AT&T (T) beat fourth-quarter earnings estimates and boosted its projected savings from the recently completed BellSouth acquisition.

The San Antonio, Texas-based telco made $1.9 billion, or 50 cents a share, for the quarter ended Dec. 31, up from the year-ago $1.7 billion, or 46 cents a share. Excluding merger-related costs, earnings were 61 cents a share, 2 cents ahead of the Thomson Financial analyst consensus estimate.

Revenue rose to $15.9 billion from $12.9 billion a year earlier. Those numbers include the Cingular wireless unit only between the Dec. 29 closing of the BellSouth merger and the end of the quarter.

AT&T's fourth-quarter 2006 operating income margin was 16.2% on a reported basis, up from 8.8% in the year-earlier quarter. Before merger-related costs, AT&T's fourth-quarter 2006 operating income margin was 18.2%, up from a comparable 16.3% in the year-earlier quarter.

This margin expansion reflects improved revenue trends along with solid cost management and progress in realizing merger synergies. In 2006, AT&T achieved merger expense savings of $1 billion, above its original January 2006 outlook of $600 million to $700 million.

Fourth-quarter 2006 wireline revenues declined 4.3%, the company's smallest quarterly decline in this segment over the past year. Sequentially, compared to the third quarter of 2006, wireline revenues declined 0.7%. About 63% of the year-over-year decline and more than 100% of the sequential decline came from the former AT&T Corp. national mass markets category, primarily stand-alone long-distance and local bundled services, where AT&T Corp. discontinued proactive marketing in 2004.

AT&T said it continues to expect to deliver double-digit percentage growth in earnings per share, adjusted to exclude merger-related costs and one-time items, in 2007 and 2008.

The company said it now expects the BellSouth merger to be modestly accretive to full-year 2007 adjusted earnings per share vs. its earlier view of a neutral impact, primarily reflecting reduced noncash depreciation expenses due to opening balance sheet adjustments.

AT&T continues to expect a return to growth in consolidated revenues in 2007, vs. pro forma results for 2006, with a continued ramp in 2008 and 2009. This outlook includes wireless service revenue growth in the low double-digit percentage range in 2007, a return to enterprise revenue growth during 2008, and contributions from AT&T U-verse services.

Synergies from the BellSouth merger are now expected to be higher and realized earlier than in the company's prior projections. AT&T now expects total synergies to be $800 million to $1.2 billion in 2007, up from its earlier expectation of $500 million to $800 million. In 2008, total synergies are now expected to reach $2.6 billion to $3.0 billion, compared with an earlier view of $1.9 billion to $2.4 billion. In 2009, total BellSouth merger synergies are expected to be in the $3.3 billion to $3.8 billion range, up from an earlier projection of $2.6 billion to $3.1 billion. AT&T's estimate of the net present value of the synergies is now approximately $22 billion, up from its earlier estimate of about $18 billion.

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