AT&T ENDS ADVERTISING FOR CONSUMER PHONE SERVICES

Executes Dramatic Marketing Strategy Shift to Business Customers

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SAN FRANCISCO (AdAge.com) -- In a move that ends its long run as one of the world's largest buyers of consumer advertising, telephone giant AT&T has announced it will no longer market consumer telephone services.

Top megabrand
Earlier this month, the annual Advertising Age Megabrands survey ranked AT&T, which spent more than $1 billion in measured media in 2003, as the No. 2 brand behind Verizon.

That megabrand status will now evaporate as AT&T executes a dramatic shift in marketing and advertising strategy and completes its planned sale of AT&T Wireless to Cingular by the end of this year.

In a Thursday statement chairman-CEO Dave Dorman said AT&T -- whose name has long been synonymous with household telephone services -- would quit that business and adopt a new strategy focused on higher margin business-to-business services. The telecommunications giant said it will continue to service existing residential customers but will no longer conduct marketing activities seeking more such customers.

Impact on agency unclear
In February, the company began its repositioning with a $200 million brand campaign for “The world’s networking company." WPP Group’s Young & Rubicam, New York, is AT&T’s advertising agency. The full effect of the marketing cut back on the agency is unclear.

A Y&R spokeswoman said there are no plans to lay off employees as a result of AT&T's announcement. She referred all other questions regarding AT&T's future advertising plans to the marketer.

Mr. Dorman noted that "the residential telecom market has been transformed by competition" and that even the more lucrative business-to-business market faces “pressures of oversupply and aggressive pricing behavior on the part of certain competitors.”

AT&T's residential business was dealt a blow when government regulators allowed regional phone companies to raise the wholesale rates charged to AT&T for reselling local and long-distance services. AT&T recently moved to offer Internet-based phone services (known as Voice over Internet Protocol or "VoIP") for residential customers. Mr. Dorman said VoIP and its new entry into the wireless market via Sprint will now be focused primarily on business rather than residential customers.

No further comment
An AT&T spokeswoman said marketing executives would be unable to comment on the implications of the huge change because they were so busy implementing it.

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