AT&T wireline picture gets bleaker

When AT&T announced its third-quarter earnings this morning, most of the attention went to 3G iPhone sales, which were higher than normal and the cause of AT&T’s missed earnings mark, given the high cost of customer subsidies. Secondarily, AT&T touted its U-verse success, pointing to a net subscriber gain of 232,000 to reach 781,000 in service and remain on track to exceed 1 million subscribers in service by the end of 2008.

But analysts, taking a harder look at the numbers, pointed to a more rapid decline in wireline subscribers as a major cause for concern. AT&T lost 990,000 primary phone lines in the third quarter, cutting total revenue for its wireline business down 2.2% to $17.6 billion.

“Wireline results were a clear disappointment and appear poised to further deteriorate as economic conditions worsen,” Bernstein Research Senior Analyst Craig Moffett wrote this morning. “ Enterprise fell to -1.4% growth [versus our expectation of +1.0%] and can be expected to slow even more as IT spending winds down and GDP growth slows. And in the wireline telco, myriad troubles exceeded even our bearish forecast. Access line losses of 10.9% year over year were significantly worse than our 10.0% forecast. Worse, access line losses are still accelerating.”

With economic hard times at hand, consumers may be cutting back by cutting the wires to their wireline phone, and U-verse subscribers aren’t guaranteed to continue at the third-quarter pace, Moffett said.

Ahead of the earnings announcement, analysts had predicted slower U-verse subscription rates than AT&T reported, however.

Moffett also raised concerns about a softening in the enterprise business, as commercial customers also cut back. AT&T Chairman Randall Stephenson referred to the company’s business sector as “stable” and touted a turnaround in the wholesale business, where revenue totaled $3.5 billion, up 0.8% over the second quarter of 2008 and 0.7% year-over-year, reflecting a growth in demand from wireless carriers, ISPs and other service providers.