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AT&T: iPhone an Anchor, Not an Albatross

Stocks in this article: TVZAAPL

Updated from 2:39 p.m. EST

Investors looking for insight into the health of the telecom sector got some mixed messages this week when AT&T (T) and Verizon (VZ) released quarterly results.

Buoyed by the growth of its wireless business and the popularity of Apple's (AAPL) iPhone, AT&T is forecasting low single-digit revenue growth during 2009, despite an increasingly tough economy.

The telecom bellwether reported a 2.4% rise in revenue in its fourth-quarter profit Wednesday but saw its profit fall more than 23%.

Inevitably, telecom firms are feeling the strain of the recession. Rival Verizon also reported a mixed bag of results earlier this week. Unlike AT&T, however, Verizon was unwilling to offer specific 2009 guidance, citing the lack of visibility into its customers' spending.

"That TelCo growth should slow in the recession is obvious -- the big question is how much?" wrote Craig Moffet, senior analyst at Bernstein Research, in a note released Wednesday. "Unlike Verizon, AT&T offered relatively clear guidance, with an expectation of at least some revenue growth -- Verizon has indicated only that they expect to grow earnings."

AT&T also predicted approximately 19 cents of earnings pressure from benefits charges in 2009, and forecast wireless margins in the low 40% range by the end of the year. The Dallas, Texas-based company expects longer-term margins in the mid-40% bracket, it said, during a conference call Wednesday.

This growth will inevitably affect other parts of AT&T's business, according to Moffet.

"The company expects continued margin expansion in wireless, which unquestionably remains the bright spot for AT&T, but, therefore, by implication, expects continued margin contraction in wireline," he wrote.

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