AT&T chief Randall Stephenson sits down with Citigroup analyst Michael Rollins at the bank’s annual media and telecom conference.
Main points: The economy sucks. (Stock tanks!) People aren’t paying their phone/broadband bills and are getting cut off — but wireless is surviving economic weakness. Going forward, wireless the big source of growth. Drivers will be mobile data (3G and smartphones) and prepaid services. Probably won’t get 20% U-Verse/IPTV market share this year. The triple-play of the future: wireless + TV + broadband — i.e. wireless will replace VoIP/landline phone service.
2:15 p.m. Joining the keynote/Q&A already in progress…
2:16 Bandwidth and connectivity demand increasing. AT&T, of course, “uniquely positioned” with wireless, wireline, etc. Business is stabilizing, revenues growing across the board.
2:18 Wireless revenue will grow in mid teens next year. Consolidated revs in mid single digits. Regulatory environment relatively stable.
2:18 Q&A begins. Rollins: Where is best growth?
2:19 Revenue story begins with wireless. iPhone “driving a lot of it.” A lot of “runway left” in terms of penetration. Data ARPU grew at 60% last quarter. (Q3 or Q4?) Legacy AT&T was shrinking, now growing.
2:21 Lion’s share of rest of wireless penetration will come from prepaid. We like prepaid. Growing at a robust rate. “Dominated by AT&T and TracPhone,” which runs on AT&T’s network.
2:23 Gotta get people to 3G devices: Their ARPU goes up 20% from older phones. Only 10% of subs have 3G right now. PDAs/smartphone subscriber ARPU goes up 120%. A lot of headroom left on data.
2:25 LTE & 4G: We want to move to LTE as quickly as we can. Standards out end of year (maybe). Scale won’t come til 2012 or 2013. A four-year-out technology before you truly begin to scale it.
2:29 Customers reacting to economic softness? On enterprise, it’s a big unknown. Seeing it on the broadband and access-line side. “We’re really experiencing softness on the consumer side of the house from the economy.”
2:32 Where is economic weakness on consumer side? People aren’t paying their bills and are getting cut off. Not so much in wireless. As economy gets soft, wireless becomes the last thing they get rid of, landline becomes one of the first they cut off.
2:34 IPTV: Don’t have to be cheap to win market share. 10% comes immediately because you’re an alternative. Next 10% needs marketing. That’s kind of the stage we’re in now. Don’t think we’ll get 20% market share in most markets before end of this year.
2:35 IPTV Capabilities this year: 2 HD/2 standard-def offer. Whole-home DVR. A lot of integration on wireless devices. (Now you can set your DVR from your wireless phone). 10 mbit broadband, VoIP product out this year, too.
2:36 Can you lessen the rate of line loss this year? At what market share point some equilibrium? “I don’t know the answer.”
2:37 Wireless/broadband/video the product set of the future. No future for VoIP. If you can price and bundle attached to wireless, a huge competitive advantage.
2:39 Important to have a video option in the home regardless of landline geographic footprint. Dish network for now. Should we expect more aggressive triple play bundles in region and out? In region, yes. Wireless/broadband/video.
2:40 Lots of investment in India. Middle East & South America also hugely important.
2:41 Capex: mid teens of revenue. But seems like wireless spend was less than some anticipated. Could we see a material lift in broadband investment? Will finish out 3G build, not a huge chunk of capital. Wireless capex a down cycle, IPTV an up cycle. Enterprise business mostly done last year, IP backbone mostly done last year. Very manageable for capex to be mid-teen percentage of revenue.
2:44 Low to mid 40s wireless margins. Where do you think wireless margins mature? Mid 40s for long term? Possibility to do better? I don’t know. 40%-ish achievable. Does growth slow? Maybe margins can move up. Have a hard time assessing margins beyond three years.
2:47 Where to cut? Some say rural wireline, but might be able to come up with a broadband option for them. And who will overpay for them? Directory? Doing a good job selling ads… think about integrating with portal, video ad sales.
2:50 Economy problems worse than in 3Q or continued weakness? Slipped more — non-pay disconnects greater in Q4 on consumer access lines.
2:51 IPTV: How different than churn on cable? How should we think of metrics? At the go-down, will look very similar to cable. Seeing higher ARPUs, to be frank. People tending to buy higher speed on broadband. $90-$100 ARPU on video+broadband. I don’t think we’ll see that move over the next few years.
2:54 Expanding enterprise client base in Europe is a focus. We do well, but mostly with clients who deliver a lot of traffic to U.S.
2:56 Enterprise margins will be stable or better as transition to IP continues.
3:00 A year from now? I expect economic slowdown but IPTV product and continued broadband penetration will help grow consumer business in 2008. Not much effect from economy to SMB business. Think enterprise will grow this year and mid single digit growth beyond 2008. Wireless is proving to be fairly resilient despite downturn. Mid-teen growth rates reasonable. I think we can grow through downturn and have a very good year.
3:01 Q&A over.
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