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Fears that about 7 per cent of America’s workforce could be out of a job by the end of the year were stoked yesterday after the country’s biggest phone company said that it was dismissing 12,000 staff.

AT&T announced that it was making 4 per cent of its workforce redundant and slashing its capital spending. The job cuts provided fresh evidence that America’s recession is spreading rapidly across the whole of the US corporate sector.

AT&T, which provides fixed-line and mobile phone services, said that it was cutting costs to cope with the sharp fall in demand for traditional telephone services. It gave warning that it will make some of the cuts before the end of the year and the rest next year. The company estimated that the cost of the redundancies would be about $600 million (£400 million), accounted for in the fourth quarter.

Americans, fearful of joining the 240,000 workers a month who are losing their jobs, have cut back on all their nonessential spending, including new mobile phones and telecom services at home.

More worrying for Wall Street, the carrier said that it was reducing its capital spending from 2008 levels as it sought to cut costs amid one of the biggest economic crises to hit America since the 1930s.

AT&T said that its final spending plans had not been completed but that it would reveal its expenditure proposals in January. While an increased number of unemployed Americans hits consumer spending, which accounts for two thirds of all US growth, a fall in capital spending is equally serious because it affects other companies that provide services to corporate America, such as new computer equipment and networks.

The move comes after a round of cost cutting in April when the telecoms giant said that it was sacking 4,600 staff, mostly in management and also announced a three-year plan to eliminate 10,000 workers. However, since then the rate of decline in the American economy has accelerated. The banking crisis in September, in which Lehman Brothers, the Wall Street investment house, collapsed, triggered rapid economic decline as the recession engulfed the whole of corporate America.

Two months ago Intel, the world’s biggest microchip maker, sliced $1 billion from its third-quarter profit forecasts and Circuit City, America’s second-largest electronics retailer, admitted that its management had been “upended” by the speed of the downturn. Circuit City, which plans to cut a fifth of its workforce by Christmas, applied for Chapter 11 bankruptcy protection.

AT&T, whose shares have already fallen by a third this year and yesterday closed down a further 3 per cent to $28.17, said that it needed to make the job cuts because of “economic pressures, a changing business mix and a more streamlined organisational structure”.

AT&T is also suffering from its inability to compete effectively with cheaper cable television and internet rivals that are offering less expensive telecom services.

During the third quarter of the year the company admitted that traditional landline revenues had fallen by 8 per cent. It sought to reassure investors that it was trying to fight back by investing in high speed internet and video services. It also boasted that its partnership with Apple’s iPhone had helped it to win new customers.

Chris Larsen, an analyst at Credit Suisse, added: “The job cuts should not be surprising given the weakening trends in the residential wireline business.” He forecast that the company would spend $17 billion next year, down 12 per cent from this year.

Meanwhile, Viacom, the entertainment conglomerate controlled by Sumner Redstone, said it would cut 7 per cent of its workforce, or 850 jobs, and freeze senior executive pay because of the economic slowdown.

Viacom, which owns Paramount Pictures, the MTV and Comedy Central cable channels and other properties, said that the restructuring would result in a charge of $400 million to $450 million against its fourth-quarter results.

It expected the cost-cutting moves to save up to $250 million next year. Viacom last month reported a 37 per cent fall in quarterly net profit.

— Advanced Micro Devices (AMD), the struggling US computer chip maker, said yesterday that it expected fourth-quarter revenue to be 25 per cent lower than the $1.585 billion posted in the third quarter. AMD, the second-largest US manufacturer of computer chips after Intel, said that earnings in the fourth quarter would be about $1.18 billion – well below the $1.54 billion forecast by analysts.

It will report its fourth-quarter results on January 22. It has long battled to wrest market share from Intel and has carried out a series of layoffs this year.

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