AT&T Inc. (T) announced third-quarter 2009 results, with reported earnings per share of 54 cents beating the Zacks Consensus Estimate of 50 cents while declining from 55 cents reported a year ago. Net income fell 1.2% year over year to $3.2 billion on account of lower revenue.
The results were highlighted by growth across wireless and U-verse video businesses. The second largest wireless carrier reported consolidated revenue of $30.9 billion for the quarter, down 1.6% year over year, largely due to lower wireline voice, legacy data and print advertising revenue, which offset growth in wireless and wireline data services.
AT&T registered a net gain of 2 million wireless subscribers in the third quarter to reach 81.6 million total subscribers in service, up 9% year over year, driven by strong iPhone activations. This represents the largest third quarter addition in the company’s history. Retail postpaid additions for the quarter totaled 1.4 million (70% of total net additions).
iPhone sales soared in the quarter, spurred by the record new activations of 3.2 million (40% represented by new customers), backed by the newly launched iPhone 3GS. Postpaid 3G wireless devices also registered record quarterly net additions with 4.3 million new activations.
Wireless data revenue increased by 33.6% year over year to $3.6 billion, driven by strong handset sales and associated data access, e-mail and messaging services. Total churn (customer switch) reached the lowest level ever at 1.43%, compared to 1.69% a year ago. Postpaid churn of 1.17% reflects a year-over-year improvement from 1.22%. Postpaid ARPU (average revenue per user) was $61.23, up 3.8% year over year, driven by healthy data growth.
Strength from U-verse video services continues to help AT&T counter increasing competition in the traditional wireline business. Total U-verse TV subscribers reached 1.8 million with a net addition of 240,000 customers, albeit a decline from 248,000 additions in the previous quarter. U-verse TV footprint passed 20 million homes at the end of the quarter. Net additions to the broadband customer base were 252,000 (reaching 17.1 million customers in service), reflecting a sequential increase from 209,000 customers.
AT&T remains challenged by the precipitous decline in its traditional fixed-line business. Wireline voice access lines continue to decline as reflected by a sequential decrease of approximately 1.6 million lines in the third quarter (stable with the previous quarter) to 50.8 million. Wireline voice revenue declined 14.5% year over year to $8.1 billion.
The ongoing substitution of landline calls with wireless services coupled with cable competition in overlapping markets largely contributed to this decline. However, wireline IP data revenue posted 18.7% year over year growth in the quarter, favored by the expansion of U-verse service and growth in advance business solutions.
AT&T is pursuing a number of strategies including aggressive promotion of bundled services (voice, video and Internet) to protect its markets from cable operators and other alternative services. The company recently received approval from the Department of Justice for its impending acquisition of regional operator Centennial Communications (CYCL). The transaction is expected to conclude in the fourth-quarter of 2009.
We are encouraged by AT&T’s ongoing efforts to upgrade its wireless network and acquisition initiatives to expand customer base and coverage zones as the U.S. subscriber population reaches maturity. Moreover, significant cost savings continue to bolster strong free cash flow, supporting attractive dividend payouts.
However, we remain cautious in light of recessionary factors which may contribute to the weakening demand of wireline services. Also, handset subsidies are expected to dilute earnings through 2009, and the acquisition of Centennial will elevate the debt level.
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