AT&T 2Q Net Rises 61% Amid Acquisitions

NEW YORK -(Dow Jones)- AT&T was able to post a sequential increase in wireless subscribers during the second quarter, but the number of iPhone customers it signed up failed to please some bulls.

In the last day and a half of the quarter, AT&T said it activated 146,000 iPhone subscribers, which fell short of very bullish expectations. Some analysts had expected AT&T to sign up 700,000 customers in the first weekend of the iPhone launch.

Christopher King, an analyst at Stifel Nicolaus, said iPhone activations fell short of his expectation, but cautioned that it's too early to read into the results.

Earlier Tuesday, CIBC said in a research report there's been a "significant" slide in demand over the past 10 days for iPhone.

Others, however, were encouraged by AT&T's wireless-subscriber growth in general, noting that Apple's iPhone had only a minimal impact in the second quarter. Expectations are high that AT&T will benefit throughout the year if the iPhone continues to generate buzz.

Todd Rosenbluth, an analyst at Standard & Poor's, said AT&T's overall wireless-customer growth was encouraging. "The growth seems to be driven by wireless revenue as well as overall cost cutting increasing operating margins," said the analyst.

AT&T said iPhone sales "continue to be strong in July with store traffic above historical levels." During a conference call Tuesday, Chief Financial Officer Rick Lindner said that "wireless growth is accelerating" and that the iPhone launch went "very well."

Lindner said initial customer feedback with the iPhone has been "off the charts." The executive noted expectations were very high going into the launch of the iPhone.

According to the financial chief, during the second quarter AT&T saw strong gains in wireless data. He said AT&T is in the early stages of a broad adoption of wireless-data services and there is a lot of opportunity in front of the telecommunications company. "Only about 60% of wireless customers are active data users today. There's a lot of room for growth as applications and handsets are increasingly data-centric," he said.

For its second quarter, the nation's largest telecommunications company posted net income of $2.9 billion, or 47 cents a share, compared with $1.8 billion, or 46 cents a share, a year earlier. Revenue surged 87% to $29.5 billion.

The prior-year figures don't include results from BellSouth Corp. and its 40% stake in Cingular Wireless, which AT&T took full control of with its takeover of BellSouth late last year.

Excluding the impact from acquisitions, AT&T said it would have earned 70 cents a share, compared with 58 cents a share a year earlier. The mean estimate of analysts surveyed by Thomson Financial was for earnings of 67 cents a share on revenue of $29.6 billion.

If the BellSouth deal was concluded a year earlier, revenue would have increased 2%, thanks to continued wireless strength offsetting weakness in wireline operations.

Excluding merger costs, operating margins jumped to 23.9% from 19%. AT&T sees full-year margins at the top end of its forecast of 23% to 24%.

Revenue at AT&T's wireless unit grew 13% to $10.4 billion, while earnings soared 57% to $1.55 billion as operating costs rose 7.1%. Total churn, or turnover rate, fell to 1.2%, from 1.3% in the first quarter.

AT&T said wireless data revenue - money that its customers pay for browsing the Internet on their cell phones and sending wireless emails - surged 67% to $1.7 billion. Average revenue per user, or ARPU, was $50.63, up 3.6%, the highest growth in several years. ARPU is a closely followed measurement in the telecom industry.

AT&T's wireline business generated $17.99 billion in revenue, up 25%, while profits jumped 54% to $3.11 billion. The company, like much of the phone industry, is suffering from a deteriorating fixed-line business as customers drop their service in favor of a wireless or Internet-based alternative. AT&T lost 193,000 consumer primary lines in the quarter, compared with a pro forma loss of 528,000 in the year-earlier quarter.

Meanwhile, AT&T saw its rolls of consumer and business DSL subscribers rise by 361,000 during the second quarter, up 5.6% from a year earlier, while television-subscriber growth surged fivefold to 200,000.

Over the past few years, AT&T - previously known as SBC Communications Inc. - has been on an acquisition spree in purchasing the original AT&T Corp., BellSouth and AT&T Wireless. Last month, AT&T struck a deal to acquire wireless carrier Dobson Communications for $2.8 billion.

AT&T also repurchased 98 million shares during the quarter, spending $3.9 billion. The company completed a 16-month-old, $10 billion share-repurchase plan earlier this month, nearly six months ahead of schedule. AT&T can still buy 125 million shares under prior board authorizations, and expects to continue buying shares in the second half.

Recently shares of AT&T were trading down 5 cents to $39.98.

-By Donna Fuscaldo, Dow Jones Newswires; 201-938-5863; donna.fuscaldo@dowjones.com

(Kevin Kingsbury and Judy Lam contributed to this story.)

(END) Dow Jones Newswires"

Posted to the site on 24th July 2007