A solid Q2 from AT&T (T) despite concerns that a weaker U.S. economy would pinch the telco. AT&T posted $30.9 billion in revenue, up 4.7% year-over-year and slightly short of Wall Street’s $31.2 billion estimate. EPS came in at $0.76, in line with analysts’ expectations. Shares are up 5.1%, trading around $33.44.
No colour about the economy or Q3 in AT&T’s release, but plenty of discussion during the conference call. AT&T admits the economic environment is “pretty challenging,” but execs didn’t say anything particularly alarming, and noted that they’re coping with it by cutting costs while continuing to invest in key growth areas like wireless broadband and U-Verse, their fibre-based broadband/TV network.
AT&T’s old-school telephone business is the most susceptible to the slowdown; customers are cancelling their phone lines in favour of mobile phone-only or cheaper Internet phone bundles from cable companies. AT&T says some customers are cancelling broadband service (and not replacing it) as a cost-cutting measure, but that “non-pay disconnects” — essentially, customers who they’ve had to boot because they didn’t pay their bill — are only up about 2% year-over-year.
The company didn’t give specific guidance, but said pro forma revenues will continue to grow around 4% y/y, led by wireless.
During Q2, AT&T’s wireless unit continued to lead growth. The company posted $10.9 billion of wireless revenue during the quarter, up $1.4 billion, or 14.5% from Q2 2007. Revenue from wireless data services like text messaging and email grew 52% year-over-year to $2.5 billion. Specifically, wireless internet access revenue more than doubled year-over-year, thanks in part to massively increased sales of smartphones, which often require subscribers to buy an Internet access plan (~$30/month). AT&T says 18% of its subscribers now use smartphones, up from 8% a year ago.
Customer growth ticked down: AT&T added 1.3 million net new wireless subscribers during the quarter, down 123,000 from a year ago, and short of the 1.5 million that archrival Verizon Wireless says it added last quarter.
No big deal: AT&T should have a monster Q3 thanks to Apple’s (AAPL) new iPhone 3G, which launched exclusively on AT&T on July 11. AT&T says sales of the new iPhone 3G, after 12 days, and despite short supply, are nearly double the levels at which AT&T sold the first iPhone last summer. No real numbers to support that claim, and no surprise — it’s $400 cheaper — but still a good trend. Tradeoff: The company has already warned that subsidizing the new iPhones several hundreds of dollars apiece would ding its earnings by 10 to 12 cents per share this year and next, and that the phone won’t be accretive until 2010.
AT&T signed up 170,000 subscribers to its fledgling U-Verse cable TV service during Q2, bringing total subscribers to 549,000. The company says it’s on track for more than a million subscribers by the end of the year. Related: We’ll pay close attention during the call to any information about ditching Dish Network (DISH), its satellite TV resale partner.
Update: More colour from Goldman’s Jason Armstrong, who points out in a note that some operating metrics were substantially weaker than he expected. For instance, broadband net subscriber additions were only 48,000, much lower than his estimated 250,000. And access line loss came in at 8.1%, 40 basis points worse than last quarter, and below his estimated 8.0%.
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