AT&T to deliver 4th-quarter results; tough competition from Verizon expected

Tuesday, January 26, 2010

Earnings Preview: AT&T faces tough 4th quarter

NEW YORK — AT&T Inc. reports its fourth-quarter results on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The continued love affair between consumers and cell phones, and the iPhone in particular, have shielded AT&T from the worst effects of the recession. But competition in the wireless industry is increasingly cutthroat, and AT&T’s fourth-quarter results may reflect that.

AT&T’s chief rival, Verizon Communications Inc., hammered AT&T’s iPhone franchise hard with TV ads during the quarter, and introduced two phones based on Google Inc.’s software, positioning them as alternatives to the iPhone. Verizon took a hit to its earnings because so many consumers signed up for the new phones, which the company is subsidizing heavily, much like AT&T does with the iPhone. On Tuesday, Verizon said it added 2.2 million wireless subscribers in the fourth quarter, of which about 1.2 million were high-paying contract-signing customers.

Furthermore, speculation is mounting that Apple may start making iPhones for other U.S. carriers this year. In many countries, there are now multiple iPhone carriers, but AT&T is the exclusive carrier in the U.S. AT&T and Apple haven’t said how long the U.S. exclusivity period will last.

Apple sold than 8.7 million iPhones in the quarter, double the number sold in the same quarter the previous year.

In the fourth quarter, AT&T completed the acquisition of smaller wireless carrier Centennial Communications Corp., gaining 879,000 wireless subscribers and an expansion of its wireless network in Puerto Rico and in rural areas of the Midwestern and Southeastern U.S.

Like other phone companies, AT&T is losing landlines at a rapid pace, since households are choosing to rely on cell phones alone. This trend hasn’t accelerated much in the recession, but demand from businesses has been weak, and Verizon said it hasn’t seen much of a recovery yet.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect AT&T to post fourth-quarter earnings of 51 cents per share on $30.9 billion in revenue. In the same period last year, AT&T recorded profit of 41 cents per share on $31.1 billion in revenue.

ANALYST TAKE: Deutsche Bank analysts expect AT&T to report adding 1 million wireless subscribers under contract in the quarter, comparable to the 1.2 million Verizon reported on Tuesday. The absence of a new iPhone model, plus the aggressive ad campaign from Verizon, has held back gains, the analysts believe. Last week, they cut their price target on AT&T shares from $30 to $29.

WHAT’S AHEAD: Apple is holding an event in San Francisco on Wednesday to reveal what many observers expect is a new tablet computer. It will reportedly have wireless Internet access, but not many are expecting AT&T to be the provider.

AT&T cut at least 18,000 jobs last year, chiefly from the wireline side, and is expected to lay off more this year.

In January, Verizon Wireless cut the price of unlimited voice service. At the same time, it started to require data plans for more of its customers. AT&T quickly followed with a similar move, but both companies are still substantially more expensive than their competitors.

STOCK PERFORMANCE: AT&T’s shares rose 4.1 percent in the fourth quarter, compared with a 6.2 percent rise in the S&P 500.

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