3rd QUARTER 2008 Investor Briefing No. 262 | October 22, 2008 AT&T Inc. reported third-quarter results highlighted by strong wireless gains and stable business trends, including continued double-digit growth in IP data services and a major turnaround in wholesale revenue growth. Total wireless revenues grew 15.4 percent, driven by a significant step up in retail postpaid subscriber additions, continued rapid adoption of wireless data services and robust demand for integrated devices, led by the Apple iPhone 3G. Third-quarter highlights included the following: • Total wireless subscribers increased by 2.0 million to reach 74.9 million in service, with a net gain in retail postpaid wireless subscribers of 1.7 million. This was the largest quarterly postpaid subscriber increase in the company’s history. Strong Wireless Gains, Sound Operational Execution Highlight AT&T’s Third Quarter; Results Led by 2.4 Million iPhone 3G Activations, Rapid Wireless Data Growth AT&T delivered its best-ever quarterly postpaid wireless subscriber gain, accelerated its U-verse video subscriber ramp and sustained stable trends in business services. Third-Quarter EPS Reconciliation 3Q08 3Q07 Reported EPS ....................................................................... $0.55 $0.50 Adjustments: Merger integration costs ............................................................ 0.04 Noncash merger-related costs ....................................................... 0.12 0.17 Adjusted EPS ...................................................................... $0.67 $0.71 Pretax adjustments to earnings: in 3Q07, merger integration costs, noncash intangible amortization and a directory-related purchase accounting effect totaling $1,898 million; in 3Q08, noncash intangible amortization totaling $1,096 million.
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3rd QUARTER 2008
InvestorBriefing No. 262 | October 22, 2008
AT&T Inc. reported third-quarter results highlighted by strong wireless gains and stable business trends, including continued double-digit growth in IP data services and a major turnaround in wholesale revenue growth. Total wireless revenues grew 15.4 percent, driven by a significant step up in retail postpaid subscriber additions, continued rapid adoption of wireless data services and robust demand for integrated devices, led by the Apple iPhone 3G. Third-quarter highlights included the following:• Totalwirelesssubscribersincreasedby2.0milliontoreach74.9millionin
service,withanetgaininretailpostpaidwirelesssubscribersof1.7million.This was the largest quarterly postpaid subscriber increase in the company’s history.
Strong Wireless Gains, Sound Operational Execution Highlight AT&T’s Third Quarter; Results Led by 2.4 Million iPhone 3G Activations, Rapid Wireless Data Growth
• Postpaidsubscribergrowthwasboostedbythe dramatic market success of the Apple iPhone 3G, which was launched in the United States as an AT&T exclusive on July 11. Third-quarter activations of the iPhone3Gtotaled2.4million,approximately40percentofthemforwirelesscustomerswho were new to AT&T.
• Wirelessdatarevenuesgrew50.5percent,reflecting continued strong increases in areas such as Internet access, messaging, e-mailandrelatedservices.WirelessInternet access revenues and multimedia message volumes more than doubled versus results for the year-earlier quarter.
• Wirelinebusinesstrendswerestable, with enterprise, regional business and wholesale revenues all up sequentially, led by growth in IP data services such as virtual private networks (VPNs), managed Internet services and hosting.
• AT&Tfurtheraccelerateditsrampofnext-generation, IP-based TV service and endedthethirdquarterwith781,000 AT&T U-verseSM TV subscribers in service. This reflects a third-quarter net gain of 232,000,upfrom170,000subscribersadded in the second quarter of this year. AT&T is on a trajectory to exceed its target of more than 1 million U-verse TV subscribersbyyear-end2008.U-versenetwork deployment now passes 14 million living units.
REPORTED RESULTS ForthequarterendedSept.30,2008,AT&T’sconsolidated revenues totaled $31.3 billion, up4.0percentversusreportedresultsintheyear-earlier quarter and up 3.3 percent comparedwiththird-quarter2007proformarevenues, which exclude merger-related accounting impacts on directory revenues.
Consolidated revenue growth was driven by 15.4 percent growth in wireless revenues anda16.2percentincreaseinwirelineIPdata revenues, which includes AT&T U-verse services and business offerings such as VPNs, managed Internet services and hosting. Gains in these areas more than offset pressures in the macro-environment and a decline in wireline consumer voice, which was consistent with trends in recent quarters.
Compared with results for the year-earlier quarter, AT&T’s reported operating expenses forthethirdquarterof2008were$25.7billionversus$24.8billion;reportedoperatingincomewas$5.6billion,upfrom$5.3billion;and AT&T’s reported operating income margin was17.9percent,upfrom17.6percent.
AT&T’sreportedthird-quarter2008netincometotaled$3.2billion,upfrom$3.1 billion in the year-earlier quarter, and reported earnings per diluted share totaled$0.55,upfrom$0.50inthethirdquarterof2007.
USE THESE
2Q08 3Q08
$30.3 $30.4
Revenues for 2007 are adjusted to exclude merger-related directory purchase accounting impacts.
AT&T ADJUSTED CONSOLIDATED REVENUES
Dollars in billions
Page TWO
2Q0716.8%Reported
3Q0717.6%
4Q0718.1%
1Q0819.5%
2Q0821.3%
23.9%23.7%
24.6%
Merger integration and amortization costs and other one-time items are excluded from adjusted operating income margins.
AT&T ADJUSTED OPERATING INCOME MARGIN
24.0%
Page THREE
3Q07 4Q07 1Q08
$30.9
$31.3
$30.725.1%
Strong gains in wireless and
continued double-digit growth in
IP data services drove AT&T’s third-quarter
revenue growth.
InvestorBriefing | 3Q 20083
ADJUSTED RESULTSAT&T’s adjusted results for the third quarter of2008excludenoncashmerger-relatedamortizationexpenses.Forthethirdquarterof2007,adjustedresultsexcludedmergerintegration costs, merger-related amortizationexpensesandamerger- related directory accounting effect.
Compared with results for the year-earlier quarter, AT&T’s adjusted operating expenses forthethirdquarterof2008totaled$24.6billionversus$23.1billion;adjustedoperatingincomewas$6.7billion,comparedwith$7.2billion;andAT&T’sadjusted operatingincomemarginwas21.4percentversus23.7percent.AT&T’sadjusted third-quarter2008netincometotaled$3.9billionversus$4.3billioninthe year-earlier quarter, and adjusted earnings perdilutedsharetotaled$0.67,comparedwith$0.71inthethirdquarterof2007.
iPHONE 3G IMPACTS AND HURRICANE-RELATED EXPENSESAT&T’sthird-quarter2008reportedandadjusted margins and earnings reflect revenue growth and continued progress with previously outlined cost initiatives, offset by hurricane-related expenses and effects on wireless results from the iPhone 3G. Impacts from the company’s iPhone 3G initiative reduced third-quarter pretax earnings by approximately$900millionor$0.10pershare, and costs related to hurricanes reduced pretax earnings by approximately $145millionor$0.02pershare.
Based on third-quarter customer response, AT&T is optimistic regarding continued strong iPhone 3G activations and is confident in the long-term value created by this investment in acquiring high-value, data-centric wireless subscribers. As a result, AT&T expects its dilution associated with the iPhone 3G will run above its previous expectation, and AT&T now expects, depending on volumes, itsfull-year2008wirelessserviceOIBDAmargintobebetterthan37percentversusitspreviousoutlookof39percentto40percent.AT&Texpectsitsfull-yearadjusted consolidated operating income margintobeapproximately23percentversus its previous outlook of approximately 24percent.
STRONG BALANCE SHEETAT&T’s cash from operating activities for the thirdquarterof2008totaled$9.3billion,capital expenditures totaled $5.3 billion and free cash flow (cash from operations minus capitalexpenditures)totaled$4.0billion.Throughthefirstthreequartersof2008,cash from operating activities totaled $22.8billion,capitalexpenditurestotaled$14.8 billion and free cash flow totaled $7.9billion.AT&Tcontinuestoexpectfull-year2008capitalexpendituresinthe mid-teens as a percentage of total revenues andexpectsfull-year2008freecashflow of approximately $14 billion.
Advertising&Publishingresultsfor2007were affected by accounting adjustments followingAT&T’slate2006acquisitionofBellSouth. In accordance with purchase accounting rules, deferred revenues and expenses for all BellSouth directories delivered prior to the close of the merger wereeliminatedfrom2007consolidatedresults.Thiseliminationofamortizationsreducedthird-quarter2007consolidatedrevenuesby$196millionandconsolidatedoperatingexpensesby$64million.
AT&T manages its print directory business usingamortizedresults.Asaresult,2007amortizedresultsareshowninthe Advertising & Publishing segment on AT&T’s Statement of Segment Income. In2008,bothconsolidatedandsegmentresultsreflectamortizationaccounting.
AT&T’s balance sheet continues to be strong.Duringthethirdquarter,AT&Treduced total debt by $3.4 billion. At the end of the quarter, AT&T’s long-term debt was$59.4billionandtotaldebtwas$76.8billion.Cashandcashequivalentsattheendofthequartertotaled$1.6billion.AT&T’s third-quarter debt-to-total-capitalizationratiowas40.6percent,and thecompany’sannualizeddebt-to-EBITDAratiowas1.7.
ADDITIONAL BACKGROUND ON ADJUSTED AND PRO FORMA RESULTSAT&T’s adjusted earnings for the third quarterof2008excludenoncash,pretax amortizationcostsrelatedtoacquisitionstotaling$1.1billionor$0.12perdilutedshare. Adjusted results for the third quarter of2007excluded:(1)pretaxcashmerger-related integration costs totaling $322millionor$0.04perdilutedshare; (2)noncash,pretaxmerger-relatedcoststotaling$1.4billionor$0.16perdilutedshare;and(3)amerger-relateddirectoryaccountingimpactof$132millionor$0.01perdilutedshare.
InvestorBriefing | 3Q 20085
WirelessAT&T significantly accelerated growth in advanced wireless services in the third quarter. Results included a major step up in retail postpaid subscriber additions and a continued strong ramp in wireless data revenues from areas such as Internet access, e-mail and multimedia messaging. Expansion in these areas was boosted by robust demand for integrated devices, led by strong performance from the Apple iPhone 3G, which was launched in the United States as an AT&T exclusive on July 11.
STRONGEST QUARTERLY POSTPAID NET ADDS IN COMPANY’S HISTORYIn the third quarter, AT&T posted the largest postpaid net subscriber gain for any quarter in its history. Retail postpaid net subscriber additions of 1.7millionwereupnearly40percentversusresultsintheyear-earlier thirdquarterandaccountedformorethan85percentofAT&T’s2.0milliontotal wireless net adds.
Grosssubscriberflowtotaled5.7million,andpostpaidgrossaddsforthethird quarter topped 3.8 million, with both totals exceeding results in the year-earlier quarter. Total monthly subscriber churn in the third quarter was 1.7percent,flatwithresultsfortheyear-earlierquarter,andpostpaidchurnimprovedto1.2percentfrom1.3percentinthethirdquarterof2007.
2.4 MILLION iPHONE 3G ACTIVATIONSPostpaid subscriber growth was boosted by the dramatic market success of theiPhone3G.Third-quarteractivationsoftheiPhone3Gtotaled2.4million,2.4timesresultsfortheoriginaliPhonethroughtheendofthethirdquarterin2007.Approximately40percentofiPhone3Gactivationsinthethirdquarter of2008wereforwirelesscustomerswhowerenewtoAT&T.Inaddition, AT&T’s iPhone exclusive has delivered subscribers with ARPU (average monthly revenuespersubscriber)approximately1.6timeshigherandchurnratessignificantly lower than the company’s overall postpaid subscriber base.
The iPhone and other integrated devices are key to AT&T’s success in driving wireless data growth and in expanding flow share of high-value subscribers. Duringthethirdquarter,morethantwo-thirdsofthecompany’spostpaidnetaddscamefromcustomerschoosinganintegrateddevice,and22percentofAT&T’s postpaid wireless subscribers now have an integrated device, up from 10.5percentoneyearearlier.
AT&T delivered strong
wireless subscriber
and revenue growth in
the third quarter, powered
by 2.4 million iPhone 3G
activations and rapid
adoption of advanced
data services.
InvestorBriefing | 3Q 20086
CONTINUED RAPID EXPANSION IN WIRELESS DATAAT&T’s wireless data revenues grew 50.5percentversustheyear-earlierquarterto$2.7billion,reflectingstrongincreasesinareas such as Internet access, messaging, e-mailandrelatedservices.WirelessInternetaccess revenues more than doubled versus results for the year-earlier quarter, and multimedia message volumes were also morethandoublethird-quarter2007levels.In the third quarter, data represented 24.2percentofAT&T’stotalwirelessservicerevenues, up from 18.4 percent in the third quarterof2007.
USE THESE
3Q07 4Q07 1Q08 2Q08 3Q08
1,212 1,178
705
1,693
AT&T POSTPAID NET SUBSCRIBER ADDITIONS
In thousands
894
AT&T WIRELESS REVENUES
Dollars in billions
3Q07 4Q07 1Q08 2Q08 3Q08
$10.9$11.4
$11.8 $12.0$12.6
3Q07 4Q07 1Q08 2Q08 3Q08
65.7
70.171.4
72.9
74.9
Wireless - Chart ONEWireless - Chart TWO
AT&T WIRELESS SUBSCRIBERS
In millions
Wireless - Chart THREE
Wireless - Chart FOUR
3Q07 4Q07 1Q08 2Q08 3Q08
$1.8$2.0
$2.3
$2.7
AT&T WIRELESS DATA REVENUES
Dollars in billions
$2.5
Wireless - Chart FOUR
2Q0715.4%
2Q0825.5%
2Q0735.8%
2Q0841.2%
24.9%
29.9%
37.5%
41.2%
Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
AT&T ADJUSTED WIRELESS MARGINS
UnadjustedResults
Operating Income Margin OIBDA Service Margin
Subscriber increase in 4Q07 included 1.7 million subscribers added through acquisition; 2Q08 increase included 182,000 subscribers added through acquisition.
USE THESE
3Q07 4Q07 1Q08 2Q08 3Q08
1,212 1,178
705
1,693
AT&T POSTPAID NET SUBSCRIBER ADDITIONS
In thousands
894
AT&T WIRELESS REVENUES
Dollars in billions
3Q07 4Q07 1Q08 2Q08 3Q08
$10.9$11.4
$11.8 $12.0$12.6
3Q07 4Q07 1Q08 2Q08 3Q08
65.7
70.171.4
72.9
74.9
Wireless - Chart ONEWireless - Chart TWO
AT&T WIRELESS SUBSCRIBERS
In millions
Wireless - Chart THREE
Wireless - Chart FOUR
3Q07 4Q07 1Q08 2Q08 3Q08
$1.8$2.0
$2.3
$2.7
AT&T WIRELESS DATA REVENUES
Dollars in billions
$2.5
Wireless - Chart FOUR
2Q0715.4%
2Q0825.5%
2Q0735.8%
2Q0841.2%
24.9%
29.9%
37.5%
41.2%
Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
AT&T ADJUSTED WIRELESS MARGINS
UnadjustedResults
Operating Income Margin OIBDA Service Margin
Subscriber increase in 4Q07 included 1.7 million subscribers added through acquisition; 2Q08 increase included 182,000 subscribers added through acquisition.
Strong subscriber gains and rapid
adoption of data services drove
AT&T’s 15.4 percent third-quarter
growth in total wireless revenues.
AT&T increased its wireless subscriber
base by 2.0 million in the third quarter
and by 9.2 million over the past year.
Drivenbysubscribergainsanddatagrowth, AT&T’s total wireless revenues increased15.4percentto$12.6billion,andwireless service revenues, which exclude handset and accessory sales, grew 14.3 percent to $11.3 billion. Total service ARPUwas$50.80,flatversustheyear-earlier third quarter, and retail postpaid subscriberARPUwas$58.99,up2.6percentversusthethirdquarterof2007.
To spur continued strong growth in wireless data services, AT&T has expanded its3Gnetworkcoverageto324cities,withplanstoexpandtonearly350bytheend of the year. AT&T’s 3G network is the nation’s fastest, according to third-party data, and allows typical download speeds ofupto1.7megabitspersecond.
Morethan17millionAT&Twireless subscribers now use 3G devices, up approximately 4 million over the past three months. At the end of the third quarter, AT&T’s total wireless broadband-capable subscribers — those using 3G LaptopConnect cards and broadband-speed integrated deviceswithaQWERTYortouch-screenkeyboard—totalednearly5.9million,up2.8millionoverthepastthreemonthsandmore than 4.4 million over the past year.
WIRELESS MARGINSOnareportedbasis,third-quarterwirelessoperatingexpensestotaled$10.2billion,operatingincomewas$2.4billionand AT&T’s wireless operating income margin was18.9percentversus18.0percentintheyear-earlierthirdquarter.Onanadjustedbasis, third-quarter wireless operating expensestotaled$9.7billion,operatingincomewas$2.9billionandAT&T’swirelessoperatingincomemarginwas22.8percentversus26.4percentintheyear-earlierthirdquarter.AT&T’sthird-quarterwirelessOIBDAservice margin was 33.5 percent versus an unadjusted37.3percentandanadjusted39.1percentintheyear-earlierquarter.
InvestorBriefing | 3Q 20087
USE THESE
3Q07 4Q07 1Q08 2Q08 3Q08
1,212 1,178
705
1,693
AT&T POSTPAID NET SUBSCRIBER ADDITIONS
In thousands
894
AT&T WIRELESS REVENUES
Dollars in billions
3Q07 4Q07 1Q08 2Q08 3Q08
$10.9$11.4
$11.8 $12.0$12.6
3Q07 4Q07 1Q08 2Q08 3Q08
65.7
70.171.4
72.9
74.9
Wireless - Chart ONEWireless - Chart TWO
AT&T WIRELESS SUBSCRIBERS
In millions
Wireless - Chart THREE
Wireless - Chart FOUR
3Q07 4Q07 1Q08 2Q08 3Q08
$1.8$2.0
$2.3
$2.7
AT&T WIRELESS DATA REVENUES
Dollars in billions
$2.5
Wireless - Chart FOUR
2Q0715.4%
2Q0825.5%
2Q0735.8%
2Q0841.2%
24.9%
29.9%
37.5%
41.2%
Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
AT&T ADJUSTED WIRELESS MARGINS
UnadjustedResults
Operating Income Margin OIBDA Service Margin
Subscriber increase in 4Q07 included 1.7 million subscribers added through acquisition; 2Q08 increase included 182,000 subscribers added through acquisition.
USE THESE
3Q07 4Q07 1Q08 2Q08 3Q08
1,212 1,178
705
1,693
AT&T POSTPAID NET SUBSCRIBER ADDITIONS
In thousands
894
AT&T WIRELESS REVENUES
Dollars in billions
3Q07 4Q07 1Q08 2Q08 3Q08
$10.9$11.4
$11.8 $12.0$12.6
3Q07 4Q07 1Q08 2Q08 3Q08
65.7
70.171.4
72.9
74.9
Wireless - Chart ONEWireless - Chart TWO
AT&T WIRELESS SUBSCRIBERS
In millions
Wireless - Chart THREE
Wireless - Chart FOUR
3Q07 4Q07 1Q08 2Q08 3Q08
$1.8$2.0
$2.3
$2.7
AT&T WIRELESS DATA REVENUES
Dollars in billions
$2.5
Wireless - Chart FOUR
2Q0715.4%
2Q0825.5%
2Q0735.8%
2Q0841.2%
24.9%
29.9%
37.5%
41.2%
Merger integration and intangible amortization costs excluded from adjusted operating income margins: $983 million in 2Q07 and $529 million in 2Q08. Merger integration costs excluded from adjusted OIBDA service margins: $163 million in 2Q07.
AT&T ADJUSTED WIRELESS MARGINS
UnadjustedResults
Operating Income Margin OIBDA Service Margin
Subscriber increase in 4Q07 included 1.7 million subscribers added through acquisition; 2Q08 increase included 182,000 subscribers added through acquisition.
AT&T delivered its best-ever quarterly net gain in postpaid
subscribers, up 39.7 percent versus
results in the third quarter of 2007.
AT&T’s wireless data revenues grew
50.5 percent year over year, driven by increased usage of
wireless Internet and data access,
messaging and media bundles.
wireless research firms. AT&T also offers the broadest global coverage of any U.S. provider, with voice roaming available in morethan200countries;accesstoe-mail,theWebandotherdataapplicationsin morethan145countries;andaccesstomobile broadband 3G networks in more than60countries.
Building on this foundation, AT&T is defining and delivering the next generation of wireless by advancing network capa bilities, offering breakthrough devices and launching innovative services. In addition to its highly successful launch of the Apple iPhone 3G, over the past several weeks, AT&T:• JoinedwithSamsungMobiletolaunch
Samsung RugbyTM, the first rugged handset to feature AT&T’s breakthrough Video ShareSM calling and to run on the largest Push to Talk network in the country.
• Expandeditslocation-basedservices (LBS) portfolio with the launch of two new navigation applications, MapQuest Navigator and AAA Mobile navigator, and announced the deployment of assisted GPS technology (A-GPS) in its wireless network to enhance existing and planned location-based services. The new applications add to the company’s AT&T Navigator and AT&T Navigator Global Edition offerings, and AT&T’s deployment of A-GPS paves the way for new offers from AT&T in the LBS space, including plans for a family-oriented service and a location-enabled social networking service.
• Announcedthelaunchof“My Commu nities,” a new downloadable gateway that lets users create and manage multiple social networking accounts through a single dashboard view on their mobile phone. My Communities offers a diverse roster of social networks, and through My Communities, subscribers can register for social sites directly from their phone. From an easy-to-use
In addition to operational improvements, year-over-year margin comparisons reflect approximately$900millionofpressureassociated with the iPhone 3G and approximately $55 million of expenses due tohurricanes.WithouttheiPhoneandhurricane impacts, AT&T’s third-quarter wirelessOIBDAservicemarginwouldhavebeenapproximately42percent.(OIBDAservice margin is operating income before depreciationandamortization,dividedbytotal service revenues.)
LEADER IN WIRELESS INNOVATIONAT&T operates the nation’s largest wireless digital voice and data network and offers the nation’s fastest 3G network according to data compiled by leading independent
InvestorBriefing | 3Q 20088
dashboard view, My Communities users can upload photos from their phone, view and respond to new messages, approve and deny friend requests and view and post new comments across multiple sites. Updates are synched across mobile and online channels in real time.
• WithSierraWireless,announcedtheavailability of the AT&T USBConnect Mercury, the newest and smallest addition to AT&T’s High Speed Packet Access (HSPA)-capable lineup of LaptopConnect devices. The device provides plug-and-play installation by including a preloaded version of AT&T Communication Manager softwareforMicrosoftWindowsVista, XPand2000notebooksandSierra’sWatcherTM software for Mac notebooks (versions10.4.11orlater).
• JoinedwithLGMobilePhonestolaunchthe LG InvisionTM, a new multimedia device for users who want the best in video on their mobile phone. It is the smallest Mobile TV-capable phone in the U.S., at just a little more than 4 inches tall, 2incheswideandlessthanone-half inch thick.
• AnnouncedtheavailabilityofAT&T Navigator Global Edition, the only GPS-based service available from a U.S. wireless carrier to provide international navigation capabilities. The service can be usedin20countriesonAT&T-poweredsmartphones featuring built-in GPS capabilities. AT&T Navigator Global Edition’s coverage area includes most countries in western Europe, North America, the U.S. Caribbean and six cities in China.
• AnnouncedtheavailabilityofMicrosoftSystemCenterMobileDeviceManager2008,anenterprise-grademobiledevicemanagement solution that also provides security, mobile VPN and software distributionforWindowsMobiledevices.AT&T also announced the availability of theMDMEarlyAdopterQuickStart Program that was developed cooperatively by AT&T and Enterprise Mobile and is an exclusive offering designed to assist AT&T customers with deploying the Microsoft mobility solution.
InvestorBriefing | 3Q 20089
WirelineThird-quarter results in
AT&T’s wired operations
included continued
double-digit growth in
IP data revenues,
stable business trends,
including a major
turnaround in wholesale,
and an accelerated ramp
in AT&T U-verse
TV subscribers.
Third-quarterrevenuesinAT&T’swirelinesegmenttotaled$17.6billionversus$17.9billionintheyear-earlierquarter.ResultsincludedAT&T’sfourthconsecutivequarter of strong mid-teens growth in total wireline IP data revenues, up 16.2percentversustheyear-earlierquarter.ConsumerIPdatarevenues,whichincludebroadbandandU-verseservices,grew19.0percent,andbusinessIPdatarevenues from products such as VPNs, managed Internet services and hosting wereup14.7percent.Growthintheseareaslargelyoffsetexpecteddeclinesinvoice and legacy packet-switched data products.
Third-quarter wireline results were highlighted by an accelerated ramp in AT&T U-verse TV subscribers and stable business trends, including a return to growth in wholesale revenues. AT&T’s total business revenues — comprised of theenterprise,regionalandwholesalecustomercategories—grew0.3percentversus the year-earlier quarter to $11.5 billion. All three business categories posted sequential revenue growth in the third quarter.
Compared with results for the year-earlier quarter, on a reported basis, third-quarter wireline operating expenses totaled $14.8 billion versus $15.0billion;operatingincomewas$2.7billionversus$3.0billion;andAT&T’swirelineoperatingincomemarginwas15.6percentversus16.5percent.
The following wireline highlights include ongoing shifts in customer categories to reflect AT&T’s management of customer relationships.
WHOLESALE TURNAROUNDIn the third quarter, AT&T delivered a return to growth in wholesale revenues, extending a major turnaround of trends in this category over the past year. Wholesalerevenuestotaled$3.5billion,up0.8percentsequentiallyand0.7percentversustheyear-earlierquarter.ThiswasAT&T’sthirdconsecutivequarter of sequential revenue growth in wholesale revenues.
InvestorBriefing | 3Q 200810
The turnaround in wholesale trends reflects solid demand from wireless carriers, Internet service providers, content providers and other customers along with increased revenues from the agreement announced last fall that makes AT&T the primary global network management services provider to IBM.
AT&T is one of the largest wholesale transport and communications service providers in the world, maintaining connectionstomorethan600carriersinmorethan220countriesandterritories, and delivers a full portfolio of end-to-end, reliable and highly secure network, voice, data and IP solutions to carriers, wireless operators, cable providers, systems
integrators, Internet service providers and content providers.
In recent weeks, AT&T announced it has received a Market Leadership Award for its U.S.WholesaleMetroSONETserviceportfoliofrom Frost & Sullivan, a global growth consulting company. In addition, the AT&TWholesaleorganizationreceivedfour2008ATLANTIC-ACMWholesaleMetroCarrier Excellence Awards based on the results of the third annual Metro Carrier Report Card, which evaluates the performance of metro carriers by their wholesale customers and is based on more than3,000individualcarrierevaluations.
STABLE ENTERPRISE TRENDSTotal enterprise revenues in the third quarter totaled$4.7billion,up0.8percent sequentially and down 1.4 percent versus the year-earlier quarter, reflecting solid sales results with some economic pressures on voice and data transport volumes. Enterprise fundamentals in terms of closed sales, a strong sales funnel and new service adoption remain solid, and the company expects revenues from major contracts, suchasitsagreementswithRoyalDutchShell and with U.S. government agencies, to increase in the quarters ahead.
AT&T is the premier provider for enterprise customers, delivering networking services and solutions to multinational corporations, governmental agencies and regionally based domestic companies. The company continues to expand its capabilities through network expansion and enhancement of service capabilities. For example, in August, AT&T announced the global launch of AT&T Synaptic HostingSM, its next-generation utility computing service with managed networking, security and storage for businesses. And in September, the company launched AT&T Mobile Enterprise Applications, which offers hosted and managed mobile integration solutions and application consulting services for companies that want to extend their business-critical information to mobile employees.
USE THESE
3Q0739.9%
4Q0741.5%
1Q0842.3%
2Q0843.4%
3Q0844.0%
$2.4$2.6 $2.6
Wireline
AT&T WIRELINE IP DATA REVENUES
Dollars in billions
Wireline
3Q07 4Q07 1Q08 2Q08 3Q08
126
231
549
781
AT&T U-VERSE TV CONNECTIONS IN SERVICE
In thousands
379
$2.7
2Q07 3Q07 4Q07 1Q08 2Q08
$58.91$59.43 $59.73
$61.40
AT&T AVERAGE MONTHLY CONSUMER REVENUES PER HOUSEHOLD SERVED
$60.57
Wireline
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
AT&T TOTAL ENTERPRISE REVENUE GROWTH RATES
1Q07(3.0)%
2Q07(0.7)%
3Q070.4%
4Q071.5%
1Q082.1%
(3.9)%
(1.7)%
(0.2)%
(2.0)%
2
1
0
-1
-2
-3
-4
Wireline
1.2%
Enterprise servicerevenue growth
Unchanged from 1Q Earnings
(8.5)%
(4.0)%
0.7%
IP data as a percentageof total wireline data revenues
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
AT&T AVERAGE MONTHLY CONSUMER REVENUES PER HOUSEHOLD SERVED
$60.57
Wireline
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
AT&T TOTAL ENTERPRISE REVENUE GROWTH RATES
1Q07(3.0)%
2Q07(0.7)%
3Q070.4%
4Q071.5%
1Q082.1%
(3.9)%
(1.7)%
(0.2)%
(2.0)%
2
1
0
-1
-2
-3
-4
Wireline
1.2%
Enterprise servicerevenue growth
Unchanged from 1Q Earnings
(8.5)%
(4.0)%
0.7%
IP data as a percentageof total wireline data revenues
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
REGIONAL CONSUMER RESULTSThird-quarter regional consumer revenues continued trends of recent quarters, with growth in revenues from broadband and AT&T U-verse services in large part offsetting pressures in traditional voice, as the consumer space moves through a transformation from primarily voice- centered relationships to connections driven by mobility, broadband and video.
Third-quarter regional consumer revenues totaled $5.5 billion, down 3.8 percent. This reflects operational trends and a change inAT&T’srelationshipwithYahoo!®Inc.,which provides portal services to AT&T’s nearly 15 million wireline broadband subscribers. Under the new arrangement, announcedinthesecondquarterof2008,AT&T no longer pays monthly portal fees and receives a reduced level of shared advertisingrevenuesfromYahoo!
Reflecting growth in wireline broadband and AT&T U-verse services, revenues per consumer household served increased 4.3 percent versus the year-earlier third quarter. Regional consumer revenue connections (retail voice, high speed Internetandvideo)totaled47.5million attheendofthequarterversus49.6millionattheendofthethirdquarterof2007and48.4 million at the end of the second quarter of2008.Overthepastyear,totalconsumerbroadband and TV connections increased by1.9million.
AT&T’s innovations in the consumer space include marketing broadband/wireless bundles and combining wireline broadband with wireless LaptopConnect service and AT&T’sextensiveWi-Fiavailability.
In September, AT&T announced the introduction of AT&T HomeManagerTM — an innovative home phone that combines access to Internet content and popular wireless phone applications with traditional
In recognition of the high quality of AT&T’s enterprise capabilities, in August, leading industry analyst firm Gartner Inc. positioned AT&TintheLeadersQuadrantofits“MagicQuadrantforU.S.WirelessServiceProviders,2008”report,andGartnergavethecompanythesamerankinginits“ManagedandProfessional Network Service Providers, Worldwide”report.
REGIONAL BUSINESS GROWTHAT&T posted third-quarter growth in regional businessrevenuesof0.7percentsequentiallyand2.3percentversustheyear-earlierquarterto$3.2billion.
Regional business data revenues grew 8.4 percent year over year, led by Ethernet and IP data services including managed Internet and VPNs. IP data and Ethernet, whichmadeup53.6percentofAT&T’sregional business data revenues, grew 18.9percentversustheyear-earlierthirdquarter.
AT&T’s portfolio of communications services for its regional business customers includes wireless, broadband Internet access, business e-mailservices,Webhosting,unified messaging, remote data storage and network security options.
To further differentiate its products for regional business customers, AT&T is offering attractive bundles and term contract offers with an increased focus onwirelessincludingFamilyTalk®plans forsmallandmidsizedfirms.Inaddition,AT&T is expanding its data and broadband capabilities. For example, in September, the company launched AT&T Tech Support 360SM, an information technology helpdesk that provides live, technical service designed specifically for small businesses, including online computer support.
InvestorBriefing | 3Q 200812
home phone service. Using a portable, seven-inch color touch-screen frame, AT&T HomeManager provides one-touch access from anywhere in the home to a robust lineup of popular features and content, including visual voice mail, weather reports, e-mail access, local news, a portable speakerphone and more.
ACCELERATED RAMP IN AT&T U-VERSE TV SUBSCRIBERSAT&T further accelerated its ramp in U-verse TVgrowthwithanetgainof232,000 subscribers in the third quarter, up from 170,000addedinthesecondquarterof this year. At the end of the quarter, subscribers to the company’s next- generation, IP-based TV service totaled 781,000,onatrajectorytoexceedAT&T’starget of more than 1 million U-verse TV subscribersbyyear-end2008.U-versenetwork deployment now passes 14 million living units. AT&T’s rollout of Total Home DVRserviceisunderwayandexpectedto be completed by the end of the year. Attach rates for broadband service continue to be high, at more than 85 percent.
OnOctober1,AT&TannouncedthatAT&TU-verse TV ranked highest in customer satisfaction among residential television customers in the North Central, South and WestregionsintheJ.D.PowerandAssociates2008ResidentialTelevisionService Provider Satisfaction StudySM. Customers evaluated AT&T’s performance and reliability, customer service, cost of service, billing and offerings and promotions.
InOctober,AT&TannouncedagreementswithCircuitCityandWal-MarttosellAT&TU-verse TV and AT&T U-verse High Speed Internetinmorethan600retaillocations.These are the first national retail agreements for AT&T U-verse.
BROADBAND GROWTHAt the end of the third quarter, AT&T’s wireline broadband subscribers, including both consumer and business customers, totaled14.8million,up148,000inthequarter and 1.1 million over the past year.
Customers increasingly use both wireline and wireless connections for broadband connectivity, as reflected in AT&T’s strong growth in wireless LaptopConnect cards and integrated devices. In recognition of this trend, AT&T now also provides data on total broadband connections, which combines wireline and wireless subscribers. Total broadband-capable connections in serviceincreased2.9millioninthethirdquartertoreach20.7million.(Wirelessbroadband connections include data users with 3G LaptopConnect cards and broadband-speed integrated devices with aQWERTYortouchscreenkeyboard.)
USE THESE
3Q0739.9%
4Q0741.5%
1Q0842.3%
2Q0843.4%
3Q0844.0%
$2.4$2.6 $2.6
Wireline
AT&T WIRELINE IP DATA REVENUES
Dollars in billions
Wireline
3Q07 4Q07 1Q08 2Q08 3Q08
126
231
549
781
AT&T U-VERSE TV CONNECTIONS IN SERVICE
In thousands
379
$2.7
2Q07 3Q07 4Q07 1Q08 2Q08
$58.91$59.43 $59.73
$61.40
AT&T AVERAGE MONTHLY CONSUMER REVENUES PER HOUSEHOLD SERVED
$60.57
Wireline
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
AT&T TOTAL ENTERPRISE REVENUE GROWTH RATES
1Q07(3.0)%
2Q07(0.7)%
3Q070.4%
4Q071.5%
1Q082.1%
(3.9)%
(1.7)%
(0.2)%
(2.0)%
2
1
0
-1
-2
-3
-4
Wireline
1.2%
Enterprise servicerevenue growth
Unchanged from 1Q Earnings
(8.5)%
(4.0)%
0.7%
IP data as a percentageof total wireline data revenues
2007 comparisons are to 2006 pro forma results, which combine results from the former BellSouth and AT&T and exclude revenues from acquired operations.
Datatransportservicerevenuesincreased1.6percentyearoveryear,andpacket-switched data revenues, which include Frame Relay and ATM services, were down 15.1 percent, consistent with industry trends.
Inthethirdquarter,73.4percentofAT&T’sdata revenues came from retail business and consumer customers. These retail data revenueswereup7.4percentversusresultsfor the year-earlier quarter.
WIRELINE VOICE SERVICESAT&T’s third-quarter wireline voice revenues, which include retail local voice and long distance as well as wholesale voice, totaled $9.5billion,representingadeclineof 8.1 percent versus results for the third quarterof2007.Theseresultscontinuetrends in recent quarters, reflecting the industrywide migration of voice usage from wired to wireless platforms, customer transitions to broadband and VoIP services and increased local voice competition.
NATIONAL MASS MARKETSRevenues from AT&T’s national mass markets category, which includes the remainder of the former AT&T’s standalone long distance and local bundled business, totaled $636millioninthethirdquarter, representingadeclineof28.7percentyearover year. Results are as expected and consistent with trends over the past several quarters. National mass markets represented3.6percentoftotalwirelinerevenues in the third quarter and accountedfor65.5percentofAT&T’syear-over-year decline in total wireline revenues.
PRODUCT CATEGORIES
WIRELINE DATA SERVICESAT&T’s data revenues, which include results from several customer categories, grew 5.3 percent versus results for the year-earlier thirdquarterto$6.4billion.
Datagrowthwasledbya16.2percentincrease in revenues from IP-based services, with continued gains in high speed Internet, managed Internet, VPN and hosting services.
InvestorBriefing | 3Q 200814
Advertising & Publishing
AT&T is a leader in local
search, with more than
1,250 print directories and
YELLOWPAGES.COM,
its fast-growing online
search service.
AT&T’s Advertising & Publishing segment offers businesses a full suite of local searchoptions,includingprintandInternetYellowPagesinadditiontoWebsitedesign, search engine marketing and mobile search.
AT&T’sAdvertising&Publishingoperationsdeliver173milliondirectoriestoresidencesandbusinessesin22statesandhaveapremieronlinepresencenationwidewithYELLOWPAGES.COM,whichoffersconsumersaccesstolocalbusiness information, the latest business listings, city guides, maps and driving directions. Combined, these print and online products receive approximately 5 billion consumer searches a year for local business information and provide more than 1 million advertisers with valuable sales leads to help their businesses grow.
Advertising & Publishing revenue trends reflect migration from print to electronicsearch,includingrapidgrowthatAT&T’sYELLOWPAGES.COM. Advertising&Publishing’sInternetrevenuesincreased29.7percentversustheyear-earlier quarter, and total Advertising & Publishing revenues declined 7.3percent,inpartreflectingrevenueslostthroughthesaleofasalesagencybusiness that serves independent telephone companies. That transaction closed inthesecondquarterof2008.Excludingrevenuesfromthissoldunit,Advertising&Publishingrevenueswouldhavedeclined5.0percentyearoveryear.
Compared with reported results in the year-earlier quarter, reported operating expensestotaled$929millionversus$993million;operatingincometotaled$421million,comparedwith$464million;andthesegment’soperatingincomemarginwas31.2percentversus31.8percent.
Adjusted results for Advertising & Publishing exclude merger-related noncash amortizationcostsinbothquarters.Comparedwithresultsintheyear-earlierquarter,third-quarter2008adjustedoperatingexpensestotaled$744millionversus$763million;adjustedoperatingincometotaled$606million,comparedwith$694million;andthesegment’sadjustedoperatingincomemarginwas44.9percentversus47.6percent.
InvestorBriefing | 3Q 200815
OtherAT&T’sOthersegmentincludesresultsfromAT&T’sSterlingCommerce operations and AT&T’s customer information services operations, both of which are included in segment revenues and operating expenses. Customer information services include operator services and directory assistance. Sterling Commerce is one of the world’s largest providers of multi-enterprise collaboration solutions, serving the retail, consumer packaged goods, manufacturing, financial services, health care and telecommunications industries.
TheOthersegmentalsoincludesAT&T’sproportionateshareofresults from Telmex, América Móvil and Telmex Internacional, which are shown in the Equity in Net Income of Affiliates line for this segment. AT&T’s equity interest in each company is more than 8 percent.
América Móvil is one of the leading providers of telecommunications servicesinLatinAmerica,withmorethan165millionwirelesssubscribers attheendofthesecondquarterof2008incountriesthroughouttheregion,including52.9millioninMexico.
Telmex is the leading telecommunications company in Mexico. Telmex and its subsidiaries provide a wide range of telecommunications services, data and video transmission, Internet access and integrated telecommunications solutions. Telmex Internacional has telecommunications operations in Argentina,Brazil,Chile,Colombia,Ecuador,Mexico,PeruandUruguay.
Onareportedbasis,Othersegmentincometotaled$338millioninthe thirdquarterversus$203millionintheyear-earlierquarter.Segmentrevenuestotaled$501million,comparedwith$562millionforthethirdquarterof2007.EquityinNetIncomeofAffiliatestotaled$257million,upfrom$159million in the year-earlier quarter.
AT&T’s Other segment
includes results from its
Sterling Commerce unit,
customer information
services and equity
investments in Telmex,
América Móvil and
Telmex Internacional.
InvestorBriefing | 3Q 200816
AT&T Inc.Consolidated Statements of Income (Unaudited)(DollarsinMillionsExceptperShareAmounts)
Total Employees 303,530 303,670 —1In-region wireline represents access lines served by AT&T’s incumbent local exchange companies.2Includes consumer U-verse voice over IP connections.3BroadbandconnectionsincludeDSLlines,U-versehighspeedInternetaccessandsatellitebroadband.4VideoconnectionsincludesalesunderagencyagreementswithEchoStarandDirecTVcustomersandU-verseconnections.5Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders’ equity.6Prior year amounts restated to conform to current period reporting methodology.
AT&T will release fourth-quarter 2008 earnings on Jan. 28, 2009, before the market opens.
The company’s InvestorBriefing and related earnings materials will be available on theAT&TWebsiteatwww.att.com/investor.relations by 8 a.m. Eastern time.
AT&T will also host a conference call to discuss the results at 10a.m.Easterntimethesameday.Dial-inandreplayinformationwillbeannouncedonFirstCallapproximatelyeight weeks before the call, which will also be broadcast live and will be available for replay over the Internet at www.att.com/investor.relations.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this InvestorBriefing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this InvestorBriefing based on new information or otherwise.
This InvestorBriefing may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are availableonthecompany’sWebsiteatwww.att.com/investor.relations.
AT&T InvestorBriefing The AT&T InvestorBriefing is published by the Investor Relations staff of AT&T Inc. Requests for further information may be directed to one of the Investor Relations managers byphoneat210-351-3327.
Correspondence should be sent to: Investor Relations AT&T Inc. 208S.AkardStreet Dallas,TX75202