April 22, 2008

During the quarter, AT&T added 150,000 net new Uverse customers to reach a total of 379,000 by quarter's end. That run-rate is up over the 110,000 net new Uverse adds during Q4 07 and towers over the 10,000 net new adds during the year-ago quarter.

During the company's conference call, COO Rick Lindner said AT&T now makes its Uverse facilities-based service available to more than nine million "living units," which roughly pegs Uverse penetration at 4% of capable homes.

In some areas, Lindner said, penetration has topped 10%. That's pretty impressive for a technology that most skeptics (including me) thought would not be scalable at a financially sustainable level. The company is on track to reach one million Uverse video customers by year-end 2008, Lindner said.

Combined with AT&T's DBS video customers, the video subscriber count for the company reached 2.61 million or around 8.6% of the primary lines served by the company.

Wireless continued to be a bright spot, with 1.3 million net new wireless customer additions during the quarter, on par with Q1 07 net adds. By quarter's end, AT&T served 71.37 million wireless customers with wireless revenues of $11.8 billion generated during the quarter, up 30% year-over-year.

AT&T didn't break out the performance of its exclusive iPhone product, but Lindner did say during the earnings call that iPhone sales were pretty stable and that AT&T had not seen a slow-down in sales related to the purported impending release of the 3G iPhone. Lindner also claimed that the $99 unlimited wireless option introduced during the quarter had been a net positive for the company.

"The results have been better than we expected," he said. Before introducing the $99 plan, about 1.5% of new customers signed up for rate plans that were $99 or higher, but after the new plan was introduced, that percentage rose to 4%. Although some customers downgraded to the $99 plan, the incremental change is positive. "New customers are choosing to buy up to get the piece of mind of the unlimited pricing," Lindner said.

Despite the maturity of the market, broadband growth held up well, with AT&T adding 491,000 net new broadband customers during the quarter, down from the 691,000 net new adds during the year-ago quarter but up from the 396,000 net adds during Q4 07. By quarter's end, AT&T served a total of 14.65 million broadband customers. Of these, 12.55 million represented consumer broadband connections, reflecting 41.4% of consumer primary lines.

But, AT&T is selling broadband on a standalone basis now or bundled in a dual-play package with wireless service, with no requirement that customers also purchase landline service. Lindner said that 30% of net new broadband customers are choosing this no-landline option.

AT&T continued to lose landline customers during the quarter, with access lines dropping 1.17 million to reach 60.42 million by quarter's end. Although cable competition is still a main culprit, Lindner said the loss to cable's voice services seems to be flattening out. Wireless substitution could be a bigger factor. "We are seeing continue ramp in wireless substittion and some of that may be driven by the economy and some of that may be driven by how certain segments of the marketplace want to handle their communications," Lindner said.

Overall AT&T seems to have been hit less severely by the recession than other segments of the economy, contrary to the recession-related fears surrounding the company in late 2007. "Our business tends to be more defensive than most in times when the economy is weak," Lindner said.

Operating revenues for AT&T bear that assessment out. The telco generated $30.744 billion in revenues during Q1 08, up 6% year-over-year and 1% sequentially, a good performance for an incumbent telco. Net income jumped 22% year-over-year and 12% sequentially to $3.46 billion.

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