Armstrong Calls Cash Decline Unacceptable

AT&T Corp. chairman C. Michael Armstrong called a
fourth-quarter and year-end operating-cash-flow decline at its cable operations
"unacceptable," but he added that changes are being made to reverse the

AT&T said last week that companywide
fourth-quarter-1999 earnings fell 16.2 percent versus the same period in 1998, largely due
to the costs of buying Tele-Communications Inc.

AT&T reported operational earnings of about $1.8
billion, or 57 cents per diluted share, on revenue of about $16.4 billion, up 5.9 percent
versus the fourth-quarter-1998 total of $15.4 billion.

At AT&T Broadband & Internet Services, revenue was
up 7.4 percent. But the core cable operations reported a 6.1 percent decline in operating
cash flow for the quarter and a 2.3 percent drop for the year. Pro forma operating cash
flow at AT&T Broadband rose 8 percent in the quarter and declined 23 percent for the

"The only way to explain it is that it is unacceptable
to me, and I know it is unacceptable to [AT&T Broadband president] Dan Somers,"
Armstrong told analysts during a conference call.

But Armstrong said he was encouraged after meetings with
AT&T Broadband executives over a two-day period, where plans to reverse the downturn
were unveiled, including consolidating headends and call centers and implementing an
incentive-based management-compensation plan focused on growth.

"I have every confidence that they are going to pull
off not only the scaling and operational metrics, but the financial metrics, as well,
including mid- to high-single-digit OCF [operating cash flow] growth," Armstrong

There were some bright spots in the cable sector, including
growth in digital and high-speed-data subscribers and advances in the company's telephony

At the video business, revenue rose 6.3 percent for the
year and 7 percent in the quarter. Plant upgrades are running ahead of schedule -- the
company ended the year with 58 percent of its systems with at least 550-megahertz
capacity, up from forecasts of 54 percent. About 51 percent of systems were
two-way-capable at the end of the year, meeting expectations.

Subscriber growth was modest, rising 0.6 percent to 11.4
million, with roughly 20 million homes passed.

Digital-cable subscribers increased by 200,000 in the
quarter, and the company hit its target of 1.8 million digital customers at year-end.
Armstrong said AT&T is doing about 3,000 digital installs per day, representing a ramp
rate of between 2.5 million and 3 million customers by the end of 2000.

High-speed-data offerings also exceeded expectations,
rising by 80,000 subscribers in the fourth quarter and ending the year with 207,000

"Broadband data is rapidly becoming a significant
market to us," Armstrong said. "With our plant upgrades ahead of schedule, we
should meet or exceed the 700,000 [high-speed-data] subscribers we forecasted."

Armstrong was also high on cable telephony, saying that the
company ended the year with 8,300 paying customers, up from about 2,000 in the third
quarter, and it is moving out of the pilot stage and into deployment of service.