Record Wireless Subscriber Increase Drives AT&T Third Quarter

AT&T has saved $2.8 billion this year from its merger with BellSouth, and network and traffic migration is on track, AT&T said. AT&T is either “on or ahead of schedule” integrating and rebranding BellSouth and Cingular assets, Lindner said. BellSouth and Cingular brand changeover is “largely complete,” Lindner said. About 95 percent of retail stores and 100 percent of vehicles have been rebranded with the AT&T logo, he said.

AT&T posted record third quarter wireless growth, driven by net adds, data growth and cost structure refinement, Lindner said. AT&T added 2 million net customers, up 46.8 percent from 2006 and the highest Q3 subscriber increase in company history, it said. Churn was 1.7 percent, down 0.1 percentage points from the year before. AT&T activated 1.1 million iPhones in the quarter and more than 40 percent were new AT&T customers, it said. AT&T saw its fifth consecutive quarter of year-over-year average revenue per user growth, posting $50.82 in Q3 ARPU, up 2 percent from 2006. ARPU was driven mainly by wireless data revenue, which grew 63.9 percent to $1.8 billion, Lindner said. About a third of AT&T’s postpaid customers have data plans, a significant growth opportunity going forward, he added.

AT&T’s 3G rollout is on track, Lindner said. AT&T has been “a little slower” than rivals, but AT&T has better data experience across its footprint thanks to its EDGE network, he said. EDGE is slower than 3G, but it’s faster than rivals’ 2G alternatives and makes it easy to add 3G, he said.

Migration from the TDMA network continues, Lindner said. AT&T moved about 560,000 customers off TDMA in the third quarter; 780,000 remain. Two-thirds of those customers are wholesale, he said. Meanwhile, AT&T has moved about 98% of California and Nevada joint venture customers to the AT&T network, he said.

Nearly 10,000 consumers are installing U-Verse every week, up from 5,500 last quarter, Lindner said. AT&T continues to reduce U-Verse installation time, Lindner said. Installation averages seven hours; AT&T wants to get that down to four, he said. AT&T is working on “best practice” procedures to speed install time, he said. For example, the company recently began pre-loading software on set top boxes, he said. Next year, AT&T will introduce new devices to reduce install time, he added.

A U-Verse outage Sunday doesn’t foreshadow future problems with AT&T’s IPTV service, Lindner said. A Saturday night software load led to the failure, which caused customers to lose several channels for most of Sunday, he said. After identifying the problem, AT&T was able to quickly restore most of the channels and resuscitate the rest by day’s end, he said. AT&T is providing customers with credits to “compensate for the inconvenience,” and is working to make sure the “regrettable” outage won’t happen again, he said.

Lindner declined to comment on market speculation AT&T could buy satellite partner EchoStar, but noted the Bell’s satellite TV offerings remain an important part of business since it can only reach 55 to 60 percent of its customers with fiber.

AT&T added 499,000 broadband customers in the third quarter and has increased its total subscriber number 18.6 percent over the course of the year, AT&T said. About 44 percent subscribe to speed tiers of 3 Mbps or higher, it said. Opportunity exists to win customers currently subscribing to dial-up and rival cable company broadband, Lindner said. A new offer tested in the third quarter bundling wireless and broadband service will expand across the nation and should boost subscriptions, Lindner said.

Lindner breezed over recent acquisitions of Dobson Communications and Aloha, reiterating that AT&T expected the Dobson deal to close by the end of the year, and Aloha to finish in 2008. Lindner restated AT&T’s intention to participate in the 700 MHz auction, but didn’t detail strategy. He also didn’t mention a patent lawsuit filed against Vonage last week.

Lindner hinted at a wireless-focused technological direction for the Bell, but said analysts and investors would have to wait until the company’s Dec. 11 conference in New York for specifics. Mobile services are becoming increasingly important, and customers are demanding the level of bandwidth and service quality they get with wired technology, he said. “That’s where the opportunity is,” he said. Investment in new technologies and more mergers could be in the telco’s future, he added.

Analysts stayed positive on AT&T after the telco reported Q3 results. UBS maintained its “Buy” rating because “AT&T continues to show strong topline momentum while executing on synergies.” Egan-Jones upgraded its rating to “A+” from “A” due to “improved results.” Meanwhile, Standard and Poor’s removed its negative outlook.