AT&T CEO sees consumer softness, shares drop

The AT&T logo is seen in an undated file photo. The chief executive of AT&T said its consumer business was experiencing softness because of slowing economic growth, Bloomberg News reported on Tuesday, sending the telecommunications provider's shares sharply lower in late-day trading.

NEW YORK (Reuters) - AT&T Inc (T.N) said on Tuesday it saw softness in its consumer business, spooking investors who thought telecoms would be sheltered from the U.S. economic slowdown and helping drive the Standard & Poor's 500 stocks index to its worst five-day start to a year ever.

Shares of AT&T, which were among the strongest blue-chip performers in the U.S. market last year, with a 16 percent gain, fell as much as 10 percent in late trading before recovering to close down 4.78 percent at $39.07.

"We're experiencing softness on the consumer side of the house from the economy," AT&T Chief Executive Randall Stephenson told a Citigroup investor conference in a presentation that was broadcast over the Web.

Stephenson said the main impact of any U.S. economic weakness was on home phones and Internet services, whereas wireless would be the last thing consumers surrender.

His comments sparked a new round of recession fears, contributing to a loss of nearly 2 percent in both the Dow Jones Industrial Average and the S&P 500 index.

A spokesman for AT&T said Stephenson was talking about what the company saw in December when he referred to consumer softness.

"Our forecast has not changed. Consumer is a relatively small part of the business and our overall guidance has not changed," said AT&T spokesman Michael Coe, noting that consumers accounted for less than 20 percent of AT&T's revenue.

The Standard & Poor's 500 Index .SPX lost 25.99 points, or 1.84 percent, to end at 1,390.19, capping a 5.32 percent slide over the first five trading sessions of 2008 -- its worst such start on record.

The Dow fell 1.86 percent, or 238.42 points, to 12,589.07.

Verizon Communications Inc (VZ.N), the second largest U.S. phone company after AT&T, fell 2.73 percent to close at $41.75. Qwest Communications International Inc Q.N shares dropped 5.82 percent to $6.15, while Sprint Nextel Corp (S.N) fell 3.24 percent to $12.53.

Cable companies like Comcast Corp (CMCSA.O). and Time Warner Cable Inc (TWC.N) also fell more than 2 percent -- both companies are now major phone service providers to residential customers.

"Up to now, the telcos have put on a very brave face and have suggested that they haven't really seen any signs of economic weakness. That's really reinforced the idea that telcos are the ideal defenses," said Craig Moffett, analyst at Sanford C. Bernstein.

"Today's comment by Randall Stephenson is the first crack in that armor and suggests that maybe the old view that telcos are immune to the economy just doesn't hold true anymore."

The U.S. economy has been under pressure since the summer due to tightening of credit markets, a weakening housing market and poor job data.

"It's bad for everybody maybe not just telcos," said Tom Watts, analyst at Cowen & Co.

"There's been differing opinion on whether we're heading into a recession but this is a sign that we're seeing economic impact and consumer weakness."

(Additional reporting by Robert MacMillan; editing by Carol Bishopric)