Slow economy doesn’t faze AT&T

AT&T is expecting a strong 2008, with consolidated revenue growth in the mid-single digits,a significant expansion in margins and continued double-digit growth in earnings per share — even if the U.S. economy continues to struggle, Senior Executive Vice President and CFO Rick Lindner told financial analysts today.

The financial markets reacted badly earlier this month, when AT&T CEO Randall Stephenson mentioned a slowdown in the consumer market,and some analysts questioned whether AT&T had taken into account the current economic times when making its relatively rosy 2008 projections.

“There has been an awful lot of noise in the markets and the media about the economy, and what I would first say is if you go back to the comments that we’ve made going back to our analyst conference in December, I made comments then that we were seeing a little bit of softness in our consumer metrics and we talked about increases in non-paid disconnects and things you would expect given trends in the overall economy.”

Those trends include an increase in the rate of switched line loss, some slowing of broadband net additions — both attributed in part to a slowing housing market — and an increase in unpaid disconnects, Lindner said.

“We baked those into our operational plans, and they are reflected in the guidance we have given,” he said.

One area where there has been no slowdown is in the wireless arena.In announcing the company’s fourth-quarter earnings, Lindner said AT&T Wireless continues to be the driving force. “We set industry records for gross adds [6 million] and net adds [2.7 million], and that’s before the Dobson acquisition,” he said.

Wireless revenues were up 16.3% to $11.4 billion, and net-adds for 2007 were 7.3 million, up 12%. AT&T is projecting growth in wireless service revenues in the mid-teens, percentage-wise Lindner said.

“Total ARPU [average revenue per user] was up nearly two percent in the fourth quarter, which was our sixth quarter of year-over-year ARPU growth, and our post-paid ARPU was even better,” Lindner said.

Counting the Dobson addition, AT&T Wireless ends 2007 with 70.1 million total subscribers.

Wireless data revenues jumped 57.5%, driving by increases of more than 40% in Internet access, messaging, email, data access and MediaBundle services. There is much more upside here, Lindner said, considering only a small percentage of AT&T’s customers have data-ready devices.

“Data represents close to 20% of service revenues and $12 of our postpaid ARPU,” Lindner said. “Only 37% of postpaid subscribers are on a monthly data plan. We are still very early in the adoption curve of smart phones — only 12% have them, but the ARPUS for those customers are more than double the average.”

Lindner also trumpeted major improvements in AT&T Wireless’ margin, driven by reduced churn, the merger integration and improved network cost structure. He said planned IT system shutdowns are complete and AT&T will turn off its TDMA network in February. The adjusted operating income margin for the fourth quarter of 2007 wsa 25.7%, up from 18.9% a year ago.

Other highlights included:

  • Growth in enterprise revenues of 1.8% for the quarter, based on double-digit growth in IP data revenues, an increase in virtual private network sales of 31% and an increase in hosting services sales of 19%. Lindner projected growth in enterprise revenues through 2008 and said they would likely not be hurt by an economic slowdown, as many services offer businesses improved productivity for lower cost.
  • Stabilization of wholesale revenues in 2008.
  • Growth in the legacy SBC Communications business services, nowcalled theregional business, of about 5% for small to mid-sized businesses and 2.8% overall, driven largely by data sales.
  • An increase in broadband revenues of 13.7% year-over-year based on a 16% increase in total broandband connections to reach 14.2 million and what Lindner termed “a significant ramp in wireless/broadband bundle sales.”
  • U-verse installations now running at 12,000 a week, exceeding the previous target of 10,000 a week. AT&T expects to have more than 1 million customers in service by the end of 2008.
  • Overall strong free cash flow of $16.4 million for 2007, up from $7.3 million in 2006. AT&T returned $19.1 million to its shareholders in 2007 in dividends and share repurchases. The free cash flow gives AT&T enough money to reward its investors and invest in its business, Lindner said.

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