AT&T Wireless Outsources

By W.D. Crotty
November 19, 2003
The Wall Street Journal is reporting that AT&T Wireless (NYSE: AWE), the
second-largest wireless carrier in the U.S., plans to lay off 10% of its
workforce. Outsourcing deals with companies in India and other overseas
locations are in the works. What gives?

Cost cutting, earnings concerns, and an ever-changing regulatory
environment are recurring issues for telecommunications companies.
Yesterday, the Fool analyzed Verizon's (NYSE: VZ) 10% staff reduction.
Sprint PCS (NYSE: PCS) struggles with profitability. Dave Mock reported
last week on the new regulation allowing phone number portability and its
impact on the cellular carriers.

Here's the real story. To accelerate the process of generating cash, AT&T
Wireless is said to be considering outsourcing (a simple word meaning:
"Let's get the job done more cheaply elsewhere"). It may be a winning
strategy, but price cutting and special promotions are common in the
wireless business. Today's savings through cost cutting may be given away
in tomorrow's competitive pricing. Overall, the company's future is still
not clear.

AT&T Wireless is hardly a value stock. With 2.7 billion shares outstanding
and a market capitalization of $18 billion, the company's guidance of 8%
revenue growth is hardly reassuring for a stock selling for 46 times
earnings. Add in $10.6 billion in long-term debt, and there's a lot of risk
at today's prices.

AT&T Wireless is one of the most widely held stocks by U.S. investors. It
has taken shareholders on a wild rollercoaster ride since hitting an
all-time high of $29.56 a month after its spin-off from AT&T (NYSE: T) in
2000. The stock's current price of $6.65 looks great only when compared to
the all-time low of $3.15 hit in October 2002. Year-to-date the stock is up
17%.