AT&T chops 3,500 staff, turns to Covad for DSL

AT&T Corp plans to lay off 3,500 staff, just under 5% of its workforce, in a move that will lead to a $240m restructuring charge in its fourth quarter. More than half the job cuts are in management, and AT&T said the move is the result of "improved processes and automation" in the provisioning and maintenance of services for business customers.

It will be no surprise if the managers shown the door include those responsible for guiding its past DSL strategy, whose failure has led AT&T to switch much of its DSL traffic to the network of Santa Clara, California-based Covad Communications Group Inc.

Job cuts have become an annual ritual at AT&T, and the latest round is mild compared with the 10,000 reduction announced a year ago that led to a $1bn charge. But with revenue on the slide, ferocious competition and slim-line margins, especially in the market for business customers, this is unlikely to be the last time that the Bedminster, New Jersey-based company reduces a payroll that currently stands at 72,000.

AT&T's fourth-quarter figures are unlikely to make happy reading for investors as the company has already announced that it will take a $1.1bn asset impairment charge related to its investment in AT&T Latin America. On top of this, it will take a $200m impairment charge against its own DSL assets after agreeing the deal with Covad. Previously AT&T had based its DSL strategy on its March 2001 acquisition of defunct DSL operator NorthPoint Communications Inc for $135m.

At the time a company official said it would use the network for multiple services including local and long-distance voice and "things we haven't even begun to think about yet."

AT&T now says it will offer services using Covad's nationwide network, which passed 40 million US homes and businesses. The company already has a deal to offer DSL services to business customers using Covad's network.

AT&T said it will still offer DSL services over its own facilities in several areas of New York, Texas and California. Under the terms of the deal, Covad has given AT&T the option of buying 3 million of its shares, or 1.3% of the total.

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