AT&T Posts Record Wireless Quarter, But Profits Dip

AT&T Inc. beat Wall Street expectations in its third-quarter earnings, with strong wireless, U-verse and business-IP results largely offsetting a continued drain in its legacy businesses.

Overall, profit declined 1.2 percent. AT&T posted earnings of $3.2 billion, down from $3.23 billion a year earlier. Revenue was up slightly from the last quarter but dropped year-over-year by 1.6 percent, to $30.86 billion.

However, AT&T’s total subscribership growth was the best ever for a third quarter, thanks in large part to a big jump in wireless sign-ups. AT&T, the No. 2 cellco domestically behind Verizon Wireless, added

2 million wireless subs during the quarter to total 81.6 million. The carrier’s postpaid net adds of 1.4 million were up more than 20 percent versus last quarter and accounted for the second-highest third quarter ever behind 3Q08 when AT&T launched the iPhone 3G.

AT&T continued to benefit from its exclusive arrangement to sell the Apple iPhone – an arrangement that is scheduled to end in 2010. The iPhone was a bright spot for this quarter, with 3.2 million new activations, of which a full 40 percent came from new AT&T wireless customers.

The mobile data explosion showed up on the balance sheet, with wireless data revenue up one-third (33.6 percent) year-over-year, to $3.6 billion, driving a welcome 3.8 percent increase in postpaid ARPU.

Wireless churn reached a record low, at 1.43 percent, down from 1.69 percent in the prior year.

For the wireline business, the continued story of subscriber and revenue loss played out in legacy services as it has for the last several quarters, with the division losing 30 percent in profit and 7.1 percent in revenue from Q3 2008.

It’s a reality all LECs are dealing with as traditional landline subscribers move to wireless or cable competitors. Even so, next-generation offerings are doing their job. AT&T U-verse services snagged 240,000 new subscribers in the quarter to reach 1.8 million overall. Bundles led the way: More than three-fourths of U-verse TV subscribers have a triple- or quad-play option from AT&T. That in turn drove 32.1 percent year-over-year growth in consumer IP revenues in the third quarter. AT&T U-verse TV’s broadband attach rate continues to run well above 90 percent, and its U-verse Voice attach rate continues to run above 60 percent. AT&T U-verse broadband saw a net subscriber gain of 252,000 subscribers, offsetting declines in traditional DSL connections for a 90,000 net gain in wireline broadband connections.

At the end of the third quarter, AT&T’s U-verse deployment passed more than 20 million living units.

In business services, Ethernet, VPNs, hosting, IP conferencing and application services overall grew 16.6 percent versus the year-earlier third quarter, and were up 5.2 percent sequentially. Business IP data revenue grew 6.8 percent versus the third quarter a year earlier and represented 31.7 percent of AT&T’s total business data revenue.

AT&T noted that more than 60 percent of its frame customers have made the transition to IP-based solutions, paving the way for the company to offer them revenue-friendly managed services such as network security, hosting and IP conferencing on top of their infrastructures.

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