, helped a lot by the Apple (NASDAQ:AAPL) iPhone. The cuts are being done more to address a "changing business mix" where investments in its landline segment will be cut back as wired lines in service dropped 11% in the last quarter.

AT&T is seeing a larger trend of customers getting rid of landlines in favor of going all wireless. And this is actually being incentivized by the carriers -- their offer of unlimited wireless plans and no long distance charges leaves little reason for customers to justify the extra expense of the traditional landline. It's also tough to go back to using a boring, tethered phone when you've got a cool device like an iPhone or Research In Motion's (NASDAQ:RIMM) Blackberry Storm to handle all your communication and connectivity needs.

The other motivation behind the layoffs is consolidation. AT&T has been going through a major transformation over the past few years as wireless has become a key growth factor. It has integrated SBC and BellSouth, and most recently announced the purchase of Centennial Communications and Wayport. Verizon Wireless -- a joint venture between Verizon Communications (NYSE:VZ) and Vodafone -- is playing the consolidation game too with its purchase of Alltel wireless.

The layoffs will cost the company about $600 million in the fourth quarter, but in the long-term, the cuts, combined with its plans to reduce capital spending, will help AT&T maintain its cash efficiency. I view the move as positive since AT&T has a good track record on consolidation, unlike others in the business such as telecommunications equipment maker Nortel (NYSE:NT) that still can't seem to organize the company for profitable operations.

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Fool contributor Dave Mock thinks tree tinsel is more effort than it's worth. He owns no shares of companies mentioned here. Sprint Nextel is an Inside Value selection. Google is a Rule Breakers pick. Apple is a Stock Advisor recommendation The Fool's disclosure policy won't shake the wrapped presents.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$18.01 (-0.50%) $0.09
Alphabet Inc. Stock Quote
Alphabet Inc.
$119.70 (2.63%) $3.07
Apple Inc. Stock Quote
Apple Inc.
$169.24 (2.62%) $4.32
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$44.84 (0.36%) $0.16
Sprint Corporation Stock Quote
Sprint Corporation
BlackBerry Stock Quote
$6.93 (5.16%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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