South-Western EconNews

AT&T Wireless Cuts Costs to Gain Long-Run Profits

Subject

Greater efficiency and reductions in costs help firms stay competitive and increase profit

Topic

Supply and demand

Key Words

Efficiency, Profit Margins, Consolidation.

News Story

AT&T Wireless, a subsidiary of AT&T is continuing to reduce its workforce by about 3%, or 1,000 workers, this year. Last year about 2,000 AT&T workers were permanently laid off as well. This labor force reduction is not unique in the wireless phone industry, and is part of a larger effort by AT&T to "improve efficiency and achieve industry-leading margins." Other cost-cutting measures considered by AT&T include outsourcing some of its operations overseas, and consolidating its operations here in the US.

(Updated August 27, 2003)

Questions

1.	Using both a long-run and short-run ATC curve, illustrate what AT&T Wireless is hoping to accomplish with this move.
2.	What effect might this have on AT&T's pricing strategy? Why?

Source

Jesse Drucker. "AT&T Wireless Cost-cutting Plan to Eliminate 1,000 Jobs this Year." The Wall Street Journal. July 2, 2003.