The second-largest U.S. mobile service provider, AT&T Inc. (T), declared its first quarter 2011 earnings before the opening bell. Adjusted earnings per share (EPS) of 57 cents were at par with the Zacks Consensus Estimate and a penny below the year-ago earnings.
In-line profits can be traced back to the loss of AT&T’s exclusive hold on Apple Inc.’s (AAPL) iPhone during the quarter to its largest rival Verizon Communication (VZ).
Revenue spiked 2.3% year over year to $ 31.25 billion, inching past the Zacks Consensus Estimate of $ 31.22 billion. Revenues from the wireless segment reached an all-time high, powered by record net subscriber addition, connected device additions and higher smartphone sales. Wireline revenue, however, remained the dampener with declining traditional voice access lines.
In order to make up for the subscribers lost to Verizon, last month, AT&T announced its intention to acquire Deutsche Telekom unit T-Mobile USA, for $ 39 billion.
Segment Results
Wireless revenue, including service and equipment, climbed 10.2% year over year to $ 15.3 billion primarily on the heels of robust mobile broadband growth and an upswing in branded computing subscribers. Wireless data revenue leaped 23.9% year over year to $ 5.1 billion, driven by multimedia messages as well as access to Internet, applications and related services.
AT&T added 2 million wireless subscribers in the reported quarter to reach 97.5 million total subscribers in service. Wireless customers grew 6.8% year over year, attributable to the rapid adoption of smartphones, strong prepaid subscribers and growth in connected devices.
Retail post-paid additions totaled 62,000, retail prepaid additions were 85,000, connected device additions were 1.3 million and reseller additions were 561,000 in the reported quarter. The number of smartphones sold increased 60% year over year to more than 5.5 million. AT&T activated 3.6 million iPhones in the quarter under review.
AT&T added 421,000 branded computing subscribers (includes tablets, aircards, MiFi devices, tethering plans and other data-only devices), bringing the total of customers at the end of the first quarter to 3.4 million. Branded computing subscribers saw a two-fold increase from the year-ago quarter.
Total churn (customer switch) increased slightly to 1.36% from 1.30% in the prior-year quarter and 1.32% in the prior quarter. Post-paid churn also increased to 1.18% from 1.07% in the prior-year quarter and 1.15% in the prior quarter. Post-paid ARPU (average revenue per user) grew 2.4% year over year to $ 63.39, driven by healthy data growth.
Wireline revenues dipped 3.2% year over year to $ 14.95 billion in the first quarter. Revenue from residential customers nudged up 0.5% year over year to $ 5.3 billion driven by the strength in IP data services, while business revenue slid 4.5% year over year to $ 9.3 billion reflecting economic weakness in voice and legacy data products.
Strategic business services such as Ethernet, Virtual Private Networks, hosting and application services, shot up 18.8% year over year, the maximum increase recorded in more than 2 years.
AT&T's total video subscribers, which include the company's U-verse TV and bundled satellite customers, reached 5.1 million at the end of the reported quarter (representing 20.6% of households served). Total U-verse TV subscribers reached 3.2 million (up 39.6% from the year-ago quarter), with a net addition of 218,000 customers on continued high-speed Internet attach rates. The company added 175,000 net subscribers in the first quarter taking the total number of broadband connections to 164.8 million.
However, total consumer connections plunged to 43.1 million from 45 million in the year-ago quarter, due to a drop in traditional voice access lines, partially offset by higher U-verse TV, broadband, and VoIP (Voice over Internet Protocol) connections. AT&T U-verse Voice connections decreased by 1.1 million in the quarter.
Cash Flow
AT&T generated $ 7.7 billion cash from operations in the reported quarter compared with $ 7.2 billion in the year-ago quarter. The company’s expenditure increased to $ 4.2 billion from $ 3.3 billion in the year-ago quarter. Free cash flow (cash from operations minus capital expenditures) declined to $ 3.6 billion from $ 3.9 billion in first quarter 2010.
Our Analysis
Although the AT&T/T-Mobile merger would lead to extensive growth in subscribers, revenues as well as profits, it is a time-taking process and might alter the structure of the overall telecommunication industry. We believe the inclusion of T-Mobile operations will position AT&T as the market leader in the U.S. wireless industry and further bolster its mobile broadband services, which are currently booming.
Additionally, the company is expanding its wireless and wireline businesses, which would in turn fuel profitability. However, the completion of the T-Mobile and AT&T deal contains a number of risks. Based on competitive pressure as well as a steep decline in its traditional fixed-line phone business, we are currently maintaining our long-term Neutral recommendation on AT&T with the Zacks #3 Rank (Hold).
APPLE INC (AAPL): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment