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AT&T stock plunges on soft consumer demand

"As people foreclose on houses, you're obviously going to have access-line disconnects. If the economy continues to weaken, that's going to continue to weigh on access lines."

William Power, Robert W Baird & Co analyst

Shares of AT&T Inc dropped to their lowest in nearly five years in New York trading after chief executive officer Randall Stephenson said slowing economic growth led to "softness" in the home-phone and Internet businesses.

The share price fell 4.6 percent, helping to spark a broader decline in US stocks after Stephenson said San Antonio-based AT&T would disconnect more phone and high-speed Internet customers who failed to pay their bills.

"We're really experiencing softness on the consumer side of the house from the economy," Stephenson said at an investor conference in Phoenix yesterday.

The disconnections in the residential-phone business, which accounts for about a fifth of sales, have put more pressure on Stephenson, who became CEO in June. Last year, he relied on the popularity of wireless handsets such as Apple Inc's iPhone to fuel growth, helping to make up for losses of home-phone customers.

AT&T fell US$1.87 to US$39.16 at 4pm in in New York Stock Exchange composite trading. The drop was the largest since March 2003. The shares have declined 5.8 percent year to date after climbing 70 percent in the previous two years as the firm reaped savings from US$100 billion in mergers.

Stephenson's comments underscore investors' growing concern that the US economy is sinking into recession. US President George W. Bush said on Tuesday that economic indicators were sending "mixed" signals and that Congress should keep taxes low to avoid aggravating the situation.

AT&T was the second-biggest decliner on the Dow Jones Industrial Average yesterday, helping to pull the index down 1.9 percent.

"As people foreclose on houses, you're obviously going to have access-line disconnects," Robert W Baird & Co analyst William Power said in an interview from Dallas. "If the economy continues to weaken, that's going to continue to weigh on access lines."

Investors are concerned the slowdown may spread to business customers, said Power, who advises buying the shares.

"It's the big unknown on the enterprise side. On the consumer side, we're seeing it," Stephenson said. "On the enterprise side, not yet."

The economy had not affected the mobile-phone unit, Stephenson said. The wireless division grew 14 percent in the third quarter and represents more than one-third of AT&T's overall revenue.

AT&T isn't changing its financial forecasts for this year, company spokesman Michael Coe said.

"He was mainly talking about what we were seeing in December," Coe said, referring to Stephenson's comments.
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