AT&T's 2010 priority is to invest in wireless networks

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AT&T's 2010 priority is to invest in wireless networks

By CAROLINE GABRIEL

Published: 29 January, 2010

READ MORE: Financial | US | AT&T | Fixed-line | HSDPA

While Verizon's quarterly results showed a company massively dependent on its wireless business, AT&T's wireline operations were a little more resilient, seeing their smallest revenue decline in four quarters. However, with the quality of its 3G network still under fire and with Verizon Wireless performing strongly in mobile data, AT&T acknowledged that its top priority for this year has to be investment in its cellular infrastructure.

That only goes as far as a nationwide upgrade to 7.2Mbps HSPA, just as most of the developed world's cellcos are racing to 14.4Mbps or higher. But like Verizon, AT&T is well aware that its balance of capex needs to shift towards wireless, because that is where the revenue growth potential lies, but also where an underfunded network can be most damaging, if it cannot support the boom in mobile data traffic.

Despite well publicized problems with network quality and the possible loss of the iPhone exclusive later this year, AT&T Mobility put in a good performance, especially on the subscriber front. It announced net adds of 2.7m during the quarter, about one million of these coming from the iPhone (which means the Apple product accounted for just about all its postpaid adds). Although the cellco remains hugely over dependent on the iPhone, at least it is not having such a bad effect on profits these days. Wireless profits were up 26% year-on-year. As many customer contracts get older, the balance of upfront subsidy versus ongoing data contract revenue has eased for AT&T, and this was one factor in the rise.

The operator ended the year with 7.3m net new mobile subscribers in 2009 and a total base of 85.1m, compared to Verizon Wireless' 91.2m. New postpaid subscribers numbered 930,000 in the fourth quarter and 4.3m for the full year.

On the analyst call John Stankey, CEO of AT&T Operations, said data usage had increased by 5,000% over the past three years. He said AT&T had made significant investments in 2009, adding 1,900 new cell sites and doubling the number of fiber-served sites. Overall 2010 capex is expected to be up by 5% to 10% on last year, and "wireless is our number one investment priority," he added. He expects to spend $2bn more this year on wireless and mobile backhaul, especially on HSPA 7.2, capacity increases and an "intense program" for high volume metros such as New York City and San Francisco.

AT&T posted fourth quarter wireless service revenues up 9.2% year-on-year to $12.6bn, while operating income was up 27.4% to $3.4bn. Wireless data revenues were $3.9bn, up 26.3%, and ARPU was up 2.6% to $61.13, with postpaid data ARPU at $19.16. Postpaid churn was 1.19%, down from 1.2% a year ago, and total churn was also down, from 1.64% to 1.44%.

The cellco's new emerging devices division was very strong, adding more than 1m new products to the network in areas such as machine-to-machine, consumer electronics with embedded wireless, and key verticals. Executives said that such products have smaller ARPU than handsets, but also low costs, low churn and high margin.

Wireline revenues of $16.2bn were down 5.3% on Q408, but least this was the smallest decline for four quarters, with the improvement driven by good performance at the U-verse IP broadband/TV service (in contrast to lackluster growth at Verizon's rival FiOS operation).