AT&T WIRELESS EXITS FIXED WIRELESS, TAKES $1.3 BILLION CHARGE
AT&T Wireless said Tues. it was departing from fixed wireless business in next few months, saying in earnings conference call that unit didn’t meet its financial targets in 3rd quarter and carrier would take $1.3 billion charge as result. “This decision is as clear-cut as it is bittersweet,” Chmn. John Zeglis told analysts. Move comes in company’s first full quarter as stand-alone independent of AT&T and less than week after Sprint announced that it wouldn’t seek more MMDS customers until 2G technology matured. Zeglis pledged “phased exit” strategy for 47,000 customers now using service, saying they would be returned to ILEC or other offerings as soon as possible. “We can’t abandon customers on 30 to 60 days’ notice,” he said: “That’s not right.” AT&T has been using Wireless Communications Services (WCS) licenses to deploy fixed wireless broadband effort called Project Angel. Project has been marketed as offering from AT&T that used single remote unit to provide wireless local area network, 4 phone lines, high-speed Internet access.
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At start of 2001, when AT&T Wireless outlined plans to operate as independent, Zeglis said “we knew we wouldn’t need to protect AT&T’s long distance base with fixed wireless connections. At that point, what we had on our hands was a nonstrategic opportunity to create value.” As for pace of customer transition, Zeglis said: “A lot of that depends on ILEC cooperation.” Among problems that caused service to go off track in 3rd quarter was dispute with supplier that caused premises installation costs to rise, he said. Number ports and back-haul conditioning from ILECs also haven’t improved. “These challenges could probably be met, given extra time,” he said: “The business would probably have been a year delayed. We don’t have that kind of patience for a nonstrategic model.” While Zeglis said carrier had found no takers for service or network components of business, its engineering component had generated some early interest. As result, company may be able to monetize some of technical innovations and intellectual property assets, he said. “We will not carry on even this part of the business in 2002,” he said.
Zeglis said exit strategy, which he called “a strategic decision about a nonstrategic business,” was finalized just last week and would cost $300 million in cash “starting right now.” Carrier also will take estimated $1 billion write-down of assets for total charge against earnings of $1.3 billion in 4th quarter, he said. Most of customer transition off WCS assets should take place by end of first quarter of 2002, he said. Most of PCS spectrum that company had singled out for fixed wireless offering -- namely, 1900 MHz spectrum in Dallas -- already had been returned to use for mobility services, he said. “We will continue to hold on to the WCS spectrum, which may be useful for high-speed data one day,” he said. Tower capacity that has been used for this service could be used for expanding mobility capacity, he said. CFO Joseph McCabe said in conference call that wind-down costs of $300 million included severance packages, costs of moving customers back to ILECs, cost of keeping system running in advance of full transition of customers off AT&T’s fixed wireless network.
Zeglis had said last year, when AT&T announced massive restructuring into 4 companies, that wireless company’s strategy for branded services on fixed wireless network wouldn’t change much (CD Oct 26 p1). At time, company had planned to not target markets where AT&T Broadband already had cable footprint so 2 offerings wouldn’t compete head to head. AT&T Wireless owns 40 WCS licenses that had been used as part of Project Angel, which at one point was pet project of AT&T Chmn. Michael Armstrong. In Feb., AT&T Wireless had warned FCC that viability of its fixed wireless rollout plans could be seriously undermined if satellite digital audio radio service operators used high-power terrestrial repeaters without interference limits, contention that satellite DARS operators continue to dispute in back-and-forth at FCC on their special temporary authority to operate. WCS auction that FCC conducted in 1997 had awarded licenses to AT&T, BellSouth, MCI and others but raised much less than expected, as little as $1 per license.
In quarter, AT&T Wireless, which became independent company from its parent this past summer, said consolidated revenue increased 25.1% to $3.5 billion, with 748,000 net subscriber additions. Consolidated subscribers at end of quarter totaled 17.1 million, up 35.5% from year ago; customer turnover (churn) reached 3.1%, up from 2.9%; net income climbed to $77 million from $21 million loss.
AT&T Wireless said it also completed first part of “major enhancement” of its N.Y. area network, installing 13 new switches, replacing base stations in more than 1,040 cell sites, commissioning new transport network. Upgrade was completed just before Sept. 11 disaster, it said. AT&T Wireless Pres. Mohan Gyani said in conference call that despite surge in volume in attacks, not single switch in network was out because of being overburdened by heavy traffic. Although he lauded effort to provide help to emergency responders, Gyani acknowledged that “the hard part is still in front of us.” Referring to difficulty that customers in N.Y. had in completing calls in immediate aftermath of attacks, he said, “there has been a negative perception about our network in New York, we realize.” AT&T Wireless shares rose 9.7% on N.Y. Stock Exchange to close at $14.20.
One-time parent AT&T’s 3rd quarter earnings sank to 4 cents per share, from 35 cents, long distance-cable company reported at end of day Tues. Earnings still were within Wall St. estimate of 2-5 cents per share. Revenue was $13.1 billion, down 7.7%, with decrease attributed to “continued decline in long distance voice services, compounded by a softening in the economy.” Company said that was partly offset by growth in AT&T Broadband and AT&T Business data and IP lines.