Update: Wireless boosts AT&T’s quarterly earnings

AT&T reported a 17 percent increase in profits for its latest quarter, citing a substantial increase in new wireless subscribers and wireless service revenues.

Net income for AT&T’s fourth quarter, which ended Dec. 31, came in at $1.9 billion, up 17.1 percent over the same period a year prior. Earnings per share were $0.50, up 8.7 percent over the $0.46 recorded in 2005’s fourth quarter, the company said.

Merger-related costs cut into share price. AT&T said mergers cost the company $258 million, or $0.11 per share. The company completed a merger with BellSouth last month, which included absorption of Cingular Wireless.

AT&T gained 2.4 million wireless subscribers with a “stable” churn. Other gains came from a 13.1 percent increase in wireless service revenue and a 68.6 percent rise in wireless data revenue, it said.

“Our view that the industry was going to rebound has been affirmed,” company Chief Executive Officer Edward Whitacre Jr. said in a conference call. “Demand is strong, especially in wireless, business and advanced data services. While new technology and increased competition continue to shape the industry, we are strongly positioned for the future.”

Whitacre pledged to produce double-digit percentage earnings growth in 2007 and 2008, measured as earnings per share, excluding merger expenses. AT&T’s acquisition of BellSouth and Cingular became final on Dec. 29, affecting just two days of these quarterly results.

Judging by 2006 results from all three of its units, the new AT&T will draw 34 percent of its revenue from its wireless business, which produced nearly $40 billion in the past year. Its business segment will produce 26 percent, as SMB (small and medium business) users continue to grow fast in relation to enterprise customers, he said.

AT&T’s consumer division will generate 23 percent of revenue, with more than 12 million broadband Internet connections installed in homes. That segment could grow even faster in the future as the company anticipates increased demand for bundled broadband services and video, Whitacre said.

Those trends could improve in 2007 as customers scramble to buy Apple Inc.’s iPhone handset, boosting AT&T’s wireless revenue, Whitacre said. Cingular is the iPhone’s exclusive service provider. In other segments, the company hopes that its enterprise division will recover from a slump that has sliced its profitability in recent quarters.

AT&T also predicts fast growth in the SMB market, an increasing convergence of wireless and wireline communications, and rising demand for its “U-verse” bundle of digital TV, Internet and telephone services. The company has now launched U-verse services in 11 markets, and expects to enroll 8 million homes by the end of 2007.

In the meantime, AT&T faces continuing work to find savings and cut redundancies in its merger with SBC. The companies cut 12,000 jobs in 2006 to help push what the company refers to as “total synergies” to $1.1 billion, above the $600 million to $800 million that had been forecast, said Rick Lindner, AT&T’s chief financial officer. Total synergies could include both expense savings and revenue.

Those moves will help make the combined companies a success, analysts said.

“Yesterday AT&T was a phone company, but tomorrow AT&T is a wireless, broadband, television and phone company,” analyst Jeff Kagan said in a written statement. “The combination of AT&T, SBC, BellSouth and Cingular looks like a very strong mix. They will move all the companies under the same master brand of AT&T.”

“CEO Ed Whitacre has quietly grown the company from the smallest of the Baby Bells to the largest. The future will be a big competitive battle between the phone company and the cable television company. We have to hope both sides are successful and continue to compete. That will keep prices low and innovation high,” Kagan said.

(Jeremy Kirk in London contributed to this report.)