AT&T cuts 12,000 jobs, will cut capital spending

AT&T said Thursday that it will cut about 12,000 jobs, or 4 percent of its workforce, due largely to "economic pressures."

The layoffs are beginning to sound like a broken record (or MP3). AT&T said it wants to streamline its operations as its business morphs to one that's largely dependent on wireless service (statement). AT&T added that it will add jobs in growth areas such as wireless, video and broadband. For many quarters, AT&T's wireless and U-verse broadband service have shown growth as its once-core wireline business erodes.

AT&T also said that it will cut its 2009 capital spending budget from 2008 levels, but didn't give specific guidance. In any case, AT&T's cutbacks are likely to ding telecommunication equipment vendors. According to Morgan Stanley analyst Simon Flannery, AT&T is likely to spend $20 billion, or 16.1 percent of revenue, on capital expenses (click to enlarge chart).

In 2008, AT&T spent heavily to build out its 3G network to prepare for the iPhone and also faced expenses to restore service following hurricane season. Meanwhile, the cost cutting wasn't a surprise to many analysts. Flannery wrote in October:

We expect AT&T to announce material cost cutting in coming weeks as an offshoot of the recent management reorganization. We believe there is still significant scope to trim opex and capex to deal with a tough macro-economic environment. About 40% of capex is related to growth initiatives.

The telecom giant said it will take a charge of $600 million in the fourth quarter for severance.