Monday, January 30, 2006

AT&T Says Merger Synergies Above Expectations, Outlines Growth Sectors

AT&T issued new financial guidance, saying cost synergies from its recently completed merger are ahead of expectations and power double-digit adjusted earnings per share growth and strong cash flow growth over the next three years.

The company said the net present value of AT&T merger synergies is now expected to be approximately $18 billion, versus its January 2005 estimate of $15 billion. AT&T now expects total synergies from the merger to reach an annual run-rate approaching $3 billion in 2008. Overall integration costs are largely unchanged from earlier estimates, although they will be incurred sooner due to the transaction's earlier-than-expected close and accelerated project schedules.

"Through strategic investments and internal growth, we've significantly reshaped our revenue mix to concentrate on the industry's best growth areas for the future -- wireless, broadband and business services," said AT&T Chairman and Chief Executive Officer Edward E. Whitacre Jr. "Progress on the revenue side combined with our focus on lowering our overall cost structure provides a clear path for strong performance."

AT&T has four major operational priorities over the next three years: lead in business, lead in wireless, grow in broadband and reshape the company's cost structure.

  • In wireless, Cingular is on or ahead of schedule in all of its major integration initiatives and expects to deploy its 3G UMTS/HSDPA wireless data network in most of the top 100 metropolitan areas by the end of this year. Over the past several quarters, Cingular has seen accelerating revenue growth rates, and in 2006, it expects to deliver an upper single-digit percentage increase in revenues. Cingular expects to achieve industry-leading metrics, including margins, by the end of 2007.

  • In business services, AT&T targets growth in areas such as managed services, network security, optical networking, enhanced VPN (virtual private networking) and enterprise wireless.

    Separately, AT&T announced plans to offer a range of integrated wireless voice and data services on a GSM network to enterprises under the AT&T brand starting later this year.

    Additionally, AT&T announced the general availability of AT&T Multi-Carrier Solutions, a managed service designed to help enterprises analyze and achieve the most cost-efficient and effective wireless services for their business needs.

  • In broadband, AT&T expects to continue expansion of its DSL line base, and it is on track to scale Project Lightspeed service starting in mid-2006, reaching 21 markets by year's end. AT&T began a controlled market launch of the service in December 2005. Customers are seeing bandwidth speeds of at least 20-25 Mbps, which will deliver four streams of high-quality video -- including one HD stream -- along with high-speed Internet access and, in the future, consumer VoIP service.

  • In cost-structure improvements, AT&T has initiatives under way and planned across its operations. These projects, which are in addition to merger integration, are expected to deliver run-rate cost savings of approximately $500 million this year, growing to $1.2 billion in 2008.

CAPEX in 2006 are expected to be $8 billion to $8.5 billion -- in the low teens as a percentage of revenues. This includes capital for merger-integration projects and Project Lightspeed deployment.

See also