AT&T feeling credit crunch strain

The tightening of the global credit markets is crimping the world's largest telecommunications company.

AT&T Inc. (T, Fortune 500) Chairman and CEO Randall Stephenson said Tuesday that his company was unable to sell any commercial paper last week for terms longer than overnight. Commercial paper, which helps lubricate the flow of business operations, is a short-term IOU available to corporations that banks usually know are good for the money.

It's not that short-term borrowing is unreasonably expensive, Stephenson said. A shortage of buyers for the debt means such borrowing is not as readily available as it had been even three weeks ago, he said.

"It's loosened up a bit, but it's day-to-day right now. I mean literally it's day-to-day in terms of what our access to the capital markets looks like," Stephenson said. AT&T spokesman Larry Solomon said later that as of Tuesday, the company has ready access to the commercial paper market at reasonable rates and various terms.

But as a result of the recent volatility, managers at the Dallas-based phone company are more cautious.

"Your ability to plan for investment is obviously affected. You kind of don't know what your cost of capital six months from now is going to be," he said. "We'll just be very guarded, cautious in terms of where we invest, very guarded and cautious in terms of hiring and capital spending. We'll see where this situation goes."

AT&T has strong cash flow, which makes it less reliant on debt. But it's also paying for some big acquisitions of wireless spectrum this year. It had winning bids worth $6.6 billion in the latest auction by the Federal Communications Commission. By comparison, it had $1.6 billion in cash at the end of June.

Credit-ratings firm Moody's Investor Service said AT&T had $8.5 billion outstanding under its commercial paper program at the end of June.

AT&T backs up its commercial paper sales with two credit facilities, much like credit lines, totaling $13 billion. However, Lehman Brothers was one of the companies underwriting the facilities, and its demise has lopped about 6 percent from the amount AT&T can borrow, according to Bank of America analyst David Barden.

Stephenson was in North Carolina to celebrate the opening of a new call center for AT&T's broadband Internet service. The 400 jobs planned for the site in a former grocery store are part of 5,000 jobs AT&T decided to bring back to the United States after they were outsourced overseas.

In its last quarterly report, in July, AT&T reported profit of $3.8 billion on revenues of $30.9 billion. One disappointment in the quarter was that cable companies outpaced telephone companies in adding broadband Internet subscribers.

"The way this thing works is quarter to quarter. One group will have the share gain one quarter, we'll take the share back the next quarter," Stephenson said. "Last quarter, the cable guys had taken share from us, so we made some promotional changes, stepped up some advertising, made some tweaks to pricing in various markets to respond. But it's a hypercompetitive market. This is no big surprise. You see it in the wireless market all the time."