IP Democracy: AT&T: Mobile, U-Verse Posted Strong Gains in Q3 08

Telecom giant AT&T issued its Q3 08 earnings report this morning show a surge in wireless subscribers thanks to its exclusive deal with Apple to sell the iconic iPhone. But those wireless gains ate into AT&T's net income as the carrier sunk even more capital into building up inventories and infrastructure for the broadband mobile device.

AT&T ended the quarter with 74.87 million wireless customers, up 14% year-over-year and 3% sequentially, with wireless revenues jumping to $12.6 billion, up 15% year-over-year and 5% sequentially. Wireless data revenues, driven by not only the iPhone but other advanced handsets, soared 50% year-over-year to $2.73 billion.

During the company's earnings call, Ralph de la Vega, CEO of AT&T's newly created Mobility and Consumer Markets division, said that the 3G iPhone promises to be even a bigger hit for AT&T. During the 83 days that the 3G model has been for sale, AT&T has sold 2.4 million units. It took nine months for the original iPhone to reach this level of sales.

Moreover, AT&T retail store traffic is up thanks to the new device. So far in October, same store traffic is up 12% while overall store traffic is up 25%, de la Vega said.

Even as AT&T's overall revenues rose to $31.34 billion, up 4% year-over-year and 2% sequentially, net income dropped 14% year-over-year (but rose 5% sequentially) to $3.23 billion due to the costs of launching the 3G product. During the earnings call, CEO Rick Lindner appealed for patience in the face of this dilution.

"Some may be concerned with the dilution. This investment funded the acquisition of nearly one million high-end customers new to AT&T," he said. "We’re confident that this investment will provide value in the future."

AT&T continued to lose traction in its wireline business, with renewed, although tepid, growth in broadband and promising gains in its U-Verse video business offsetting continued loss in landline voice subscribers and softness in the enterprise business. During the quarter AT&T added 148,000 net new broadband customers, up from the paltry 46,000 net new broadband subscribers added during the previous quarter.

But U-Verse, AT&T's terrestrial-based multichannel video delivery service, experience a true surge in growth as the telco seemingly pulled back on marketing its DBS partnerships. During the quarter, AT&T added 230,000 net new U-Verse customers, a run-rate that doubles any previous quarter's gains. By the end of the quarter, AT&T served 781,000 U-Verse customers.

During the earnings call, Lindner said that AT&T is on track to end the year with more than one million video customers. Despite the strong growth in U-Verse, AT&T's video customer count rose by only 179,000 during the quarter as the number of the telco's DBS-related video customers dropped by 53,000.

As has been the case for most incumbent phone companies for many years, AT&T experienced continued loss in its traditional landline voice business during the quarter, with the number of access lines dropping by 1.67 million, which seems to be the single largest quarterly loss since the telco merged with Bell South, if not the single largest quarterly loss ever. AT&T ended the quarter with 57.19 total access lines, down from 62.87 million lines a year ago.

As for how the company is faring in the face of the economic downturn, Lindner said "While no business is immune to the broader environment, our business is more immune than most" and noted that the overall trends are relatively stable. He said the company is committed to improving efficiency and operations through cost-cutting and other measures to maintain profitability going forward. "While the macro environment is not ideal, there is still opportunity to improve operations," he said.

(Download a spreadsheet featuring detailed historical and current data on all of AT&T's businesses here.)

Posted by Cynthia Brumfield on October 22, 2008 12:07 PM to IP Democracy