Wednesday, January 24, 2007

AT&T Reports Strong Earnings, Merger Synergies, U-Verse Rollout Affirmed

Driven by record subscriber gains at Cingular and greater than expected cost synergies from its mergers, AT&T posted strong Q4 net income was $1.9 billion, up 17.1 percent versus $1.7 billion in the fourth quarter of 2005, and reported earnings per diluted share were $0.50, up 8.7 percent from $0.46 in the year-earlier quarter.

"Our execution continues to be solid, we closed the year strong, and AT&T has excellent momentum heading into 2007," said Edward E. Whitacre Jr., AT&T chairman and chief executive officer.

In a conference call with investors, Whitacre said the U-verse rollout was moving ahead and the service is now available in 11 markets. The goal is to pass 8 million living units by year end. The company further believes that it is moving past early technical hiccups on the programming side and that the service is now competitive to cable offerings. More than 70% of U-verse subscribers are taking the higher-end video packages and more than 70% sign-up for the highest speed broadband service. The company did not disclose the current number of U-verse subscribers.

Whitacre said the current network architecture of using fiber-to-the-node and then copper for the last leg into customer homes is in fact delivering the bandwidth expected and that the company is not planning to adopt an FTTH architecture for its existing footprint. The company is still evaluating its strategy in the former BellSouth territory, where there is significant amount of fiber already deployed to neighborhoods.

Some highlights for the quarter:

  • High-speed Internet connections -- including DSL, AT&T U-verse and satellite broadband -- increased by 383,000 in Q4 to 8.5 million, up 1.6 million, or 23.4 percent, over the past year.

  • Broadband penetration of consumer primary lines reached 33.3 percent at the end of Q4, up from 25.5 percent a year earlier and 17.7 percent at the end of 2004. Video connections --
    AT&T | DISH Network satellite television and AT&T U-verse service -- increased by 49,000 to reach 635,000 in service. AT&T U-verse services are now launched in parts of 11 markets in Texas, California,
    Indiana and Connecticut.

  • In 2006, AT&T's U-verse deployment reduced full-year earnings per share by $0.06. For the full year 2007, exclusive of any deployment in the former BellSouth region, AT&T's outlook anticipates additional dilution from its U-verse deployment of approximately $0.03 to $0.05 per share above 2006 levels, for a total impact of $0.09 to $0.11 per share.

  • Regional business were revenues up 7.5 percent versus pro forma results for the year-earlier quarter.

  • AT&T's fourth-quarter wireline revenues totaled $14.5 billion, up 22.3 percent from $11.8 billion reported in the fourth quarter of 2005.

  • Enterprise revenues posted their smallest decline since the AT&T Corp. merger -- 3.7 percent versus pro forma results for the year-earlier quarter. This compares with declines of 5.1 percent in the third quarter of 2006 and 7.3 percent in the preceding quarter.

  • Regional consumer revenues were up 0.1 percent versus pro forma results for the year-earlier quarter, reflecting a 259,000 increase in consumer connections over the past
    year to 33.2 million. Consumer connections combine retail access lines, high speed Internet and video connections. Traditional primary consumer lines declined by 227,000 in the fourth quarter, reflecting continued competition. This compares with declines of 242,000 in the third quarter of 2006 and 129,000 in the fourth quarter of 2005.

  • For 2007, AT&T continues to expect to deliver double-digit percentage growth in earnings per share, adjusted to exclude merger-related costs and one-time items, in 2007 and 2008.

  • In 2006, AT&T realized $1.1 billion in total synergies from the SBC/AT&T Corp. merger, versus its January 2006 outlook of $600 million to $800 million in synergies. AT&T now expects that total SBC/AT&T Corp. merger synergies will be at the high end of ranges provided in January of 2006 -- $2.0 billion to $2.4 billion in 2007 and $2.7 billion to $3.0 billion in 2008.

  • Synergies from the BellSouth merger are now expected to be higher and realized earlier than in the company's prior projections. AT&T now expects total synergies to be $0.8 billion to $1.2 billion in 2007, up from its earlier expectation of $0.5 billion to $0.8 billion. In 2008, total synergies are now expected to reach $2.6 billion to $3.0 billion, compared with an earlier view of $1.9 billion to
    $2.4 billion. In 2009, total BellSouth merger synergies are expected to be in the $3.3 billion to $3.8 billion range, up from an earlier projection of $2.6 billion to $3.1 billion.

  • AT&T expects that its capital expenditures will be in the mid teens as a percentage of total revenues in both 2007 and 2008.

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