AT&T 1Q Net Up 22% on Strong Wireless Growth
NEW YORK -(Dow Jones)- It's a tale of two extremes at AT&T. On one end, the wireless business continues to perform well, shrugging off economic worries and concern that the base of potential new customers is shrinking. On the other, the wireline business is losing ground, particularly as margins shrink.
"If wireless is the engine, wireline is the anchor," said Craig Moffett, an analyst at Sanford Bernstein & Co.
Taken together, results fell in line with expectations. The nation's largest telecommunications company reported net income of $3.46 billion, or 57 cents a share, up from $2.85 billion, or 45 cents a share, a year ago.
The latest results include severance charges related to layoffs and acquisition-related expenses. Excluding that, merger costs and a prior-year divestiture gain, earning rose to 74 cents a share from 65 cents a share.
Revenue climbed 6.1% to $30.74 billion.
The mean estimates of analysts polled by Thomson Reuters were for earnings of 74 cents a share on $30.7 billion in revenue.
"Overall, there's more good than bad," Moffett said. "They are successfully navigating the icebergs of a weakening macroeconomy."
Earnings at AT&T's wireless unit nearly doubled to $2.9 billion, as revenue increased 18%. The unit's growth was driven by strong subscriber gains and increased average monthly revenue per subscriber. Apple's iPhone has also been spearheading the continued growth in the wireless business.
The unit added 1.3 million net new subscribers, up 8.7%, including 705,000 new post-paid subscribers. Subscribership was 71.4 million as of March 31. The turnover rate for customers who sign long-term contracts dipped to 1.2% from 1.3%. The total turnover rate, which also includes customers who pay in advance for their wireless minutes and subscribers who use the network via a reseller, was flat at 1.7%.
Average revenue per user, a closely watched measure in the telecom industry, edged up 2% to $50.18.
As the market tightens and wireless carriers deal with slowing growth of post-paid subscribers, AT&T has been looking to pre-paid customers - previously shunned because they often pay less per month and are more prone to switch services than contract customers - to expand its subscriber base. Like in the fourth quarter, AT&T is beginning to rely more on pre-paid business, either directly or through resellers.
Revenue for wireless data services - including mobile access to Internet and email - surged 57%. Data now represent 22% of AT&T's total wireless service revenue, up from 16% a year ago.
The wireline business posted a 2.1% drop in earnings to $2.83 billion, as revenue fell 2%. AT&T, along with wireless provider Verizon Communications (VZ), has been fending off strong challenges from cable companies while suffering ongoing losses in traditional phone lines. It lost 1.2 million net access lines in the period.
"The wireline results continue to deteriorate," Moffett said, adding the line loss was among the worst in the company's history.
Last week, AT&T announced plans to lay off 4,600 mostly white-collar employees, or about 1.5% of its work force, as part of a reorganization of its shrinking landline phone business. But the company intends to hire back about the same number of people in jobs related to its expanding wireless, television and broadband services in coming months.
The move comes amid a broader reorganization by the phone giant to emphasize operational units rather than geographic regions and is part of the changes being put into play by the recent appointment of AT&T Chief Executive Randall Stephenson, who took the helm in 2007.
Shares of AT&T rose 35 cents, or 0.7%, to $37.85 in recent trading.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(Donna Kardos contributed to this story.)
(END) Dow Jones Newswires
Posted to the site on 22nd April 2008