AT&T posted Q4 results this morning. Revenue came in a bit weak, and EPS were mostly in-line with Street expectations, but wireless subscriber growth was massive: The company added 2.7 net subscribers during the quarter, the biggest increase by any U.S. wireless carrier ever. Shares traded up more than 2% in pre-market trading.
Analysts polled by Reuters had expected wireless growth between 1.35 million to 2.36 million subs. A big chunk of the carrier’s growth can be attributed to Apple’s iPhone, which is exclusively tied to AT&T in the U.S. During Q4, Apple sold 2.3 million iPhones, mostly in the U.S. At the end of 2007, AT&T had 70.1 million wireless subs.
AT&T also almost doubled the number of subscribers to its U-Verse Internet TV service, starting the quarter with 126,000 and ending with 231,000. Other key stats:
- Revenue: $30.3 billion (vs. $30.55 billion Street consensus)
- Adjusted EPS: $0.71 (vs. $0.71 Street consensus, up from $0.61 a year ago)
- Net income: $3.1 billion (up 63% y/y)
- Broadband net subscriber additions: 396,000 (down 90% y/y)
Live conference call notes. Slides (PDF)
9:59 Soothing music.
10:02 Call begins.
10:03 SVP of IR: Welcome. CFO Rick Lindner on call, no CEO (Stephenson still in Davos?)
10:04 11th straight quarter of double digit growth in adjusted EPS. 71 cents adjusted EPS.
10:04 Lindner joins the call. Brief highlights from slide 6.
10:05 Going over the basics: 2.7 million wireless net adds, best ever. Total wireless revs up 16%. One track for mid single digit consolidated rev growth in ’08.
10:07 AT&T/BellSouth synergies reach $4 billion in ’07. Expect “more upside” in 2008. Targeting more than $5 billion in 2008, more than $6 billion in 2009.
10:08 Good trajectory for mid single digit revenue growth in ’08. (Slide 9) Slight decline in rev. growth reflects enterprise equipment sales. Starting in 2007 de-emphasised standalone equipment sales. CPE comparisons will have less impact starting this quarter. Adjusting for CPE, adjusted rev. growth 3.5%. Also expect wholesale trends to stabilise.
10:10 Expect new revs from IBM alliance to provide a lift. And national “mass markets” (AT&t legacy long distance) will be less important.
10:11 Wireless grew by 7.3 million subs excluding Dobson acquisition. ARPU grew y/y for sixth consecutive quarter.
10:12 Postpaid net adds up, churn down. Explosive data growth, up 57.5% y/y, to more than $2 billion in qtr. Data access, media bundles both up more than 70%, messaging up 50%, email up 60%. $12 of postpaid ARPU. “Huge upside to data growth.” Only 37% of postpaid subs are on monthly wireless data plan. About 12% of customers have smartphones, their data ARPU more than double average. 3G network has 9 million customers, almost all of them added during past year.
10:14 3G ARPU 20% higher than 2G. 40% subs of iPhone customers new to AT&T, much higher ARPU than average.
10:15 iPhone customers can put YellowPages.com app on homepage, AT&T’s own directory service.
10:16 Working with Wachovia and SunTrust for mobile banking services. Transfer funds, pay bills. Yawn! Go to Japan and see how mobile payments REALLY work.
10:17 Opportunity for further margin expansions. With record gross adds, margin declined again in Q4. But trends positive. Moved approx. 390,000 subs off old TDMA network. Approx 390,000 subs remain, 2/3 wholesale. Will be shut down in Feb.
10:18 Substantial improvement in enterprise. Recurring svc. revs up 1.8% VPN up 31%, hosting services up 19%.
10:20 Where will growth come from? Wireless, application services, content delivery (look out Akamai, Limelight?), migrating to IP (faster revenue recovery times).
10:23 Stable consumer revs. Broadband penetration approaching 39%. In West region, above 45%. Satellite and U-Verse up to 7.6% penetration. Net gain in consumer connnections of 568,000. ARPU up 4.9%. Mentioned economic softness in NY, it’s baked into our business plans.
10:26 U-Verse now in 41 markets. In Mid-Dec., approx 12k installs in week, above 10k/wk target. Churn continues to improve, customers happy. Ramping to 40k installs/week by end of 2008, expect 1 million subs by end of 2008.
10:28 Think we had a very solid Q4. What we’re seeing in economy is consistent with 2008 operational plan.
10:29 Q&A begins.
10:29 Any early learnings about U-Verse? Update on 2nd HD screen? iPhone numbers? Business pricing? We feel very good about U-Verse results. Churn rates “very good” and “comparable to what we’re seeing in access line and broadband kinds of churn” and believe they will decline to sub-2% levels as start to build the base further. U-Verse dilution for the year was 11 cents, right where we had projected it. Going forward, no change to outlook/guidance in that area. 12-14 cent range for next year. Adding whole-home DVR, 2nd HD stream rolling out around mid-year. Third enhancement important going forward: Pair bonding, expected late 2008. iPhone results continue to be very good. Very solid sales results in both Oct and Nov, in Dec. from normal monthly run rate, almost double sales in December. Clearly as we go forward, Apple will continue to enhance the product. We see some software enhancements being planned for 2008, think it will continue to be a strong product. ARPUs are very good: People that acquire that phone have strong ARPU, putting data packages on top of it. ARPUs nearly double what average ARPUs are in rest of the base. Difficult to reconcile 4 million number w/ unlockers, overseas, etc. We have finished the year with just under 2 million iPhone customers in the base. Devices we have purchased in inventory, sold and shipped but not activated, some devices purchased through channels in U.S. that actually going to international markets. When you look at a device that’s been in the market for six months, and it’s 2 million devices out of postpaid base, that’s pretty significant growth in a short period of time.
10:36 What economic conditions baked into expectations? Awful lot of noise in media, market about the economy. If you go back to comments that we’ve made, increases in non-pay disconnects… Look at results. We saw softness in access lines, where rate of line loss increased, some slowing in broadband net adds. In both cases, both products are impacted by some of the things we see in housing markets, new construction. Small uptick in non-pay disconnects. 10 basis points of additional churn in Q4 vs. prior year. Baked those into operational plans, reflected in guidance. Not seeing impact in wireless business. Reflects changes in terms of the way people are communicating today vs. 10 or 15 years ago. Translation: Wireless is displacing wireline. Not seeing impact on enterprise.
10:46 CPE has had an impact on us has had an impact in just about every quarter, but Q4 was bigger…
10:50 More rehashing from earlier. Nothing exciting here.
10:52 8.5% of subscriber base upgraded in Q4. Going forward in wireless, it was a typical Q4 in terms of pretty aggressive devices and handsets, but as we see results from higher end devices, etc., results in ARPU very strong. “Lot of comfort” from what we’re doing. Will continue a bit into Jan… will get margin lift from TDMA shutdown. Wouldn’t look for that in Q1… will ramp in balance of year. Still have to remove equipment from cell sites, get relief from rents in those sites, etc.
10:54 Headcount has increased. We are adding technicians and installers for U-Verse. There’s a lead time for that. Have also made some commitments to bring some jobs back thru merger conditions. May see some headcount increases. Also some increases related to transactions that we’ve done. Part of increase to bring in 2,500 from Dobson, IBM agreement, etc.
10:59 iPhone ARPU is reported gross and any sharing or payments are reflected in expense. Not different from other relationships we have had for years, like agents’ residuals. Stock buyback: Not in market in January because of earnings release. We will resume share repurchase program starting tomorrow.
11:01 You were first to flag wireline weakness. Is a lot of this tied to Midwest or more evenly distributed? Not seeing clear patterns by regions. Certainly some weakness in the upper Midwest, but if you take Detroit, they’ve had issues there for some time related to auto industry. Can’t say what we’re seeing is an increase in a particular area at this point. I think it’s more spread across the geography. 10 basis point impact on non-pay churn is not a huge impact.
11:08 Wireline cost of service: No big drivers there. Wireless postpaid adds showed nice increase year over year. Feel very good about sales activity and store traffic. I think the challenge for us is to continue to migrate churn levels down. As we get beyond the TDMA shutdown, I think that will help churn levels reduce. We need to take another 20 basis points or so out of postpaid churn, and that will make a huge difference. Opp on Dobson churn? Sure. I think Dobson will help us, will be able to improve overall results — more robust product portfolio. Secondly, we’ll see some margin improvement because we’ll be taking some roaming costs out.
11:15 Closing remarks.
Business Insider Emails & Alerts
Site highlights each day to your inbox.