AT&T Announces Company Breakup

Nearly 18 years after its court-ordered breakup, AT&T Corp. is breaking up again, this time
by choice, into four separately held public companies it was announced

In 1982, AT&T was ordered to split into one long-distance company and seven
regional bell operating centers, or Baby Bells, to conform with the
government’s anti-trust regulations.

Wednesday’s announcement effectively calls for an AT&T
breakup into four “Tiny Ts” as some investors are calling them.

The four companies will retain the AT&T brand and operate, when
restructuring is complete in 2002, on an exclusive basis for the next five
years. An outside committee of board members will track the four company’s
dealings to ensure the prices are charged at a competitive rate.

AT&T Wireless and AT&T Broadband are the two most
successful units of the AT&T company, and will trade on common stock. AT&T
Consumer and AT&T Business will both operate under the tracking stock of AT&T.

AT&T Business remains as the principle unit of AT&T. Consumer, Broadband
and Wireless will buy all its network services from AT&T Business.

C. Michael Armstrong, AT&T chairman and chief executive officer, said in a
press conference Wednesday the announcement is just a continuation of the
strategy it has pursued since 1998.

“All morning long, since the announcement, there have been a number of
questions regarding the structure of the deal,” Armstrong said. “In my
view, structure serves strategy, and we’ve been pursuing that strategy
since 1998 on a consistent basis. In that time, we’ve acquired 20, 30
companies that build on that strategy.

“These four new businesses represent our consistency in our strategy,”
Armstrong continued. “To best serve that strategy, we have changed the

Before today’s announcement, Armstrong said he met with William Kennard,
Federal Communications Commission chairman, to address any possible
regulatory hurdles.

“I met with Kennard and assured him of our commitment to our customers and
that the deal would ultimately benefit the shareholders and customers,”
Armstrong said. “He said that he didn’t see any problems to the split.”

Common stock AT&T shareholders have the opportunity to trade their stock in
for its equivalent in the AT&T Wireless tracking stock. Officials say
they will exchange at least $10 billion of its economic interest in AT&T
Wireless shares. Shareholders already hold a 15 percent stake in the
fledgling company.

The company’s board of directors will oversee the capital structure and
dividend policy appropriate to each of the new companies.

It’s expected that AT&T Business and AT&T Consumer will lean more towards
dividend returns to shareholders. AT&T Wireless and AT&T Broadband, which
has seen its business explode the past year, is expected to invest most of
its earnings back into the company for growth.

Wall Street’s reaction to the announcement wasn’t as rosy a picture as AT&T
officials were hoping.

Goldman, Sachs & Co. was one of only a few investment firms who looked at
the disintegration of AT&T as a positive step.

“AT&T’s 4-way split lays the foundation for improved operations and long
term value for shareholders,” its initial report stated. “We see the
dis-aggregation of AT&T as arealistic response to the changing nature of
telecom, and a forwardlooking move to operate each segment more
effectively. While thecombination of wireless, broadband, and long distance
services seemed a compelling mix a couple of years ago, market pressures,
the intractable decline of voice revenues, and the inability to assemble a
national cable footprint (via owned and allied properties) makes the
solution announced today an appropriate step.”

Goldman’s efforts to soo

the investor concerns went unnoticed, as AT&T saw
its stock value plunge $2 per share just hours after the announcement.

“When I first heard about the price drop I was dismayed, too,” said
Armstrong, in response to broker anger over the plunge. “It was hard to
look at because the changes the company will be going through is for the
benefit of our customers and to increase our shareholder value.”

Also announced this morning was AT&T’s decision to shuffle its public debt,
estimated at $24 billion. Proceeds from AT&T Broadband’s planned initial
public offering and repayment from AT&T Wireless will retired the company’s
short-term debt. The rest will be split between the new AT&T Business and
AT&T Broadband.

“AT&T recognizes the importance of its relationship with debt investors,”
an official statement read. “AT&T will work with the credit rating
agencies to obtain strong ratings for the new companies.”

Armstrong plans to stay on as chairman and chief executive officer
throughout the breakup, until the end of 2002 at least, he said.

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