AT&T Updates Guidance On Financial Results For 2000 - Company Financial Information

Cambridge Telcom Report, May 8, 2000

In a conference call with financial analysts Tuesday, AT&T provided updated guidance regarding its anticipated revenue and earnings for 2000. The update was based on new information regarding the anticipated closing of the company's merger with the MediaOne Group, a more current view of the performance of its voice long distance businesses and the expected impact of new regulatory rules regarding access payments, assuming approval by the Federal Communications Commission (FCC).

In sum, the company updated its previous guidance on operational earnings - including the estimated impact of the recently announced Excite@Home and Net2Phone transactions - by 9 cents from $1.89 to $1.94 per share to $1.80 to $1.85 per share. The company also said that its pro forma revenue for 2000 would increase approximately 7 to 8 percent, rather than the previously estimated 8 to 9 percent, due to slower growth in legacy long distance services. Reductions in the access fees the company pays local phone companies for handling long distance calls are expected to further reduce pro forma revenue growth to a range of 6 to 7 percent.

"AT&T is still in the midst of its transformation from a domestic voice long distance company to a facilities-based provider of broadband services over any distance," said AT&T Chairman C. Michael Armstrong. "Our growth businesses are gaining momentum. Our high-speed data and IP services revenue is growing in the high teens. Our network outsourcing and management unit continues to build on an $11 billion backlog of contracts. Our wireless services revenue is outpacing the industry, both overall and on a per-subscriber basis. And our broadband unit is breaking records in signing up customers for digital video, high-speed Internet service and cable telephony.

"Our voice long distance businesses have exceptional rates of return and generate cash flows that we are re-investing for growth," Armstrong said. "However, consumer long distance is a mature business, characterized by severe price competition and the loss of customers moving to wireless and Internet technologies. These forces have accelerated in recent months and will affect our full-year financial projections. Our goal remains to manage our consumer long distance business in a way that finds the best balance between those high rates of return and the rate of revenue decline." MediaOne Group Closing

While the company remains confident of regulatory approval for its planned merger with MediaOne, the closing date will be later than initially expected, as regulators consider factors raised by other recent industry transactions. It now appears that the MediaOne merger could close by midyear. Earlier earnings estimates had assumed a closing at the beginning of the second quarter.

Excluding the effects of the MediaOne merger, and prior to the impact of factors described below, the company projects that operational earnings in the year 2000 would be 60 cents higher than the previous estimate of $2.10 to $2.15 per share. (See chart on page 5 for a complete description of the impacts of the MediaOne merger and other factors.) Consumer and Business Long Distance

Further, AT&T announced that, while growth in data and Internet revenue is strong, legacy long distance services are declining at a faster rate than anticipated.

Competition in consumer long distance is accelerating, causing high-value customers to move to lower-priced calling plans at a more rapid pace. Consumers are also moving from basic wired long distance to wireless and Internet services at greater rates. And as a result of its focus on acquiring and retaining more profitable customers, the company is experiencing market share loss among customers with lower usage. On the positive side, AT&T is retaining heavy long distance users and has had a positive net customer and net revenue exchange with the one Bell company allowed into long distance. Based on these trends, pro forma revenue in the company's Consumer segment is projected to decline in the range of 5 to 7 percent, rather than the 3 to 5 percent previously estimated.

In the business market, customers are increasingly moving from low-speed private line service, in which AT&T has a leading market share, to more sophisticated data networks, which are highly competed. AT&T said its business long distance revenue in 2000 is expected to reflect last year's loss of a major government contract and a first-half drop in sales to some large corporations. The company has taken a number of steps to accelerate growth, including a restructuring of its business sales organization, a new management team and a stronger product line. Pro forma revenue in the company's Business segment will increase by about 8 percent due to strong growth in Internet, data and outsourcing services. The previous estimate was for pro forma business revenue growth of 9 to 11 percent.

Based on this operational performance in its consumer and business long distance units, the company's total pro forma revenue is expected to grow in the range of 7 to 8 percent in 2000 rather than the previous estimate of 8 to 9 percent. The impact of these shortfalls on operational earnings is expected to be about 13 cents. Access Reform