IP Democracy: AT&T's Consumer Wireline Business Tanked in Q208

Top telco AT&T issued its Q2 08 earnings report this morning showing revenue and net income growth thanks to its hot wireless business. But, in a sign that the recession is taking a stiff toll on consumers' budgets, AT&T's consumer wireline business -- including voice, broadband and overall video subscriptions -- took a steep nosedive during the quarter.

During Q2 08, AT&T's consumer voice lines dropped to 33.02 million, a record loss of 1.56 million lines. Lucrative consumer broadband subscription growth came to a virtual standstill. AT&T ended the quarter with 12.58 million consumer broadband connections, barely up from the 12.55 million consumer broadband connections at the end of Q1 08.

AT&T gained only a net 46,000 broadband subscribers during the quarter, less than a tenth of the 491,000 net broadband subscribers gained during Q1 07 and surely a multi-year low for any major broadband provider.

Despite strong growth in its AT&T U-verse video business, AT&T's overall consumer video business (including DBS subscriptions) experienced a big drop in growth during the quarter. During the quarter, AT&T added 173,000 net new video customers, down from the 200,000 net video adds during the year-ago quarter, even though AT&T added 170,000 U-verse video customers during the quarter, up from 150,000 U-verse customers added during Q1 08.

Overall, AT&T lost nearly a million net consumer revenue connections during the quarter, compared to a net gain of 248,000 during the year-ago quarter.

During the company's earnings call, CFO Rick Lindner blamed the bad economy for this unexpected free-fall in consumer growth. "The consumer space is going through a fundamental transition," he said. The second quarter is always a weak time period due to disconnects as the school year ends, consumers move and snowbirds move north.

This year, however, "it was heightened by the economy," Lindner said. Non-paying customers disconnects aren't really the problem and cable competition isn't as big a factor in the slow-down as some might expect. Consumers are just not buying as much as they were and are making do with less. "We are seeing more weakness in terms of inward orders and we’re seeing some impacts frankly where we’re seeing customers disconnecting broadband and see in their reasoning that they’re not going to a competitor," Lindner said.

In terms of broadband, these customers seem to be more in the "value" sector and are using wireless access subscriptions or just saving up all their Internet activities for work, he said. In terms of access line loss, the southeast region, particularly hard-hit Florida, is responsible for a good portion of the loss. Losses are exaggerated in the southeast because AT&T hasn't yet ramped up U-verse there to compensate for the weakness in the old-fashioned businesses.

Wireline is just a weak business due to the recession, Lindner said. "From an economic standpoint, as you look across the country today, you’re seeing lower employment levels, and you’re seeing reduction in new small business formation, and you’re seeing increases in bankruptcies."

Wireless, on the other hand, is the company's saving grace, so much so that Lindner appeared to plead with analysts to "not lose sight of this," particularly given the riches yet to be reaped from the 3G iPhone. AT&T added 1.3 million net new wireless customers during the quarter, ending Q2 with 72.82 million wireless customers, up 14% year-over-year.

Wireless revenues jumped 16% to $12 billion, while wireless data revenues soared 52% to $2.5 billion. Total AT&T net income jumped by 30% to $3.77 billion even as revenues ticked up by 5% to $30.9 billion, thanks to cost cutting and the sale of minor businesses.

Posted by Cynthia Brumfield on July 23, 2008 10:30 AM to IP Democracy