The company today announced 3,500 job cuts, or about 5% of its workforce. It will take a charge of $240 million in its fourth quarter to account for costs associated with the cuts, reducing earnings per share by $0.20.
AT&T pointed to improved automation and processes as the culprits for the workforce reduction, not any inherent weakness in the affected business division. More than half of the job cuts will come from management's ranks, and the departing are expected to leave in the first half of this year.
Additionally, AT&T will write down $1.1 billion in the fourth quarter related to its Latin American assets. The Dow component announced it would make this move late last year. Fourth-quarter earnings will be negatively affected by $1.40 because of the impairment. It will also take another charge of about $0.15 a share, or $200 million, to write down its digital subscriber line (DSL) assets.
The company has extended its agreement with Covad Communications to provide high-speed Internet access, and because it will primarily piggyback on Covad's DSL network instead of using its own, AT&T will write down its own assets. The new agreement, which runs through Sept. 1, 2005, will give AT&T access to 40 million homes and businesses in 96 of the top U.S. metropolitan areas.
Despite a hit to short-term earnings, the long-term net result of today's news should be positive (unless, of course, you're one of the people being "reduced"). The telecom giant has been struggling amid increased competition and declining revenues, and any cost-cutting measures should help.
On top of its recently announced increases in domestic and international long-distance rates and fees, the measures look even better. And the extended agreement with Covad should eventually earn AT&T more DSL revenue. Hopefully, that will also translate into better returns for long-suffering shareholders.