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AT&T Long-Term Debt Ratings Lowered

On Oct. 29, Standard & Poor's lowered its long-term ratings on AT&T Corp. and related entities. The long-term ratings remain on CreditWatch with negative implications.

At the same time, the rating agency lowered its short-term corporate credit and commercial paper ratings on AT&T to 'A-2' from 'A-1' and removed these ratings from CreditWatch.

The rating action is based on the steeper than anticipated decline in consumer and business long-distance voice revenue and slower growth in data revenue. In addition, the steep decline in long-distance revenue is expected to continue through at least 2002, particularly on the consumer side, due to

wireless and E-mail substitution, ongoing competition from regional Bell operating company entry, and the migration of customers to lower-priced optional calling plans and prepaid cards. In the business segment, long-distance voice and data revenues have been impacted by the economic slowdown, the Sept. 11 terrorist attacks, wireless and Internet substitution,

and increasing competition.

The long-term ratings on AT&T Corp. remain on CreditWatch with negative implications, signifying that on the restructuring of the company, the rating on AT&T Broadband is not expected to be higher than 'A-', while AT&T Communications Services, which includes AT&T consumer and business long-distance voice and data segments, will be rated 'BBB+' and is expected to

have a stable outlook. Even if AT&T Communications Services' balance sheet were to have minimal debt, its rating would not be higher than 'BBB+' because of the high business risk profile of the long-distance industry. The ratings on AT&T

Communications Services and AT&T Broadband will be formalized when the status of AT&T Broadband is resolved.

As of Sept. 30, 2001, AT&T Corp.'s net debt outstanding was about $38.5 billion (total debt about $43 billion), excluding monetizations. The company has reduced its debt level by about $18 billion since year-end 2000. Additional debt deleveraging plans have been delayed due to the uncertainty of the future

of AT&T Broadband. These plans included an IPO for AT&T Broadband and the sale of AT&T Corp.'s interest in Time Warner Entertainment.

In the third quarter of 2001, AT&T Corp.'s total revenue declined about 2% compared with the second quarter of 2001 and about 6% compared with the third quarter of 2000. This was attributable to the weakness in the consumer and business long-distance voice and data segments and lower broadband revenue due

to cable asset sales and the impact of the slowing economy on advertising sales. However, AT&T Corp.'s overall EBITDA margin improved slightly to 31% compared to 29% in the second quarter of 2001 as a result of cost reductions. Net debt to EBITDA on an annualized basis was 2.4 times (x), compared with 2.9x

in the second quarter. From Standard & Poor's CreditWire

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