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Post-Divestiture Profit Trails Expectations

January 28, 1985

NEW YORK (AP) _ American Telephone & Telegraph Co. said Monday it earned $1.38 billion in 1984, its first year of operation after divesting its 22 Bell System telephone companies.

The profit trailed both AT&T’s initial forecast and current estimates of some Wall Street analysts, and AT&T Chairman Charles L. Brown said, ″We expected to do better.″

″We intend to do better in 1985 and better still in the years ahead,″ Brown said in a statement. In the meantime, he said, ″AT&T remains a financially strong company with nearly $40 billion in assets and excellent prospects in rapidly growing markets.″

Separately, BellSouth Corp., one of the seven regional holding companies set up to operate the 22 divested Bell System companies, said its 1984 profit totaled $1.26 billion, or $4.28 a share. Revenue totaled $9.52 billion. In the fourth quarter, Atlanta-based BellSouth said it earned $362.8 million, or $1.22 a share, on revenue of $2.52 billion.

Because of AT&T’s breakup at the start of last year, the 1984 results for AT&T and BellSouth are not comparable to any 1983 periods.

Shortly before the breakup occurred, AT&T had projected a profit of $2.1 billion, or $2.02 a share, for 1984. AT&T’s actual 1984 profit equaled $1.25 a share and came on revenue of $33.2 billion.

For the fourth quarter alone, AT&T’s profit was $379 million, or 34 cents a share, on revenue of $8.41 billion.

The fact that AT&T’s actual 1984 profit trailed the company’s initial projection was not a surprise. Brown had said last April, after announcing AT& T’s first-quarter results, that the company did not expect to meet the initial earnings forecast.

Through the rest of the year, AT&T’s earnings varied widely, exceeding and then falling short of Wall Street forecasts.

″This was their first year as an independent company; they had no track record to measure how they might perform,″ said Steven Chrust, who follows AT&T for the investment firm Sanford C. Bernstein & Co.

″Given the radically changing regulatory environment, it would have been virtually impossible to create a smooth earnings pattern,″ he said.

AT&T said Monday that the forecast it originally made for 1984 was based ″on the best assumptions possible at that time, particularly with regard to regulatory matters. Regulatory decisions did not match those assumptions, and as the year progressed AT&T said it not expect to earn the level forecasted earlier.″

Specifically, AT&T complained of delays by the Federal Communications Commission for resolving a dispute on the fees that AT&T and other providers of long-distance telephone service pay to local telephone companies for access to their lines. The delay, AT&T charged, resulted in higher access fees for AT&T than the company had expected.

Regardless, Brown said problems related to divestiture were only a part of the factors bearing on the company’s financial performance last year.

He said that some other influences on AT&T’s results ″reflect gains made by competitors in markets where we had previously faced little competition. Some were the results of regulatory rulings. Some were of our own making.″

Sales of computers, communications products and other office-automation equipment were less than expected because of increased competition and shortages of key components, AT&T said.

AT&T’s stock, which has been trading near a 52-week high, was off 371/2 cents a share, at $21.371/2 , in late trading Monday and was the most active issue on the New York Stock Exchange.

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