AT&T Reorg Could Be the First Step Toward Layoffs

AT&T’s move to reorganize itself into four business units is likely a precursor to layoffs, according to sources within the company who asked not to be named. The reorg comes as AT&T tries to adjust to the realities of the credit crunch, a diminishing access line and DSL business, and increased headcount caused by two large mergers in the last three years.

News of the reorg, which will see the creation of consumer, business, infrastructure and diversified products business units, trickled out yesterday. John Stankey, the former president of AT&T’s telecom operations, will head the infrastructure division; Ray Wilkins will remain CEO of the diversified businesses unit; and Ronald Spears will head the business unit. Ralph de la Vega, currently the CEO of AT&T’s wireless business, will head up the consumer business, which will contain wireless, broadband and video services. AT&T subsequently confirmed the moves, saying it wants to make consumer products work better across its portfolio of devices.

The reorganization will better align the company as it competes against the cable carriers. Just yesterday we noted how the phone companies have a hard time attracting customers to their triple-play bundles because of speed issues on DSL lines. Once those broadband connections are upgraded, the ability to combine data, voice, video and wireless for a quadruple play could put the carriers ahead of cable. But in order for that to work, the old division between wireline services, such as U-verse, and wireless needed to come down.

However, as the company streamlines, it’s also likely to find redundancies. Managers inside AT&T expect that they’ll soon get targets for headcount reductions ranging anywhere from 5 percent all the way to 20 percent in some areas of the company (I bet DSL and wireline will be hardest hit). When asked about layoffs via email, AT&T spokesman Marc Bien said, “Regarding headcount, at this time, we have no specific plans for workforce changes related to this new organizational structure.”

Employees believe it’s only a matter of time. News of rising costs related to AT&T struggling to sell its short-term debt, and the recognition that costs still need to be trimmed in the wake of its acquisition by SBC Communications (which then took the AT&T brand) in 2005 and BellSouth in 2006, have many concerned. Earlier this year the carrier announced a workforce reduction of 1.5 percent (about 4,650 workers) in its local phone business, but it still employed 307,550 people as of June 30. I expect that number will drop again soon.