With millions of people snapping up the iPhone, AT&T, the exclusive carrier for the popular device, should be quite pleased with the stream of revenue it can expect from customers.
MICHAEL AINSWORTH / Associated Press
AT&T, the largest telecommunications company in the United States, gets 32 percent of its revenue from landline phone service customers.
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But AT&T, the biggest telecommunications company in the United States, has a problem: Analysts say consumers are dropping traditional landlines faster than expected. The company, which gets 32 percent of its revenue from its landline business, reported yesterday that it ended the quarter with 58.9 million phone lines in service, down 2.6 percent from three months earlier.
AT&T is not the only company facing a changing environment in the communications business. All of the major telecommunications companies – AT&T, Verizon and Sprint Nextel – are figuring out how to make more money from customers as they spend more time sending text messages or browsing the Web on their wireless phones, rather than talking.
At the same time, as the American cell phone market gets saturated – nearly 85 percent of American consumers own a mobile phone – phone companies are finding that growth is slowing. With more options, mobile phone buyers also are becoming more selective about the calling plans and the type of phones they want, making the market even more competitive.
“In short order, sentiment in the telecom sector has gone from bullish to guarded to . . . well, slightly queasy,” Craig Moffett, a research analyst at Sanford C. Bernstein & Co. who follows communications companies, wrote in a recent report.
Wireless phones are by far more common than landlines. According to CTIA, the wireless industry's trade group based in Washington, there are 262 million wireless subscribers in the United States. In contrast, the Federal Communications Commission counts 163 million business and residential landlines as of June 2007, its latest report.
AT&T has been losing landline subscribers each quarter at an accelerated rate since 2006. It dropped 7.4 percent in 2007. Analysts think that the economic downturn also could have an impact on the landline business. They say consumers looking to cut expenses will drop their landline – which can cost up to $60 a month – before they drop their wireless phone plan.
“I think AT&T is peddling as fast as it can to transform themselves from a wire line to a wireless company,” Moffett said. “To a degree, it is working.”
The question, though, he said, is, “Is it fast enough?”
AT&T said yesterday it added 1.3 million wireless subscribers in the quarter, bringing its total to 72.9 million. Potential customers may have been waiting for the new iPhone. The latest iPhone went on sale July 11, after the end of the second quarter June 30, so those sales are not part of the financial results reported yesterday.
AT&T earned $3.77 billion, or 63 cents per share, in the quarter, up 30 percent from $2.90 billion, or 47 cents per share, in the same period a year ago. Excluding merger-related one-time charges, AT&T said it earned 76 cents a share. That matched the average estimate of analysts polled by Thomson Financial.
Revenue rose 4.7 percent to $30.9 billion. Analysts had forecast $31.1 billion in revenue, according to Thomson.
Investors, apparently expecting worse results, sent AT&T's shares up $1.24, or 3.9 percent, to close at $33.06.
Verizon, which reports its second-quarter results Monday, said Tuesday that it added 1.5 million wireless subscribers in the second quarter of 2008, the same number it added in its first quarter. Both numbers are down, though, from the fourth quarter in 2007, which was 2 million new subscribers.
Verizon Wireless, which is a partnership between Verizon and Vodafone, has 68.7 million subscribers.
“It's still very strong,” said Roger Entner, a senior vice president for Nielsen IAG, a market research firm. But compared with earlier figures, Entner said, it “is indicative of a slowdown.”
Verizon, too, is not immune from customer losses in its landline business. According to the report by Moffett, Verizon is vulnerable in the East Coast where it has a high percentage of customers.
Entner said AT&T and Verizon would have to sell customers more services to make up for the decline in traditional landline revenue. It is why the companies, particularly Verizon, are aggressively competing with cable companies to sell Internet and television services, bundled with traditional and wireless phone service.
A bright spot, at least in the case of AT&T, is the debut of the latest iPhone. With a subsidized price of $199, it is sure to attract new customers, said Walter Piecyk, an analyst with Pali Research.
“Economically, it turns out great for them,” Piecyk said, because new customers are required to sign a two-year contract to get the subsidized price.
The Associated Press contributed to this report.
