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AT&T U-Verse Posts Billion-Dollar Quarter

7/26/2010 12:01 AM Eastern

AT&T is doubling down
on the U-verse triple-play strategy
— and predicting the turnaround
is imminent for its wireline
business.

The telco, posting solid overall
second-quarter results, grew
U-verse TV subscribers 59% year
over year to stand at 2.5 million at
the end of June.

And in the second quarter, its
revenue from U-verse TV, Internet
and voice services exceeded
$1 billion for the first time — more
than double the U-verse revenue
in the second quarter of 2009.

“We now have a clear line
of sight to a return to revenue
growth for consumer wireline,”
AT&T chief financial officer Rick
Lindner said on the telco’s earnings
call.

At the same time, AT&T kept losing
legacy phone lines at a doubledigit
rate. Retail consumer voice
connections dropped 11.2% versus
the year-ago quarter, to stand
at 25.8 million as of June 30.

In addition, AT&T lost 93,000
wireline broadband subscribers,
whereas Wall Street expected a
gain of 59,000.

If Verizon also posts a net
loss on broadband for the quarter,
that means cable is capturing
“100% of the broadband flow
share, something that has never
happened before,” Sanford Bernstein
senior analyst Craig Moffett
wrote in a research note.
And for the telcos, he added,
that’s “a troubling sign of things
to come.”

(Verizon was scheduled to report
earnings on Friday, July 23,
after press time.)

Lindner acknowledged broadband
was “weaker” in the second
quarter, attributing it partly
to seasonality and to cable operators
targeting non-U-verse areas
with aggressive promotions.

But while AT&T is losing lower-
ARPU (average revenue per
unit) customers, it’s gaining on Uverse.
Total broadband ARPU was
up 5% year over year, and overall
consumer wireline revenue per
household is up over 7.5%, Lindner
said.

“Not all revenue connections
are created equal,” he said.

AT&T’s wireline operating revenue
for the second quarter was
$15.4 billion, down 3.7% from the
year earlier, while segment operating
income increased 0.7% to
$1.9 billion.

Meanwhile, the telco’s satellite
connections — through DirecTV
and its now-expired reseller deal
with Dish Network — dropped 7%
in the quarter, to 2.1 million.

On the earnings call, Lindner
was asked about AT&T CEO
Randall Stephenson’s comments
in an interview with Financial
Times published last week in
which he said there was “industrial
logic” in acquiring DirecTV
but that regulators would likely
block such a deal.

“There always are advantages
of scale and the ability to leverage
the size of customer bases
to reduce content costs,” Lindner
responded. But, he added, “Obviously
as we’ve gone up to this
point we’ve felt very good about
the path we’re on. You continue
to see the growth in the U-verse
platform…. And so we’ll continue
to push down that path.”

Overall, AT&T posted revenue
of $30.8 billion (up 0.6% year to
year) with net income of $4 billion
(up 25.9%). The net income
included a one-time gain from
the exchange of Telmex Internacional
stock for shares of América
Móvil; excluding that, earnings
grew 13 percent to $0.61 per diluted
share.

AT&T’s total capital expenditures
in the second quarter
totaled $4.9 billion — which included
an almost 60% increase
in wireless-related capital investment
versus the year-earlier
quarter — up 21% from the yearago
period.

Second-quarter highlights:

Net gain of 209,000 U-verse TV subscribers to 2.5 million
Net loss of 93,000 DSL customers to 13.9 million
U-verse deployment now reaches 25 million residential units
U-verse triple-play customers ARPU nearly $160, up 13.8% year to year
3.2 million iPhones activated, highest quarterly number to date, despite a well-publicized issue with Apple's iPhone 4 antenna
SOURCES: AT&T, Multichannel News research

September