The company, which recently sold its cable television unit to Comcast Corp.(NasdaqNM:CMCSA - News), faces a fresh bout of competition as its offspring, the Baby Bell companies created by the 1984 breakup of AT&T, enter the long-distance market.

At the same time, the long-distance market suffers from a glut of network capacity and slack demand from corporate customers in the weak economy.

More than half of the job cuts will come from management, and most of those executives will leave in the first half of the year. AT&T attributed the job cuts to improved processes and automation in services for business customers.

The cuts "reflect ongoing cost reduction and downsizing efforts across the industry, given weak demand," said Merrill Lynch analyst Adam Quinton.

Shares of New York-based AT&T, which provides telephone and data services to about 4 million corporate customers and more than 50 million residential customers, shed 12 cents to $27.54 midday on the New York Stock Exchange.

The layoffs will result in a restructuring charge of $240 million, which will lower fourth-quarter earnings by about 20 cents a share, the company said. Wall Street analysts were expecting AT&T to earn 66 cents a share for the quarter.

Separately, AT&T said it will offer high-speed DSL (digital subscriber line) Internet access through Covad Communications Group Inc., and will take a charge of $200 million, or 15 cents a share, to write down the value of its own DSL assets.

AT&T had acquired assets from bankrupt DSL company Northpoint Communications in 2001, but never broadly rolled out service on that network.