AT&T ready to reap rewards from telecom sector turbulence

While things are tough all over in the telecom space, AT&T is looking at the future through rose-colored glasses. The telecom giant, which will soon deliver its AT&T Broadband cable unit to Comcast, is ready to step in and take advantage of a sector that has been rocked by scandal and bankruptcies.

On the surface, the company’s prospects may not appear that bright. AT&T today reported a $12.7 billion second-quarter loss, a large part of which came from weakness in its cable business. The carrier wrote down the value of the AT&T Broadband unit by $13.1 billion as it continues to get regulatory approvals for the Comcast merger.

Otherwise, while hardly brilliant, things looked bright. Long distance continued to lose customers, but the IP traffic picked up significantly, and AT&T now carries more IP traffic on its network than long-distance voice.

Overall, AT&T posted a net loss of $3.49 a share, compared with 10 cents a share, or $191 million a year ago, and revenue fell 6.2% to $12.1 billion. The company said it expects third-quarter revenue to fall at a slightly higher rate than the second quarter.

Even so, company officials were crowing.

“AT&T is performing in contrast to many of our peers,” said soon-to-be-gone Chairman and CEO Michael Armstrong, who will join AT&T Comcast. “We are not distracted by investigations into reporting practices or equity sales or other external factors. While many in the industry work to explain their past, AT&T is working with purpose and integrity to serve our customers a competitive and certain future.”

That future would be built on the misfortunes of others, said Dave Dorman, the company’s president who will assume chairman duties when Armstrong departs.

“The industry turmoil is clearly heightening AT&T’s prospects in a flight to quality,” Dorman said, specifically pointing to WorldCom’s bankruptcy filing. “We’ve seen increased customer interest in service alternatives and have already experienced some wins.”

Dorman declined to project how much business AT&T expects from its competitors’ woes but sounded optimistic.

“AT&T is increasingly viewed as a safe haven,” he pointed out.

That image might change to scavenger, if Dorman has his way. AT&T, he promised, continues to examine “bankrupt assets as a substitute for new capital deployment. The bone pile continues to grow.”

AT&T’s sales teams, he promised, are “proactively contacting potential business customers” and looking for loopholes in deals with competitors to bring those customers aboard as AT&T customers.

“We are prepared to be opportunistic and aggressive in providing service alternatives,” he said. “Recent headlines will only add to AT&T’s momentum.”

At least one of those headlines, no doubt, will detail the final removal of the broadband unit. Activity there continued apace to meet Comcast’s specifications, including aggressively upgrading the network, said President and CEO Bill Schleyer.

“We understand that plant rebuild status is the key determinant of our basic video competitiveness,” Schleyer said, noting that the broadband units “completed four times more construction mileage in the second quarter than in the first quarter.”

Network upgrades are necessary for AT&T Broadband to provide advanced services such as cable telephony and high-speed data. The unit added 105,000 telephony customers in the third quarter and now has 115 franchise areas with greater than 25% penetration. It also added 202,000 digital video customers and 137,000 high-speed data customers. These gains were offset by a basic video subscriber decline of 125,000 “which is larger than we predicted last quarter,” Schleyer said.

Subscribers peeled off due to increased competition – especially in non-rebuilt areas – and seasonal movement among college students and South Florida snowbirds. The seasonal customers will return, but Schleyer admitted, “We don’t fully expect to fully stem the competitive challenges until our upgrades are complete in non-rebuilt areas.”