iPhone 3G Helps Revenue, Hurts Profit at AT & T
Declines in AT&T’s fourth-quarter income show the company was both helped and hurt by the iPhone 3G, the subsidies for which cut into profits despite bringing in the majority of new subscribers and boosting revenue.
The phone giant posted a 23.3% decline in fourth-quarter net income of $2.4 billion, or 41 cents a share, down from $3.1 billion, or 51 cents a share, in the same period last year. Revenue grew to $31.1 billion, up 2.4% from $30.35 billion last year.
The company said the iPhone 3G subsidies, unfavorable foreign-exchange rates and hurricane-related charges cut 7 cents per share out of its income. Excluding these and other one-time costs, the company said it would have earned 64 cents per share, slightly under the consensus estimate of 65 cents per share.
"Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company,” said CEO Randall Stephenson in a statement.
AT&T Mobility, the company’s largest segment, posted a fourth-quarter net income of $2.62 billion, up 39% from $1.9 billion last year. The company added 2.1 million wireless subscribers in the fourth quarter alone, 1.9 million of which were attributed to the iPhone 3G. That was a 22% decline from subscriber growth in the same period last year, when the company added 2.7 million new wireless subscribers.
(Yesterday, Verizon Wireless reported 1.37 million organic net adds in the fourth quarter, its lowest since the second quarter of 2003.)
AT&T said that new customers accounted for about 40% of iPhone activations. With the device’s average revenue per subscriber 1.6 times higher than for the company’s other devices, the iPhone continues to deliver significantly higher ARPU and lower churn than the company’s other postpaid subscribers.
Overall, the company saw a 3.9% ARPU growth in its postpaid wireless segment, to $59.59. Postpaid data ARPU grew 35.7% compared to the year-earlier period.
Despite rosy figures in its wireless segment, the company’s wireline segment posted ongoing declines. The segment’s net income fell 18.6%, to $2.35 billion from $2.89 billion last year. Voice wireline revenue fell 10%, bringing in $9 billion for the fourth quarter of 2008, compared to $10 billion last year.
AT&T is ramping up its U-verse service, which combines telephone, television and Internet on one network connection. The company added 264,000 subscribers in the fourth quarter and now reaches more than 1 million customers.
“That opportunity will be the focus, along with wireless, going forward,” says industry analyst Jeff Kagan. “As customers continue to watch where they spend, they continue to pay for the basics like telephone and wireless and television and broadband. There may be a slowdown on some of the extras, but the basic services continue to perform well in today's market.”
Despite the growth in its largest segment, AT&T’s guidance for 2009 reflects difficult macroeconomic conditions. The company said it expects growth to be in the single digits over the next year and plans to cut annual capital expenditures by 10% to 15%.
For the full year, the company posted net income of $12.87 billion, up 7.7% from $11.95 billion in 2007. Revenue reached $124 billion, up 4.3% from $118.9 billion in 2007.