For the quarter ended March 31, 2013, AT&T’s consolidated revenues totaled $31.4 billion, down 1.5 percent versus the year-earlier quarter and up 0.9 percent when excluding revenues from the divested Advertising Solutions business unit. Net earnings were $3.7 billion, or 67c a share, compared with $3.6bn a year earlier, or 60c a share.

AT&T’s first-quarter 2013 cash from operating activities totalled $8.2bn, and capital expenditures totalled $4.3bn. Free cash flow – cash from operating activities minus capital expenditures – totalled $3.9bn.

Operating expenses were $25.4 billion versus $25.7 billion; operating income was $5.9 billion versus $6.1 billion; and operating income margin was 18.9 percent, compared to 19.2 percent.

The company said it continued to expect capital spending in 2013 to be in the $21bn range and expected capital spending for 2014 and 2015 respectively to be in the $20bn range, with no reduction in its Project Velocity IP (VIP) plans for wireless and fibre optic-based broadband expansion.  AT&T earlier stated it expected capital spending of $22bn annually in 2014 and 2015. The company is achieving savings through greater integration efficiencies in Project VIP, accelerating LTE rollout in 2013 and other ongoing initiatives.

Much more at:

AT&T set a record for smartphone sales during the latest quarter, selling 6m smartphones, including 4.8m Apple iPhones.  The strong smartphone sales, together with sales of 365,000 connected tablets, helped to offset a decline in its prepaid and reseller wireless business. As a result, AT&T Mobility added a net 296,000 monthly contract customers and increased the number of smartphones connected to its network by 1.2m.  The largest U.S. telco said the rollout of its new 4G-LTE mobile network was running ahead of schedule and now covered 200m people.

Wireless data revenues grew by 21 per cent and total wireless revenues and wireless service revenues both increased by 3.4 per cent compared with the same quarter last year. Operating margins in the wireless services business increased to 43.2 per cent.  “Our wireless network performance continues to be terrific,” said Randall Stephenson, AT&T’s chief executive. “And that helped drive our best-ever first quarter for smartphone sales, improved wireless churn and strong growth in mobile data revenues.”

While smartphone sales are heavily subsidised by large US mobile operators (e.g. VZW and Sprint), they generate significantly higher monthly revenues than older “feature” phones, benefiting results over the longer term. For AT&T, smartphone sales represented 88 per cent of handset sales during the period and now constitute 70 per cent of AT&T Mobility’s installed handset base.

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Fixed line Consumer Revenues Increase

AT&T boosted fixed-line consumer revenues by 2 per cent, aided by revenues from its U-verse TV and internet service, which grew by 31.5 per cent year over year. U-verse added 731,000 internet subscribers and 232,000 U-verse TV subscribers during the quarter and ended the period with a total of 8.7m subscribers.

Total U-verse revenues grew 31.5 percent year over year and were up 5.0 percent versus the fourth quarter of 2012. Total U-verse subscribers (TV and high speed Internet) reached 8.7 million in the first quarter. U-verse TV added 232,000 subscribers, its best net gain in nine quarters, to reach 4.8 million in service. U-verse High Speed Internet delivered a best-ever net gain of 731,000 subscribers to reach a total of 8.4 million. Overall, the company added 124,000 wireline broadband subscribers, the best quarterly increase in eight quarters. Total broadband ARPU was up more than 9 percent year over year. Total U-verse High Speed Internet subscribers now represent more than half of all wireline broadband subscribers.  Much More at:

Earlier this month, AT&T and Google both announced plans to build fibre optic broadband networks in Austin, TX capable of delivering 1 gigabit per second download speeds – more than 100 times faster than current average download speeds in the US.

“Most encouraging is the recognition by government officials that policies which eliminate unnecessary regulation, lower costs and speed infrastructure deployment, can be a meaningful catalyst to additional investment in advanced networks which drives employment and economic growth,” said Randall Stephenson, AT&T chairman and CEO.  

On April 9, 2013, AT&T announced that in conjunction with its previously announced Project VIP expansion of broadband access, it is prepared to build an advanced fiber optic infrastructure in Austin, Texas, capable of delivering speeds up to 1 gigabit per second.  AT&T’s expanded fiber plans in Austin anticipate it will be granted the same terms and conditions as Google on issues such as geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives. This expanded investment is not expected to materially alter AT&T’s anticipated 2013 capital expenditures.

AT&T consistently invests in U.S. communities — $98 billion in capital in the past five years, more than any other public company.  More at: http://www.att.com/gen/press-room?pid=24032&cdvn=news&newsarticleid=36275

“AT&T reported underwhelming 1Q13 results, with disappointing net adds, weak ARPU trends, and continued wireline segment declines. We believe management is caught in a bind, having enabled application service providers to a greater-than-expected extent, and we see more limited opportunities to innovate going forward, as well as increased network costs to service these applications.

On a positive note, management is executing well on prioritizing LTE network parity with Verizon to lower postpaid churn and potentially increase wireless margins. Consolidated revenues of $31.3B and wireless service revenue of $15.1B were in line with consensus. However, annual wireless service revenue growth fell from 4.2% to 3.4%, the lowest growth rate  over the last five years. EBITDA of $10.5B were slightly below the Street estimate.  Wireless net adds of 291,000 fell well short of the 785,000 consensus estimate. AT&T posted negative net adds in prepaid for the second straight quarter; resellers lost 252,000 net subscribers.

These results point toward weaker top-line growth in the near future, as AT&T will see (and likely respond to) increased competition in both the lower-end prepaid market (T-Mobile and Sprint) and higher-end postpaid market (Verizon). We believe AT&T will also face increased cost pressure to fulfill management’s 2013 guidance to retain wireless market share.”      

“Increased competition from T-Mobile is likely. We expect T-Mobile to pressure both AT&T and Sprint in the prepaid market as the company completes its 4G network upgrade (which shows better performance, versus AT&T and VZ, according to our vendor checks), launches its LTE network, and markets its new “no-contract” plans with a reinvigorated
device lineup.”

David Dixon and Neil Macker, CFA