AT&T; Cuts Its Dividend for First Time Ever

For the first time in its 125-year history, AT&T; Corp. is cutting quarterly dividends--a drastic move designed to conserve cash and help the struggling communications giant regain its financial footing.

Starting in 2001, quarterly dividends will drop from 22 cents a share to 3.75 cents, an 83% reduction that will save the company $2.8 billion a year. The reduction marks the first time AT&T;’s quarterly dividend has fallen into single digits.

AT&T; first paid stockholders a quarterly dividend of 20.83 cents a share in 1893. The telecommunications firm has since been known for steady and reliable payment of dividends--so much so that it has long been among the most widely held U.S. stocks, considered by many to be a safe bet for “widows and orphans.”

“This was a drastic cut,” said Rich Barnett, director of equities at City National Investments, an AT&T; investor. “Either AT&T;’s management has given up on trying to appease investors, or their finances are in worse shape than we thought, or both . . . all of which is bad news.”

Barnett and other stockholders already have plenty to be steamed about: AT&T;’s stock price has fallen more than 63% this year.

Adding more bad news to the mix, AT&T; officials Wednesday also lowered profit and sales projections for the fourth quarter, citing additional deterioration of corporate and consumer long-distance businesses as well as delays in signing certain service contracts.

The company expects sales to grow 2.5% to 3%, down from 4% to 5% growth, and expects operating earnings of 26 cents to 28 cents a share. Analysts polled by First Call/Thomson Financial were expecting earnings of 31 cents a share.

“The dividend cut is further evidence that AT&T; is in trouble,” said New York state Comptroller H. Carl McCall, who presides over a retirement portfolio that includes 12 million shares of AT&T; stock. “Clearly, AT&T; needs cash. Unfortunately, the company has decided to take it from shareholders.”

Reaction to the news was swift on Wall Street, where the venerable company’s shares fell $1.62, or 7.9%, to close at $18.94 in New York Stock Exchange trading. In after-hours trading, investors continued to rattle the stock, sending the price as low as $17 at one point.

Over the last few years, AT&T; has suffered a series of setbacks, most notably the faster-than-expected decline in long-distance revenue--long the cash cow of the company and the unit that was to keep investors happy by offsetting AT&T;’s huge investments in cable operations.

Under Chairman C. Michael Armstrong, AT&T; ran headlong into the cable business, spending more than $100 billion to buy Tele-Communications Inc. and MediaOne Group Inc. to become the nation’s largest cable operator.

The acquisitions and the necessary cable plant upgrades have been costly, ballooning AT&T;’s debt load to $61.8 billion. The purchases also added millions of dollars to AT&T;’s dividend bills through the issuance of large numbers of new dividend-paying AT&T; shares.

In October, facing growing unrest among investors, AT&T; announced a breakup of the company, spinning off cable and wireless operations into independent companies and keeping AT&T;’s business services and consumer long-distance units with the main corporation.

At the time, AT&T; officials promised not to load the cash-generating consumer business with debt, or to burden the growth-oriented cable and wireless units with dividend responsibilities.

The reorganization plan will take several years to complete. Many investors believe AT&T; should have stuck to the original plan of offering customers everything from cable and local telephone service to long-distance, Internet and wireless services--all from the same company.

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Bloomberg News was used in compiling this report.

* CABLE CURBS

AT&T; moves to satisfy FCC conditions related to its purchase of MediaOne. C7