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AT&T Profits Soar On Wireless Growth

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First Posted: 05/01/08 06:12 AM ET Updated: 05/25/11 01:30 PM ET

Showing few signs of being affected by a slowing economy, AT&T Inc.'s first-quarter earnings rose 22 percent on strong growth in wireless.

The wireless division at country's largest telecommunications company continued to drive growth, even as the local-phone business is stuck with declining numbers. The enterprise division, which provides services to the government and large corporations, reversed a slide.

AT&T earned $3.46 billion, or 57 cents per share, in the three months ended March 31, compared with $2.85 billion, or 45 cents per share, a year ago.

Excluding items, AT&T earned 74 cents per share, up from 65 cents per share a year ago.

Revenue rose 6.1 percent to $30.7 billion.

The earnings per share and revenue matched the average expectation of analysts polled by Thomson Financial.

Chief Financial Officer Rick Lindner said that apart from some "softness" in local phone lines, there was little sign that the weakness in the U.S. economy is affecting the company.

Analyst David Barden of Bank of America said the "solid metrics and revenue trends" supported the view that the big phone companies are resilient in an economic downturn.

AT&T shares gained 22 cents, or 0.6 percent, to close at $37.81 in Tuesday trading.

Earnings were reduced 13 cents per share by merger-related costs and 4 cents by severance costs. The company said last week that it plans to cut about 4,600 jobs, or 1.5 percent of its work force, to shift resources from the traditional phone operations to growing parts of its business, like wireless. It expects its total head count of 310,070 to keep expanding.

AT&T lost 1.2 million phone lines in the quarter, to end with 60.4 million. That's a trend that's affecting all phone companies, as customers switch to using wireless or cable services. As of late last year, cable companies now offer phone service in practically all of AT&T's 22-state local phone service territory.

However, AT&T said a ramp-up in video services and broadband nearly offset the falloff in revenue from voice customers. It added 491,000 broadband customers in the quarter, for a total of 14.6 million, and 148,000 customers for its U-verse video service, which is delivered over phone lines.

The company said it was well on its way to meeting its goal of 1 million U-verse customers by the end of the year.

AT&T started raising prices for DSL service by $5 per month in February, and those increases are spreading across the service area, but demand is still "solid," Lindner said.

On the enterprise side, revenues rose 1.2 percent from a year ago. It was the first year-over-year increase in more than a year. Large contract wins from IBM Corp. and Royal Dutch Shell PLC should be starting to boost results this year, Lindner said.

The wireless division added a net 1.3 million subscribers, for a total of 71.4 million, even though it lost 330,000 subscribers due to the shutdown of an older network. Revenues were $11.8 billion, up 18.3 percent from a year earlier. During the quarter, AT&T spent $6.64 billion for spectrum licenses it will use to expand its broadband services.

AT&T introduced an unlimited-talk plan for $99.99 per month on Feb. 19, just hours after Verizon Wireless. T-Mobile USA and Sprint Nextel Corp. later introduced similar plans. The moves sent down the stocks of all the major carriers, but Lindner said the financial impact of the plan was positive.

Before the $99.99 plan, only 1.5 percent of customers signed up for plans that cost more than that, the CFO said. But 4 percent of new customers are now signing up for the $99.99 plan.

"Obviously ... new customers are choosing to buy up to get the peace of mind of unlimited pricing," he said.

The company did not release sales figures for the iPhone, for which AT&T is the exclusive carrier, but said there was no sign of a slowdown in sales due to the expected arrival of version with cellular broadband capability some time this year.

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Filed by Katherine Thomson  |