AT&T is the world's oldest phone firm

AT&T said it intends to concentrate on serving business customers, though it would keep existing household accounts.

Net profits dived to $108m (�56.8m) in the second quarter of 2004, from $536m year-earlier, while revenue was 13% lower at $7.6bn.

AT&T has been squeezed by cable services in the household calls market.

Beaten by bundling

About 40% of US households now buy bundled services, making it impossible for AT&T to compete in its traditional market of long-distance domestic calls, said company chairman and chief executive Dave Dorman.

Business customers provide 75% of AT&T's revenue

Reaction to the firm's new strategy was mixed, as its chosen sector, the business telecoms market, also suffers from intense pricing competition and tight margins.

Business customers already provide three quarters of AT&T's sales.

However, credit ratings agency Standard & Poor's said it was considering slashing its rating on the telecoms firm's debt to junk status, while rival ratings agency Fitch promptly did so.

But some analysts praised the move. "We believe that Dave Dorman has found the correct eject cord to pull in order to save Ma Bell," said Greg Gorbatenko, an analyst at Marquis Investment Research.

Glory days

AT&T's history goes back to 1876, when Alexander Graham Bell patented the telephone. It grew out of the firm founded by his financial backers, Bell Telephone Company.

AT&T'S MILESTONES 1876 - AG Bell wins patent 1877 - Bell Telephone Co 1885 - AT&T created 1927 - first transatlantic service 1934 - first transpacific service 1951 - customer direct dialling 1963 - touch tone dialling 1970 - IDD launched 1984 - US market deregulation Source: AT&T

"The history of AT&T is in large measure the history of the telephone in the United States", its website boasts.

AT&T had a monopoly grip on the US phone market until deregulation in 1984, when seven companies were split off, creating regional baby Bell firms while AT&T continued to provide long-distance call services.

Former baby Bells like SBC Communications are among the firms now vanquishing AT&T in the household market, along with rivals like Verizon and Qwest.

New destiny

AT&T's chief executive said the firm had opted to focus on sectors "where we are a clear leader, where we control our own destiny and where we have distinct competitive advantages".

AT&T said second quarter revenue from business customers fell 13% to $5.6bn, while sales to consumers were down 15% to $2bn.

AT&T is developing specialist business packages, including voice-activated internet services.

A ruling by the US telecoms regulator threatens to raise the costs for AT&T of continuing to provide household phone services.

The Federal Communications Commission said the fees charged by local operators for wholesale line rentals to long-distance providers would be permitted to rise 15% if pricing negotiations fail to produce agreement by the end of the year.