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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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spc_markl 12/5/2012 | 4:20:29 PM
re: AT&T Wireline 'Good News' Not All That Good

We will have to agree to diasagree.&nbsp; I enjoyed the debate.


Mark

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