AT&T; Begins Overhaul in Bid to Revive Core

NEW YORK â€”  AT&T; Corp. President John R. Walter on Thursday pushed ahead with a much-awaited overhaul of the company, centralizing control of its disparate businesses and cutting hundreds of management jobs.

The action, just four months after Walter was hired as the future replacement for Chairman and Chief Executive Robert E. Allen, is intended to revitalize core businesses, cut costs and make management more accountable to Walter.

Among the shifts, Walter combined the company’s separate advertising efforts and regrouped its business units according to the markets they target.

Walter is also questioning why AT&T; spends close to a billion dollars a year on advice from outside consultants, instead of relying on its own senior team.

The long-distance company disclosed the reorganization in an internal memorandum to its 131,000 employees late Thursday.

The reorganization, which takes effect Saturday, resulted from a top-to-bottom review of the company instituted by Walter, who is acting as de facto chief executive even though Allen isn’t giving up that title until January 1998. Two top managers, Chief Financial Officer Richard Miller and top consumer chief Joseph Nacchio, have quit since Walter was hired from R.R. Donnelley, a Chicago publishing company.

While organizational changes were expected, pressure from the Wall Street investment community has intensified amid weak earnings in recent quarters due to sagging results in the company’s core long-distance business. On Monday, AT&T; begins a two-day meeting with industry analysts.

A company spokeswoman said the job cuts will be spread across the company’s units over the next few weeks and that the company will try to avoid layoffs by shifting personnel. Precise figures were not disclosed, but the company said several hundred jobs are being eliminated.

The cuts are part of the 17,000 already scheduled in a three-year program begun a year ago. AT&T; has so far dropped 5,700 jobs in the first stage of those cuts.

Among the changes, the company is centralizing its in-house advertising efforts into a new division called “Brand Strategy and Marketing Communications,� to be headed by Marilyn Laurie, who had run the company’s public relations department. Advertising had been handled in each of the company’s six business units.

In addition, AT&T; moved small-business services from its consumer to its business unit, which formerly was limited to larger companies. And it shifted its WorldNet division, the nation’s largest Internet access provider, to its consumer services unit, which is headed by Gail McGovern.

AT&T; also centralized internal functions, such as billing and information technology.

To boost accountability, Walter ordered John Petrolo, who is in charge of corporate strategy, David Nagel, the president of AT&T; Labs, and Laurie to report directly to him.

AT&T; shares closed down 62.5 cents at $40.125 on Thursday on the New York Stock Exchange.

Also Thursday, a federal appeals court in San Francisco ruled that AT&T; owes a small phone company $1.1 million for shoddy billing and ordered a new trial to determine how much it should pay in punitive damages.

The U.S. 9th Circuit Court of Appeals upheld a lower court’s order that AT&T; must pay Milwaukee, Ore.-based Central Office Telephone Inc. the $1.1 million, and it said COT can seek punitive damages because of AT&T;’s misconduct. AT&T; had cited uncollectable expenses from resellers as one of the chief reasons that its fourth-quarter earnings fell short of expectations.

In other court action, AT&T; and MCI Communications Corp. said they settled a 4-year-old dispute over AT&T;’s demand that MCI pay to use its patented technology for 800-number services and other advanced telephone calling features, the companies’ lawyers said in a court filing.

“The parties have today executed a settlement agreement that resolves all aspects� of the case, the companies said in a status report filed Feb. 20 in U.S. District Court in Washington.

Executives at the two companies said they wouldn’t comment on the negotiations or the financial terms until the talks are formally concluded. The lawyers said in the court filing that they expect to seek dismissal of the case by March 7.