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AT&T on Track

The quarter beats by a nickel.

AT&T (T) - Get AT&T Inc. Report beat third-quarter earnings targets and said its merger with BellSouth (BLS) is on track.

The San Antonio, Texas, telco made $2.17 billion, or 56 cents a share, for the quarter ended Sept. 30, up from the year-ago $1.25 billion, or 38 cents a share. Revenue rose 52% from a year ago to $15.6 billion, driven by last year's acquisition of the former AT&T of New Jersey.

Excluding certain items, latest-quarter earnings were 63 cents a share, a nickel better than the Thomson Financial analyst consensus estimate.

"We had a great third quarter," said CEO Edward E. Whitacre Jr. "Wireless delivered impressive margin expansion along with strong subscriber and revenue growth. Enterprise demand and revenue trends continue to be promising. And our regional wireline operations extended their record of revenue growth in both consumer and business.

"We began 2006 with a sound plan to integrate former AT&T operations and to further ramp up wireless performance," Whitacre added. "Our third-quarter results demonstrate that our execution is on or ahead of plan in both of these key areas. We have excellent momentum.

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"We look forward to completing our pending acquisition of BellSouth and bringing the many benefits of this combination to customers and stockholders," Whitacre said. "BellSouth has outstanding personnel along with a rich history of operational excellence, and I am excited about the future of our combined company."

Third-quarter gains were driven by a

strong performance at Cingular Wireless.

Wireline revenues declined 4.9% from a year ago. More than 60% of the year-over-year 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. Beyond this category, third-quarter wireline revenues declined 2.2%, largely reflecting declines in enterprise as well as in wholesale, where, as expected, recent shifts of traffic by major consolidated carriers to their own networks affected comparisons.

During the third quarter, AT&T continued the initial launch of its AT&T U-verse services, which include next-generation television and high speed Internet offerings powered by Project Lightspeed, the company's initiative to expand its fiber-optics network deeper into neighborhoods. In late June, AT&T started the commercial launch of U-verse services in San Antonio. The initial response has been strong, with customer totals at approximately 3,000, or 10% penetration of homes marketed to.

AT&T expects that its next U-verse launch will be in Houston in late November, where a trial including HDTV is currently under way. Initial results of the trial have been positive. AT&T expects to launch HDTV in San Antonio in late November as well, and in total expects to launch its U-verse services in approximately 15 markets (metropolitan statistical areas) across its traditional 13-state wireline area by the end of 2006, all including HDTV. Market launches are expected to generally follow the deployment plan used in San Antonio.