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AT&T Wireless


had an admirable finish to 2001, but a tangled holiday season kept the carrier a hair away from hitting all its goals. Nonetheless, the company feels its great 2001 has been largely ignored, and management harangued a meeting of analysts and investors about the depressed levels of AT&T Wireless stock.

The wireless network operator turned in $3.53 billion in revenue, falling just short of Wall Street expectations of a $3.6 billion finish as polled by Thomson Financial/First Call. That revenue is slightly above the third quarter's $3.5 billion, when AT&T Wireless and its peers stormed by Wall Street plans with boffo fall sign-ups. That strong third quarter was met, however, by indifference among investors.

"We wait confidently and somewhat impatiently for the day the stock market appreciates (our) full value," said CEO John Zeglis on Tuesday.

Despite the early

warnings from

Sprint PCS




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, AT&T Wireless was able to sneak into its projected range of new subscriber additions with 927,000 warm bodies. At the end of its third quarter, the carrier estimated it could enroll 900,000 to 1 million customers in the fourth quarter to hit its full-year guidance of 18.1 million. It finished just short with 18 million subscribers. Shares of AT&T Wireless today closed down 10 cents, or 0.85%, to $11.65.

Wireless companies prefer earnings before interest, taxes, depreciation and amortization (EBITDA) to straight earnings because of the extensive physical networks they have to maintain in their growth plans. By that metric, AT&T Wireless notched $666 million, continuing a slide that saw revenue dip from $765 million in the second quarter to $718 million in the third, and now again another 7%.

AT&T Wireless is suffering from a similar two-quarter decline in the average revenue it gets per user (ARPU) of its wireless network. As the company widens its marketing to accept more types of mobile-phone customers in 2001, ARPU has fallen from $63.80 in the second quarter to $63.60 in the third and on down more significantly to $60.80 in the fourth quarter.

Thankfully, customer churn did not follow suit after the third-quarter's leap up to 3.1%. The third quarter's figure is well out of whack with the 2.7% fourth-quarter churn, and 2.9% from the second quarter. President Mohan Gyani said that while AT&T Wireless expects churn to stay in the high 2% range, "hopefully, we won't see a 3.1% mark again."

Looking Ahead in 2002

Which leads us to AT&T Wireless' plan for 2002. The fourth quarter tipped investors off to the fact that U.S. subscriber numbers couldn't grow forever. Initial spenders in a mobile-phone market are willing to pay the most and stick with one of only a few carriers. The U.S. market is well past that phase, however. Even though Wall Street had a vague notion that ARPU would eventually come down as carriers found a smaller pool of less qualified or interested customers, it's been a bumpy ride for wireless phone names in the past four months. Since Oct. 1, wireless carrier stocks have defied the larger tech rally, as Sprint PCS shares are down 55% and AT&T Wireless is down 22%.

Zeglis complained that AT&T Wireless is operating in "schizophrenic conditions" -- it faces what it sees as vast opportunities, but the market is focusing on small negatives. He lamented that "skepticism is spreading about our industry and its continuing expansion, pricing, capital spending, its margin and whether all of that will add up to handsome returns on your investment" and defended what he considers his company's solid track record during intense growth over the past two years.

That said, Zeglis emphasized that AT&T Wireless will keep its current course. The company expects to spend another $5 billion on capital equipment this year, equal to the amount it spent in 2001. After 2002, however, the company believes its big-spender days will be over and the company will switch to building out its network only when demanded by calling constraints. AT&T Wireless has upgraded its older network to the second-generation general standard for mobile communications (GSM) and 2.5G general packet radio service (GPRS) and recently signed a deal with Cingular to help fill some holes in its GPRS coverage.

In the coming year, the company plans to grow its subscriber base in the low teens, for a range of 1.98 million to 2.52 million new faces, compared with the just under 3 million customers it added in 2001. The company expects to grow EBITDA in the low-30% range in 2002, slowed from the 65.4% EBITDA increase it made to hit $3.12 billion in 2001. Finally, revenue will grow in the low teens.

AT&T Wireless managed to lift its EBITDA margin in 2001 -- to 24.9, up 4.8% in the year. Management doesn't think it will be able to repeat the feat in 2002 because of lower ARPUs and the increasing cost of maintaining its network as customers use more minutes of calling.

Gyani acknowledges that carriers' outlook for 2002 is much tamer than the predictions that fueled Wall Street's love of wireless going into 2001. But he adds that he "would much rather have several years of good solid growth than one bumper year and have everything come crashing down" as happened to companies in other technology segments. The same segments that got big stock moves at the end of 2001. Go figure.