AT&T Says Project VIP Ahead of Schedule, Cites Continued Economic Pressure in Business Services

AT&T Inc. says its $14 billion Project Velocity IP, or VIP, network transformation plan is ahead of schedule.

The company on Tuesday told investors in a regulatory filing that momentum is exceeding expectations. Project VIP, launched in November 2012, constitutes AT&T’s three-year effort to expand its wireless and wireline IP broadband networks in the United States to support high-speed Internet access, and new mobile, app and cloud services.

To that point, AT&T said on Tuesday its 4G LTE network now covers almost 290 million people and that its broadband work will take fiber to more than 400,000 new business locations by the end of the second quarter.

The ahead-of-schedule news comes a little more than a month before Ma Bell is slated to release second-quarter earnings.

With that in mind, AT&T also talked up the mobility and wireline results it expects to report on July 23.

For the quarter ended June 30, AT&T predicts the following for its wireless unit:

  • Postpaid subscriber net adds exceeding 800,000;
  • Postpaid churn of 0.95 percent or lower;
  • Approximately 3.2 million AT&T Next smartphone sales, which are expected to comprise around 50 percent of total sales; and
  • Approximately one-half of the company’s postpaid smartphone customer base on no-device-subsidy Mobile Share Value pricing plans, reaching about two-thirds by the end of the year.

AT&T said EBITDA margins for its wireless service should be more than 40 percent in each of 2014’s three remaining quarters.

Meantime, the company provided guidance for its wireline division as well. It said U-verse video, bundled with broadband, continues to perform on a solid level, with fewer migrations from DSL. AT&T says it’s paying $49 billion to buy DIRECTV so it can beef up its pay-TV strategy and get more customers.

The provider further said it is seeing growth in business high-speed broadband sales, and cited mid-teens revenue growth for strategic business services in general. Those, the company said, face “continued economic pressures,” as do wireline margins, thanks to content costs increases, and the expense associated with expanding fiber and high-speed broadband availability.

Overall, AT&T raised its full-year 2014 guidance for revenue growth to the 5 percent range. And it reaffirmed its full-year 2014 guidance for stable consolidated margins, adjusted earnings per share growth at the low-end of the mid-single digit range, capital expenditures around $21 billion and free cash flow around $11 billion.

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