Global Insight Perspective | |
Significance | AT&T has seen the usual suspects—wireless, video, and data—driving up the subscriber base and revenues while landlines continue to decline. Broadband growth, however, has slowed notably. |
Implications | AT&T has already noted that it will continue trimming jobs in the landline division while moves to IP networks should also help to mitigate losses. |
Outlook | Overseas expansion—particularly in India and in the global enterprise market—is a key element of AT&T's strategy. New products will attempt to continue to grow revenues. |
AT&T has maintained its growth momentum into the first quarter of 2008, reporting growth in revenues of 6.1%, to total US$30.7 billion. On a pro forma basis revenue growth had accelerated to 4.6%, from 2.9% year-on-year (y/y) growth in the fourth quarter. Operating income rose 27.7% to US$6.0 billion, pushing margins from 16.1% to 19.5%. Net income was up 21.5% y/y to US$3.5 billion. Cash from operating activities was up US$0.4 billion to US$5.0 billion while capital expenditures rose by US$0.9 billion to US$4.2 billion, taking free cash flow down from US$1.3 billion to US$0.7 billion.
Wireless
Wireless remains the growth driver with revenues up 18.3% y/y to US$11.8 billion, with service revenues up 17.1% to US$10.6 billion. Operating income reached US$3.0 billion—up by 94.1% y/y or US$3.5 billion, up 38.5% on the first quarter. The total number of subscribers was up by 1.3 million to 71.4 million despite the loss of 330,000 TDMA subscribers as that uneconomic network was shut down—although this will notably help to lower operating costs. Retail post-paid customers accounted for 705,000 of those net adds and 56.0 million or 78.5% of the total, down from 81.3% a year earlier.
ARPU was up 2.0% y/y to US$50.18 while retail post-paid ARPU grew 5%, boosted by the iPhone, unlimited use plans, and data revenues that grew by 57.3% y/y to US$2.3 billion. Data now equals 21.5% of service revenues, up from 16.0% a year earlier, helped by doubling in the number of messages sent and increases in the number of 3G devices to 11 million. During the investor conference call presenting the results, iPhone ARPU was noted to be in the mid-US$90s while the unlimited-use-for-US$99 offer has boosted the level of customers paying that rate (or more) from 1.5% to 4.0%—almost 3 million users. Churn was flat on the prior year and quarter at 1.7%.
Domestic Fixed-Line
The fixed-line segment did not see such as happy state of affairs, recording a y/y loss of 2.0% to revenues, down to US$17.6 billion. Operating income for the segment also fell by 2.1% to US$2.83 billion as the increasingly competitive market pushed the cost of sales up by 0.8%, while savings on selling, general and administrative, and depreciation failed to keep pace.
This was driven by the continued losses to voice lines—now notably recorded as switched/VoIP connections, AT&T having launched VoIP for the U-Verse IP service earlier this year, with around 4,000 lines now switched to VoIP (see United States: 24 January 2008: AT&T Ups U-Verse to 10 Mbps, Adds VoIP Telephony). Primary retail consumer lines fell by 6.2% y/y to 30.3 million while secondary lines continued a speedier collapse, down 11.0% to 3.9 million. Retail business lines, which had proved more resilient, fell by 2.9% as moves to VoIP and economic pressures bit. Despite the loss in access lines, regional business revenues overall grew by 2.6% to US$3.2 billion, led by 6.3% growth in data revenues, which now total 30.5% of all category revenues, largely on the back of growth in Ethernet and 15.2% growth in IP data services including broadband, VPN, and managed internet. Enterprise revenues were boosted by 22.9% growth in IP data revenues, which helped the segment grow 1.2% y/y overall, reversing losses in the prior two quarters.
AT&T added 491,000 broadband connections to up the total subscriber base, increasing to 14.6 million, but it is notable that the total net additions were down by 28.9% on the same quarter a year earlier. Video connections reached 2.6 million with 264,000 new customers. Of these, 148,000 took the U-Verse TV service to total 379,000 subscribers, which AT&T estimates is on target for 1 million subscribers by the end of the year.
Outlook and Implications
AT&T has already announced that it will be continuing to cut jobs in the wireline segment as it manages the decline in that side of the business (see United States: 21 April 2008: Landline to Take Brunt of 5,000 Job Cuts at AT&T). The move towards VoIP in both the consumer and wholesale markets should presage conversion to all IP networks, which will also help to trim expenses (see United States: 3 April 2008: AT&T Launches New Wholesale and Retail VoIP Products, Drops DirecTV).
AT&T has also been increasing focus on the enterprise and international market, particularly India. There are also some indications that it may re-enter the mobile market in India given the limited opportunities for domestic expansion. It emerged today that AT&T is in talks with Aircel about acquiring a stake in the operator, and it has also been in discussions with Unitech (see India: 21 March 2008: AT&T Reiterates Interest in Re-Entering Indian Mobile Market
AT&T has been offering a number of new value-added services that it will leverage to boost revenues. For example, Cisco's TelePresence solution will be offered in the enterprise market, while in the mobile market AT&T released a new navigation application and intends to launch mobile TV in May, which will likely find a small-niche additional revenue opportunity (see United States: 28 March 2008: AT&T to Launch MediaFlo Mobile-TV Service in May and United States: 21 April 2008: AT&T Global to Offer Cisco Telepresence). However, moves to bundle in services, such as Sprint's everything-for-US$99 offer, may make these services more of a product differentiator than a direct revenue opportunity (see United States: 29 February 2008: Sprint Goes All In for US$99 per Month as Revenues Continue to Decline and US$30 bil. is Written Off).