AT&T Profit Up Thanks To SBC Purchase, Mixed Results For Wireless

by Emily Burg, Apr 25, 2007, 5:00 AM

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AT&T reported that its first-quarter profit rose to $2.8 billion, or 45 cents a share, from $1.4 billion, or 37 cents a share, in the year-ago quarter, before its acquisition of regional telecom BellSouth.

However, the news from the company's wireless unit, which it has gained full ownership of and is rebranding Cingular Wireless as a result of the BellSouth acquisition, was less robust. AT&T Wireless added 1.2 million subscribers during the first quarter, which was below analysts' consensus expectations of 1.5 million subscriber additions. This shortfall came despite massive marketing efforts and customer acquisition strategies that offered integrated service packages offering free calls between wireless and wireline phones, like the AT&T Unity Plan.

AT&T Wireless saw the departure of its chief marketing officer last week, amid speculation that the unbranding of the $1 billion efforts to build Cingular may be behind his resignation.

While wireless customers may not be flocking to the new AT&T at quite the pace analysts anticipated, AT&T's wireless unit did report a 1.4% increase in average monthly revenue per user (ARPU), boosted by a 51% increase in revenue from data services. Data ARPU has been a bright spot for wireless companies' earnings over the past few quarters, as cheaper calling plans make voice revenue an increasingly less competitive business.

Citigroup telecommunications analyst Michael Rollins reiterated his "Buy" rating on the company's stock, writing in his research note on AT&T's earnings that "we believe AT&T is well positioned ... with further upside potential from an improving wireless contribution ... and better execution around cost savings associated with its planned merger synergies."

In the company's statement about its earnings, AT&T chairman and CEO Edward Whitacre specifically cited cost-savings and operational improvements from the merger as a boon to the wireless business. "This margin expansion reflects reductions in churn and great work by our wireless team over the past two years to integrate networks and streamline systems. With a premier nationwide network, excellent customer service and compelling products in customers' hands and in our pipeline, AT&T has a very promising future in wireless," Whitacre said.

AT&T is the first telecom to report earnings this season, so it remains to be seen whether its earnings indicate a sector-wide trend or if its competitors perhaps will have gained some of the wireless customers it may have lost during the quarter.

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