Cingular, DSL boost AT&T beyond expectations

Cingular’s success continued to drive AT&T’s financial success, but improved data revenues and greater success in the small to mid-sized business market also helped.

In its first full-quarter report since SBC acquired AT&T, the company beat analysts’ estimates by four cents per share with its 52 cents earnings per share. Net income was up to $1.45 billion from $1.32 billion in the previous quarter, based on a combination of SBC-AT&T from a year ago.

Most of the financial success is based on Cingular’s strong growth, but AT&T also posted solid DSL growth and reduced churn in that segment, and saw growth in the SMB segment. Overall, revenue excluding Cingular fell from $16.7 billion to $15.8 billion, reflecting a decline in legacy AT&T business.

AT&T Chief Financial Officer Rick Lindner said the company had 511,000 net DSL adds and is seeing “stable” average revenue per user (ARPU) on the consumer side and an increasing ARPU on the business side.

The DSL growth “only tells half the story,” he said. “We are also migrating existing customers up into higher-speed products. If you take a snapshot of the DSL base at the end of first quarter versus the end of 2005, you’ll see we added 511,000 customers, but we increased customers on higher-speed tiers by about 530,000. The combination of sales and migration has been positive.”

Those higher-speed products include 1.5 Mb/s and 3 Mb/s consumer services and speeds up to 6 Mb/s on the business side. AT&T will launch a consumer service with up to 6 Mb/s later this week, Lindner said.

“DSL revenue growth was good this quarter, and DSL churn has dropped to the lowest level ever,” he said.

Lindner said the threat of cable VoIP service is “overblown,” in that the customers cable is attracting are lower-end consumers, with lower revenues. By contrast, he said, AT&T is going after the higher-revenue end of the cable business by offering video.

The AT&T CFO’s comments on the company’s major video initiatives were general in nature. Lindner said the company will have major capital expenditures in the second half of the year, relate to its Project Lightspeed buildout, but also expects more revenues to be generated by IPTV video products. HomeZone, the service bundling offer combining DSL and DISH Networks into a home network offer, is currently in trial and going well, he said.

In the SMB market, overall revenues are up 7% to $2 billion. In the enterprise market, AT&T is seeing price stabilization, Lindner said, at least as new contracts are signed.