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AT&T Wireline 'Good News' Not All That Good

AT&T Inc. (NYSE: T) this morning touted its first year-over-year growth in total wireline consumer revenues in more than two years, and said it saw a 30 percent increase from consumer IP service revenues, including U-verse and broadband.

AT&T also talked about improving wireline revenue trends which, coupled with cost-cutting, increased wireline operating income margins.

While those numbers sound encouraging, to a great extent they underscore how the consumer wireline business, in particular, continues to spiral down. Overall, wireline revenues were off 3 percent and revenue-producing consumer connections declined by 2 million in the past year.

And that highly touted revenue growth was a whopping 0.2 percent, as AT&T added 236,000 U-verse subscribers in the quarter to reach 2.7 million total. The net add figures were worse: only 148,000 for the quarter, once churn is factored in. The only bright side was that this limited universe of customers is paying more for service: ARPU grew 14 percent as U-verse TV subscribers now pay about $160 a month for their service.

How limited is the U-verse universe? By contrast, Comcast Corp. (Nasdaq: CMCSA, CMCSK), the largest cable operator, has 24.6 million subscribers, and Dish Network LLC (Nasdaq: DISH), the weakest of the satellite-TV players, has more than 14 million subs. AT&T is closest to Verizon Communications Inc. (NYSE: VZ), whose FiOS TV is closing in on 4 million. That means AT&T remains a very small blip on the pay-TV landscape.

And while U-verse is adding 900,000 subs in a year, the total number of AT&T consumer connections producing revenue is dropping by 2 million, from 45.7 million to 43.7 million over the same period.

The glass-half-full version of AT&T's outlook is that U-verse is highly rated, being chosen as the best paid-TV offering in the J.D. Powers consumer satisfaction surveys, where it's available. But as the U-verse rollout begins to wind down, can AT&T really drive penetration numbers up enough to challenge cable and satellite competition, ahead of the flood of OTT video? (See AT&T, Verizon Top JD Power TV Ratings.)

To date, the overall penetration rate is only 14 percent, although that goes up to 22 percent in areas where U-verse has been available for 30 months. The service today reaches 26 million households.

All of those numbers prove why AT&T's consumer wireline outlook continues to revolve around cost-control to maintain margins. To that end, AT&T trimmed 15,000 jobs and continues its integration of the wireline and wireless operations into creation of one AT&T, senior EVP and CFO Rick Lindner told analysts.

"We have a commitment to operation as one AT&T and as we consolidate and integrate our internal operations there will be continuing opportunities for greater efficiency," Lindner says.

His response to a question about the point at which operating a wireline and wireless business stopped making sense stressed the role of the wireline network in supporting wireless, being the network backbone to all those cell sites, and enabling the rapid uptick of mobile data bandwidth.

Mobile devices are "the way people want to access the network," Lindner says. "In order to provide the bandwidth and to provide the capacity and the kind of service experience you want, you have to drive that traffic as quickly as possible into a wired infrastructure which improves service quality and provides significantly more bandwidth."

AT&T's business silver lining
If there was any real good news on the wireline side of AT&T, it lay on the business side of the house, where the company saw modest 3.7 percent growth in strategic business revenues from $1.155 billion to $1.2 billion, and business IP data were up 8 percent. Even here, Lindner admits, the struggling economy continues to put pressure on voice revenues, which are now less than 40 percent of AT&T's total business sale.

But business customers are investing again, he says, and the move to more managed services and cloud-based offerings holds promise.

"It is becoming a business driven by data, by IP-based services, managed services, and increasingly as companies move more of their applications and content into the cloud -- then hosting [and] cloud computing becomes more important as well as facilitating applications through mobile devices," he says. "We are positioned well in all areas of the business."

— Carol Wilson, Chief Editor, Events, Light Reading

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opticalwatcher 12/5/2012 | 4:20:46 PM
re: AT&T Wireline 'Good News' Not All That Good

You have to wonder about their approach to wireline--basically stopping their Uverse buildout. I would have loved to have Uverse, but they stopped building it in my neighborhood. My neighbors and I have been abandoning AT&T to cable in droves.


If they wait until after the recession to start building again they are going to find that the faster moving and more savy cable companies have already snapped up all their customers.


They've given up long term profits in favor of short term savings. Meanwhile they are relying on profits due to a soon-to-end monopoly on Apple wireless products. You have to wonder about the future growth potential of a company that thinks like that.

cnwedit 12/5/2012 | 4:20:46 PM
re: AT&T Wireline 'Good News' Not All That Good

It is surprising that AT&T isn't ratcheting up U-verse more than they are - this was supposedly their wireline product of the future. I think it reflects the fact that they are predominantly a wireless company now.


Out of curiousity, in what city do you live?

cnwedit 12/5/2012 | 4:20:45 PM
re: AT&T Wireline 'Good News' Not All That Good

Well, two million people cut the AT&T cord entirely, and while we don't know how many of those went to cable and how many just decided to give up their expensive voice lines and relatively slower DSL service, those are still two million customers lost.


And I think you are right - AT&T doesn't seem to care.

opticalwatcher 12/5/2012 | 4:20:45 PM
re: AT&T Wireline 'Good News' Not All That Good

My guess is that they are cash cowing the voice service, getting what DSL they can and calling it a day.  If you switch to cable, they actually don't care.


 


Yes, I told them on the phone that I had no choice but to switch, and they clearly didn't care.



That's my point, they are thinking short term and giving up the potential for very high long-term profits.


It reminds me of when Sprint was in a severe cost-cutting mode. They cut the most in their customer service, and started losing millions of customers. They, too, didn't care, until their short-term thinking caught up with them and their CEO was replaced.

paolo.franzoi 12/5/2012 | 4:20:45 PM
re: AT&T Wireline 'Good News' Not All That Good

 


The reality is that unless there is a lot of folks they are going to be able roll this out to at a low enough cost (metro size is important) or a neighborhood is likely to grab enough take rate, the very high speed buildouts are not going there.


The difference between AT&T and Verizon is that Verizon is selling the properties that they are not keeping.  AT&T is not.  My guess is that they are cash cowing the voice service, getting what DSL they can and calling it a day.  If you switch to cable, they actually don't care.


seven


 

paolo.franzoi 12/5/2012 | 4:20:44 PM
re: AT&T Wireline 'Good News' Not All That Good

tera,


That point about profits is where I think you are wrong.


Residential services are highly commoditized.  The reality is that U-verse costs a lot of money to build - even if it is less than FiOS.  Depending on what the retention rate for customers is, then they can figure out if it is a good investment or not.


Think of it this way.  For POTS (the telephone kind), they have done all the investment they have to.  They can make the price pretty much anything they want.  If they wanted to make it lower priced, they can with the stroke of a pen.  And yet, they allow cable and voip providers come in at a lower price point.


Instead of lowering the POTS price, they are putting a boatload of money in wireless.  This is where they are emphasizing (they being AT&T).  Verizon is doing just the opposite.  They are dumping non-FiOS properties as fast as they can (Fairpoint - Frontier).  They have done a massive wireline investment.


We get to sit on the sidelines and see the two strategies play out.  But the one thing I don't think, is that these moves are unintentional.


 


seven


 

spc_markl 12/5/2012 | 4:20:42 PM
re: AT&T Wireline 'Good News' Not All That Good

Carol,


The problem is that AT&T has become Ma Bell again.  It will not make a substantial move in wireline or wireless unless it is absolutely necessary.


Mark

cnwedit 12/5/2012 | 4:20:41 PM
re: AT&T Wireline 'Good News' Not All That Good

Phil makes a good point - AT&T is incredibly sensitive to the cost of serving up U-verse, and it may be that they are finding some neighborhoods more expensive to serve with the current generation of technology than they are willing to risk. Newer compression techniques are also in the pipe, although they are already squeezing more onto the copper last mile links than once thought possible.


I just don't find 14% to 22% penetration all that compelling for a product that is significantly better than current cable service.

DCITDave 12/5/2012 | 4:20:41 PM
re: AT&T Wireline 'Good News' Not All That Good

I think seven's got the right idea. AT&T is about paying a dividend, not investing in wireline growth.


Also, we should note that the U-verse product is genius because they can continue to add features, capabilities, etc. to existing subscribers at very little cost (per subscriber). My guess is they wait for pair-bonding to work its way through their network before they turn on any new cities or locations with U-verse.

spc_markl 12/5/2012 | 4:20:41 PM
re: AT&T Wireline 'Good News' Not All That Good

The problem is that video over copper does not really work.

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