AT&T issued its Q3 06 earnings report this morning, showing continued slippage in revenues but robust growth in net income due to continued cost-cutting at the incumbent telephone giant. Revenues dropped 5% year-over-year and 1% sequentially to $15.638 billion, while net income soared 25% year-over-year and 20% sequentially to $2.165 billion.
AT&T released real news during its earnings call: in late June 2006, the telco achieved 10% penetration of the homes marketed for its U-Verse IPTV service. During the call, CFO Rick Lindner said that AT&T had garnered 3,000 paying customers during its limited commercial launch of the fiber-to-the-node (FTTN) multichannel video service in San Antonio, out of a total of 30,000 homes marketed with the service. In some pockets, specifically multi-dwelling units, penetration of U-Verse reached 25%.
U-Verse achieved this level of penetration despite the fact that high-definition TV service wasn’t fully available to the potential and actual customers. The picture quality of the service, a subject of much concern given the relatively tight bandwidth that the FTTN architecture delivers, is “excellent,” Lindner said, and “the word of mouth in the San Antonio community is good.”
| AT&T U-Verse Homes Passed (in mil.) | |
| Homes | |
| 1Q06 | 0.1 |
| 2Q06 | 0.5 |
| 3Q06 | 1.3 |
| 4Q06 | 2.4 |
The launch has been deliberate, Lindner said, with targeted and narrow marketing efforts. Part of the reason for the slow pace and limited marketing is the fact that high-definition service was not, until recently, part of U-Verse. “We didn’t want to put too many customers on the platform before we had the HD capability,” Lindner said. As it is, “we’ll need to go back in to our existing customers and we’ll have to replace set-top boxes, customers will lose some of the programming on the DVR,” he added, noting the increased costs of retrofitting existing customers with HD capability.
HDTV will, however, be a part of AT&T’s upcoming launch in Houston, slated for late-November. Lindner claims the company is still on track to launch 15 markets by year-end, which, in essence, means that AT&T will launch 14 additional markets in the month of December.
As of the end of Q3 06, AT&T had passed 1.3 million “living units,” or homes, with the U-Verse option, although clearly only a small fraction of those homes were marketed. AT&T plans to push the U-Verse option past 2.4 million homes by the end of Q4 06.
Meanwhile, the telco’s DBS pact seems to be paying off with incremental growth in video customer counts. At the end of Q3 06, AT&T served 586,000 video customers with its Dish Network bundled option, which represents a gain of 53,000 video customers over Q2 06 levels.
Wireless voice and DSL are the other two growth products for AT&T, with the company’s Cingular voice service adding 1.358 million net new customers during the quarter, and DSL advancing by 374,000 net new customers. Although DSL made gains, the growth rate over year-ago levels slowed, with the number of net new DSL additions down 29% from the record-breaking 529,000 net new DSL adds during Q3 05.
The company’s traditional voice service business continued its downward spiral, particularly in the residential market. The number of access lines served by AT&T dropped 6% year-over-year and 2% sequentially to 47.1 million. Lindner tentatively predicted that line loss would level off next year as the pace of new cable VoIP rollouts cooled.
AT&T is on the cusp of completing its merger with BellSouth, although the FCC has yet to sign off on that deal. The Commission is expected to hold a November 3 meeting to approve the merger, but doubts run high that the deal will clear this last regulatory hurdle on that date. Lindner said little about this last-minute monkey wrench, but did say “we would like to get the deal done and in trying to expedite the approval we’ve made some proposals that are very pro-competitive and very pro-consumer,” referring to a list of conditions that AT&T agreed to meet if the FCC approves the deal.
With that potential speed bump aside, the company is hoping that 2007 will mark the year it returns to top-line revenue growth. “The revenue trends we saw this quarter, particularly in wireless, and in business…those things add to the confidence we have in revenue outlook,” Lindner said.
| AT&T Key Statistics* | |||||
| 3Q05 | 4Q05 | 1Q06 | 2Q06 | 3Q06 | |
| Total access lines (mil.) | 50.2 | 49.4 | 48.8 | 47.9 | 47.1 |
| DSL customers (000) | 6,496 | 6,921 | 7,432 | 7,774 | 8,148 |
| % growth | 9% | 7% | 7% | 5% | 5% |
| % of total lines | 12.94% | 14.01% | 15.24% | 16.23% | 17.30% |
| % of consumer primary lines | 23.70% | 25.50% | 27.70% | 29.50% | 31.30% |
| Quarterly adds (000) | 528 | 425 | 511 | 342 | 374 |
| % chg. in quarterly run rate | 47% | -20% | 20% | -33% | 9% |
| Video Customers (000) | 419 | 457 | 491 | 533 | 586 |
| Net Adds | 15 | 38 | 34 | 42 | 53 |
| Wireless Voice Customers (000) | 52,292 | 54,144 | 55,810 | 57,308 | 58,666 |
| Net Adds | 850 | 1,852 | 1,666 | 1,498 | 1,358 |
| Total operating revenues (mil.) | $16,468 | $16,279 | $15,835 | $15,810 | $15,638 |
| Net Income | $ 1,729 | $ 1,862 | $ 1,445 | $ 1,808 | $ 2,165 |
| *Financial data normalized to include AT&T Inc. and AT&T Corp. | |||||
Note: With the exception of the table at the end, this posting is a reprint of an article I posted over at IP Media Monitor today.
Cynthia Brumfield at 4:31 PM|Comments(0)
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