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AT&T touts macro-economic defenses

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AT&T countered widespread fears of slow economic trends with growth in first-quarter profits aided by its wireless and wholesale businesses.

Amid widespread reports of a slowdown in enterprise spending, AT&T reported 1.2% growth in enterprise revenue, citing particular demand in IP services, whose revenue grew nearly 23% in the quarter.

“I’ll not enter the debate with the experts on the state of the economy,” said Rick Lindner, AT&T’s chief financial officer. “I’ll just let our numbers for the quarter speak for themselves…Those numbers support our premise that our business continues to be more defensive than most in times when the economy is weak or under stress.”

“We’re right in the sweet spot for enterprise customers,” Lindner said, pointing out that the carrier’s IP service offerings give business customers a way to cut costs amid economic uncertainty. “We’re supporting their bandwidth needs in the most cost-effective manner.”

On the consumer side, “You still see some softness in access lines,” Lindner said, adding that those effects were offset by growth in broadband and video.

In fact, AT&T reported its worst year-over-year access line decline ever in the first quarter -- 7.7% overall and 6.9% among residential lines.

But the company saw an unexpected surge in DSL lines as well, with 174,000 net adds. “Nearly 30% of the quarter’s broadband net additions came from the new stand-alone (“naked”) DSL service offering, which we didn’t expect and helps explain the upside,” Paul Bonenfant, an analyst with Morgan Keegan, wrote in a research note today.

The company said it was ahead of schedule regarding U-verse deployment, adding 148,000 net new customers for the service in the quarter, compared with 105,000 in the fourth quarter and 75,000 in the third. With 370,000 total U-verse IPTV customers now, the company is confident it will reach its goal of 1 million subscribers by year’s end.

In the first quarter, AT&T was turning up new net U-verse customers at the average rate of 12,300 per week-up sharply from 8750 last quarter, but to reach its year-end goal, it will need to average 15,000 net new customers per week, Bonenfant said. “AT&T has yet to ramp U-verse in BellSouth [territory], yet our checks continue to suggest that the Atlanta market deployment has begun, with a controlled service rollout expected soon,” he wrote in a research note today. “We had expected a launch before the end of last year; we believe planning continues for markets like Miami and Charlotte for 2008.”

“There are weeks where we have strong installations and some periods--for example, in February, we rolled out a significant upgrade to our software platform, and so for a week or two, we went a little slower in installs and activations to make sure the software upgrade performs well,” Lindner said.

AT&T also reported better-than-expected results from the $99 unlimited plan it introduced recently. Migrations to the new plan from customers previously paying more than $99 per month were in line with internal expectations, the company said, but migrations from lower-priced plans up to $99 were better than anticipated. Prior to the unlimited offering, about 1.5% of new customers would sign up for $99 plans. But with the unlimited plan, about 4% of new customers are opting for $99 service.

“New customers are choosing to buy up to get the peace of mind of unlimited pricing,” Lindner said.

But those “all-you-can-eat” plans could also be contributing to AT&T’s increased wireline access line erosion, Bonenfant said.

Among iPhone users—more than 40% of which were not previously AT&T customers—average monthly revenue is in the mid to high 90s, AT&T said.

The company also described its strategy for rolling out LTE networks in 200 markets in 2010 using the new 700 MHZ spectrum it acquired from Aloha Networks and in the FCC auction, combined with the AWS spectrum it acquired in another auction. AT&T predicted its LTE rollout would not significantly impact its overall capital expenditures, stressing that an LTE migration would be much smoother than the one to GSM from its TDMA network, which was shut down completely in February, affecting net subscriber adds in the first quarter.

“This is not a conversion like going from TDMA to GSM,” Lindner said of an eventual LTE rollout. “This is more like the logical progression we had when we rolled out EDGE and UMTS. A we roll out LTE -- adding cabinets and radios in cell sites – we expect the technology and devices to be backwards-compatible with our networks across the country, giving users a very seamless experience.”

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© 2014 Penton Media Inc.

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