BIHC Briefing Greece March 2024, with Crédit Agricole CIB
AT&T Quarterly Earnings - 2Q 2008
1. InvestorBriefing
No. 261 | July 23, 2008
2nd QUARTER 2008
AT&T Delivers Solid Second-Quarter Results
Highlighted by Strong Wireless Growth,
Double-Digit Increase in IP Data Revenues,
Further Ramp in AT&T U-verse TV Subscribers
AT&T Inc. reported solid second-quarter results highlighted by
Results include continued
strong wireless growth, double-digit gains in revenues from
solid earnings growth,
IP-based data services, and further expansion of consolidated
progress on major
margins. Second-quarter highlights include the following:
growth initiatives and
substantial value returned • otal wireless revenues increased 15.8 percent versus the year-earlier quarter,
T
driven by solid subscriber gains and 52.0 percent growth in wireless data services
to shareowners through
such as Internet access, e-mail, messaging, data access and media bundles.
dividends and • T&T’s second-quarter net gain in total wireless subscribers exceeded
A
1.3 million, with continued strong gross add flow share and a reduction
share repurchases.
in retail postpaid churn to 1.1 percent in the second quarter, the lowest
level in the company’s history.
• T&T further advanced the significant improvement in wholesale customer
A
revenue trends it has achieved over the past year. Total wholesale revenues
were $3.5 billion, down just 0.2 percent versus the year-earlier quarter.
This represents a major step up from a year-over-year decline of 8.3 percent
in the second quarter of 2007 and marks the company’s second consecutive
quarter of sequential revenue growth in this category. This growth reflects
solid demand from wireless carriers, Internet service providers, content
providers and other customers.
Second-Quarter EPS Reconciliation
2Q08 2Q07
Reported EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.63 $0.47
Adjustments to results:
Merger integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.03
Noncash merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.13 0.20
Adjusted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.76 $0.70
Pretax adjustments to earnings: in 2Q07, merger integration, noncash intangible amortization and a directory-related purchase accounting
effect totaling $2,164 million; in 2Q08, noncash intangible amortization totaling $1,169 million.
2. 2
InvestorBriefing | 2Q 2008
Page TWO
Page THREE
3.6 percent compared with second-quarter
AT&T ADJUSTED CONSOLIDATED REVENUES
2007 pro forma revenues, which exclude
Dollars in billions
merger-related accounting impacts on
AT&T ADJUSTED OPERATING INCOME MA
$30.9
Continued strength $30.7
directory revenues.
$30.4
in wireless and $30.3
These increases were driven by strong 24
improvements in $29.8
double-digit growth rates in wireless, stable
wholesale contributed 24.0%
23.9%
wireline business revenues and improved 23.7%
to AT&T’s consolidated
growth rates in wholesale. In the second
revenue growth in
quarter, revenues from wireless and sales
the second quarter. to business and wholesale customers
represented 80.4 percent of AT&T’s total
consolidated revenues.
Compared with results for the year-earlier
quarter, AT&T’s reported operating expenses
2Q07 3Q07 4Q07 1Q08 2Q08
for the second quarter of 2008 were
Revenues for 2007 are adjusted to exclude merger-related directory
2Q07 3Q07 4Q07 1Q
$24.3 billion, down from $24.5 billion; 18.1%
accounting impacts.
Reported 16.8% 17.6% 19
reported operating income was $6.6 billion,
Merger integration and amortization costs and ot
up from $4.9 billion; and AT&T’s reported
• nterprise business revenue trends
E are excluded from adjusted operating income ma
operating income margin was 21.3 percent,
continue to be solid, led by strong
up from 16.8 percent.
double-digit growth in IP-based data
AT&T’s reported second-quarter 2008
services such as virtual private networking
net income totaled $3.8 billion, up from
(VPN) and managed Internet services.
$2.9 billion in the year-earlier quarter,
Enterprise fundamentals in terms of
and reported earnings per diluted share
closed sales, a strong sales funnel and
totaled $0.63, up from $0.47 in the
new service adoption remain solid.
second quarter of 2007.
AT&T expects to deliver positive growth
in total enterprise revenues for the
ADJUSTED RESULTS
full year 2008.
AT&T’s adjusted results for the second quarter
• T&T U-verseSM TV, the company’s next-
A
of 2008 exclude noncash merger-related
generation IP-based video service,
amortization expenses. For the second
continued its strong ramp during the
quarter of 2007, adjusted results excluded
second quarter, with a net subscriber
merger integration costs, noncash merger-
gain of 170,000 to reach 549,000 in
related amortization expenses and a
service. U-verse network deployment
merger-related directory accounting effect.
is on schedule, install times continue to
Compared with results for the year-earlier
decline and the attach rates for broadband
quarter, AT&T’s adjusted operating expenses
service continue to be high. The company
for the second quarter of 2008 totaled
is on a trajectory to reach its target of
$23.1 billion, versus $22.7 billion; adjusted
more than 1 million AT&T U-verse TV
operating income was $7.7 billion, up from
subscribers by year-end 2008.
$7.1 billion; and AT&T’s adjusted operating
REPORTED RESULTS income margin was 25.1 percent, up from
23.9 percent. This margin expansion reflects
For the quarter ended June 30, 2008,
revenue growth along with benefits from
AT&T’s consolidated revenues totaled
merger synergies and other productivity
$30.9 billion, up 4.7 percent versus reported
initiatives.
results in the year-earlier quarter and up
3. 3
InvestorBriefing | 2Q 2008
Page THREE
STRONG BALANCE SHEET
AT&T ADJUSTED OPERATING INCOME MARGIN
30.9
AT&T’s balance sheet continues to be strong.
Solid revenue growth 25.1%
At the end of the second quarter, AT&T’s
and progress 24.6%
long-term debt was $63.7 billion and
on productivity
total debt was $80.1 billion. Cash and cash
24.0%
23.9%
initiatives combined 23.7%
equivalents at the end of the quarter
to expand AT&T’s
totaled $1.6 billion. AT&T’s second-quarter
adjusted consolidated debt-to-total-capitalization ratio was
operating income 41.7 percent and the company’s annualized
margin in the debt-to-EBITDA was 1.7.
second quarter.
ADDITIONAL BACKGROUND ON
ADJUSTED AND PRO FORMA RESULTS
Q08
AT&T’s adjusted earnings for the second
ctory
2Q07 3Q07 4Q07 1Q08 2Q08
quarter of 2008 exclude noncash, pretax
Reported 16.8% 17.6% 18.1% 19.5% 21.3%
amortization costs related to acquisitions
Merger integration and amortization costs and other one-time items
are excluded from adjusted operating income margins.
totaling $1.2 billion, or $0.13 per diluted
share. Adjusted results for the second
AT&T’s adjusted second-quarter 2008
quarter of 2007 excluded: (1) pretax cash
net income totaled $4.5 billion, up from
merger-related integration costs totaling
$4.3 billion in the year-earlier quarter, and
$324 million, or $0.03 per diluted share;
adjusted earnings per diluted share totaled
(2) noncash, pretax merger-related costs
$0.76, up from $0.70 in the second quarter
totaling $1.7 billion, or $0.18 per diluted
of 2007.
share; and (3) a merger-related directory
accounting impact of $187 million, or
CASH FROM OPERATIONS,
$0.02 per diluted share.
SHARE REPURCHASES
Advertising & Publishing results for 2007
AT&T’s cash from operating activities for the
were affected by accounting adjustments
second quarter of 2008 totaled $8.5 billion,
following AT&T’s late-2006 acquisition of
capital expenditures totaled $5.3 billion, and
BellSouth. In accordance with purchase
free cash flow (cash from operations minus
accounting rules, deferred revenues and
capital expenditures) totaled $3.2 billion.
expenses for all BellSouth directories
Year to date through the first half of 2008,
delivered prior to the close of the merger
cash from operating activities totaled
were eliminated from 2007 consolidated
$13.5 billion, capital expenditures totaled
results. This elimination of amortizations
$9.6 billion, and free cash flow totaled
reduced second-quarter 2007 consolidated
$3.9 billion.
revenues by $306 million and consolidated
As it invests in the future of its business,
operating expenses by $119 million.
AT&T continues to return substantial value
AT&T manages its print directory business
to shareowners through dividends and
using amortized results. As a result, 2007
share repurchases. Dividends paid totaled
amortized results are shown in the
$2.4 billion in the second quarter and
Advertising & Publishing segment on
$4.8 billion year to date. Shares repurchased
AT&T’s Statement of Segment Income.
totaled 52.6 million for $2.0 billion in the
In 2008, both consolidated and segment
second quarter and 164.2 million for
results reflect amortization accounting.
$6.1 billion through the first half of the
year. AT&T ended the second quarter with
5.9 billion shares outstanding.
4. 4
InvestorBriefing | 2Q 2008
Wireless
AT&T’s second-quarter AT&T, the U.S. market leader in wireless with 72.9 million subscribers, operates
the nation’s largest wireless digital voice and data network, offers the nation’s
wireless results were fastest third-generation (3G) network according to data compiled by leading
independent wireless research firms, and has the broadest global coverage
highlighted by strong of any U.S. provider with roaming available in more than 200 countries.
Building on these strengths, in the second quarter AT&T took important
double-digit revenue steps to further advance a new era of wireless growth, as it extended its
coverage and spectrum depth, expanded its 3G coverage to 300 cities with
growth driven by robust plans to expand to nearly 350 by the end of the year, and became the
exclusive U.S. network provider for the breakthrough Apple iPhone 3G,
increases in wireless which was launched in early July.
data services and solid STRONG WIRELESS REVENUE GROWTH
AT&T’s total wireless revenues increased 15.8 percent to $12.0 billion in the
subscriber gains. second quarter, and wireless service revenues, which exclude handset and
accessory sales, grew 14.8 percent to $11.0 billion. Growth was driven by
solid subscriber gains and a greater number of customers choosing more
advanced smartphones and integrated devices, spurring increased usage
of data services such as Internet and data access, e-mail and messaging.
Growth trends in ARPU (average monthly revenues per subscriber) also
reflect increasing adoption and usage of advanced wireless data services.
Total blended wireless service ARPU was $50.60 in the second quarter, in
line with results in the year-earlier quarter, with data ARPU up 32.2 percent.
Retail postpaid subscriber ARPU was up 3.5 percent versus the year-earlier
quarter, with postpaid data ARPU up 36.5 percent.
SOLID SUBSCRIBER GAINS WITH
REDUCED RETAIL POSTPAID CHURN
AT&T’s second-quarter net gain in total wireless subscribers exceeded
1.3 million, down 123,000 versus results in the second quarter of 2007
and up 38,000 compared with the first quarter of this year.
AT&T continued its strong record of wireless subscriber flow share with
4.9 million second-quarter gross subscriber additions, up from 4.5 million
in the year-earlier quarter. Total average monthly subscriber churn, which
includes postpaid, prepaid and reseller subscribers, was 1.6 percent, flat
with the year-earlier quarter and down 10 basis points from the first
quarter of 2008.
5. USE THESE
5
InvestorBriefing | 2Q 2008
Wireless - Chart ONE Wireless - Chart TW
quarter to $2.5 billion. Data now represents
AT&T WIRELESS SERVICE REVENUES
22.9 percent of AT&T’s total wireless service
AT&T WIRELESS SUBSCRIBERS
Dollars in billions
revenues, up from 17.3 percent in the
AT&T’s wireless In millions
$11.0
$10.6
$10.2
second quarter of 2007.
$9.9
service revenues $9.5 70.1
Wireless Internet access revenues more
grew 14.8 percent in
than doubled versus results for the 65.7 year-
the second quarter,
earlier second quarter, while revenues from
reflecting solid 63.7
e-mail, messaging and data access all
subscriber gains and
delivered greater than 50 percent growth.
robust adoption of
Text messaging volumes tripled versus totals
data services.
for the year-earlier quarter, and multimedia
message volumes increased more than
170 percent.
2Q07 3Q07 4Q07 1Q08 2Q08
AT&T expects continued2Q07 robust growth in 4Q07
3Q07
wireless data services as more increase in 4Q07 included 1.7 m
Subscriber customers
Retail postpaid gross adds were in line with through acquisition; 2Q08 increase includes
adopt integrated devices that deliver access
added via acquisition.
totals in the year-earlier quarter at 2.8 million,
to a broad array of applications and
and retail postpaid net adds totaled 894,000,
content. At the end of the second quarter,
down 2.0 percent versus the year-earlier
approximately 18 percent of AT&T’s postpaid
second quarter and up 26.8 percent from
wireless subscribers had an integrated
results in the first quarter of this year.
device, up from 8 percent one year earlier.
This sequential postpaid improvement was
On average, these subscribers have ARPUs
achieved despite reduced iPhone sales
roughly double the company average.
ahead of the early July iPhone 3G launch.
Adoption of 3G-compatible devices is
Retail postpaid churn moved down to
also a key to driving wireless data growth.
1.1 percent in the second quarter, the
At the end of the second quarter,
lowest level in the company’s history.
approximately 13 million AT&T customers
had 3G devices. AT&T’s broad 3G network
ROBUST GROWTH IN
now includes 300 U.S. metro olitan areas,
p
WIRELESS DATA SERVICES
and the company expects to deliver 3G
AT&T’s wireless data revenues continued
services to nearly 350 U.S. markets by the
Wireless - Chart TH
their rapid expansion in the second quarter,
Wireless - Chart TWO end of 2008. AT&T also has started doubling
growing 52.0 percent versus the year-earlier
the data capacity of its 3G markets, and
nearly half of all 3G cell sites will receive
AT&T WIRELESS DATA REVENUES
AT&T WIRELESS SUBSCRIBERS
additional capacity by the endbillions year.
Dollars in of the
In millions
72.9
AT&T increased its 71.4
OPERATING INCOME GROWTH,
70.1
wireless subscriber $2.0
MARGIN EXPANSION
base by more than $1.8
Strong growth in wireless revenues, network
65.7 $1.7
9 million over 63.7
efficiencies and operational improvements
the past year.
continue to drive strong wireless operating
income and margins.
On a reported basis, AT&T’s second-quarter
wireless operating expenses totaled
$9.0 billion, and operating income was
$3.1 billion, up 91.0 percent from $1.6 billion
2Q07 3Q07 4Q07 1Q08 2Q08
in the second quarter of 2007. Adjusting for
2Q07 3Q07 4Q07
Subscriber increase in 4Q07 included 1.7 million subscribers added
merger integration costs, wireless operating
through acquisition; 2Q08 increase includes 182,000 subscribers
added via acquisition.
6. 6
InvestorBriefing | 2Q 2008
Wireless - Chart FOU
Wireless - Chart THREE
AT&T ADJUSTED WIRELESS MARGINS
(OIBDA service margin is operating income
Operating Income Margin OIBD
AT&T WIRELESS DATA REVENUES
before depreciation and amortization,
Dollars in billions
AT&T’s wireless divided by total service revenues.)
$2.5
$2.3
data revenues grew
29.9%
LEADER IN WIRELESS NETWORKS,
52.0 percent year over $2.0
37.
ADVANCED DEVICES24.9%
year, driven by $1.8
$1.7
AT&T is creating the next generation of
increased usage
wireless by advancing network capabilities,
of wireless Internet
offering breakthrough devices and launching
and data access,
innovative services. Over the past several
messaging and
weeks, AT&T:
media bundles.
• nnounced that it will be the exclusive
A
U.S. provider of the new Apple iPhone 3G,
2Q07 2Q08 2Q
Unadjusted
15.4% 25.5% 35.
Results
which was launched on July 11. The
2Q07 3Q07 4Q07 1Q08 2Q08
iPhone 3G delivers a home broadband-like
Merger integration and intangible amortization c
ed
from adjusted operating income margins: $983 m
speed experience and $529 customers surf integration co
when million in 2Q08. Merger
expenses totaled $8.4 billion, and operating adjusted OIBDA service margins: $163 million in
the Internet, share files and use media-
income was $3.6 billion, up 38.9 percent from
rich Web applications; business-class
$2.6 billion in the second quarter of 2007.
capabilities, including e-mail, viewed on
AT&T’s reported wireless operating
a large, touch-screen device and designed
income margin was 25.5 percent, up from
to meet the needs of companies of all
15.4 percent in the year-earlier quarter,
sizes; and the ability for developers,
and its adjusted wireless operating income
including AT&T, to create customized
margin was 29.9 percent, up from
consumer and business applications using
24.9 percent in the year-earlier quarter.
the Apple software developer’s kit. AT&T
AT&T’s second-quarter wireless OIBDA
expects that the iPhone 3G’s attractive
service margin was 41.2 percent, up from
pricing and rich set of features will spur
an unadjusted 35.8 percent and an adjusted
subscriber growth and expand adoption
Wireless - Chart FOUR
37.5 percent in the year-earlier quarter.
of advanced wireless data services. In the
first 12 days of sales following launch,
AT&T ADJUSTED WIRELESS MARGINS sales of the iPhone 3G were nearly double
levels achieved in AT&T’s 2007 iPhone
Operating Income Margin OIBDA Service Margin
AT&T’s wireless
launch. Approximately 40 percent of the
41.2%
OIBDA service
purchasers were new to AT&T.
2.5
margin expanded
29.9%
370 basis points
37.5%
versus adjusted 24.9%
results for the
second quarter
of 2007.
2Q08
2Q07 2Q08 2Q07
Unadjusted
41.2%
15.4% 25.5% 35.8%
Results
Q08
Merger integration and intangible amortization costs excluded
from adjusted operating income margins: $983 million in 2Q07
and $529 million in 2Q08. Merger integration costs excluded from
adjusted OIBDA service margins: $163 million in 2Q07.
7. 7
InvestorBriefing | 2Q 2008
• ompleted the deployment of High Speed
C • oined with MediaFLO USA Inc. to
J
Uplink Packet Access (HSUPA) technology introduce AT&T Mobile TV with FLO,
across AT&T’s entire 3G wireless broadband a mobile television service featuring
network, making AT&T the only U.S. carrier high-quality live programming. The
to have fully deployed HSPA technology mobile TV service launched in May 2008
in its 3G network. With the new addition on two new exclusive handsets, the LG
of HSUPA technology, AT&T 3G users VuTM and the Samsung AccessTM. AT&T
can send large files faster and take full Mobile TV delivers full-length television
advantage of the latest interactive content and sporting events from top
Internet and business applications. networks, including programming from
• aunched free Wi-Fi access for qualifying
L leading entertainment brands CBS
LaptopConnect customers to more than Mobile, Comedy Central, ESPN Mobile
17,000 Wi-Fi hot spots across the TV, FOX Mobile, MTV, NBC 2GO, NBC
United States. Users can access Wi-Fi News2Go and Nickelodeon.
at nearly 7,000 participating Starbucks
locations plus thousands more AT&T
Wi-FiSM locations, including restaurants,
airports, hotels and other convenient
locations across the United States.
8. 8
InvestorBriefing | 2Q 2008
Wireline
Second-quarter results in Second-quarter revenues in AT&T’s wireline segment totaled $17.6 billion
versus $18.0 billion in the year-earlier quarter. This reflects strong growth in
AT&T’s wired operations IP data services across business and consumer customer categories, largely
offsetting expected declines in voice and legacy packet-switched data products.
were highlighted by Results were highlighted by a significant step up in wholesale growth rates,
stable fundamental trends in regional business and enterprise, and a continued
double-digit growth in ramp in AT&T U-verse TV subscribers.
AT&T expects further stabilization in overall wireline revenue trends during
IP data revenues, a the remainder of 2008 as enterprise delivers growth for the full year,
wholesale trends show further improvement and AT&T U-verse services
continued turnaround in gain additional scale.
Compared with results for the year-earlier quarter, on a reported basis,
wholesale, and a further second-quarter wireline operating expenses totaled $14.5 billion versus
$14.8 billion; operating income was $3.1 billion versus $3.2 billion; and
ramp in AT&T U-verse AT&T’s wireline operating income margin was 17.7 percent, which was
unchanged versus the second quarter of 2007.
TV subscribers. Adjusted wireline results for the second quarter of 2007 exclude merger-
related integration and amortization expenses. Adjusted wireline results for the
second quarter of 2008 exclude only merger-related amortization expenses.
Compared with results for the year-earlier quarter, second-quarter adjusted
wireline operating expenses totaled $14.1 billion, down 0.1 percent; adjusted
operating income was $3.5 billion versus $3.9 billion; and AT&T’s adjusted
wireline operating income margin was 20.1 percent versus 21.7 percent.
On a sequential basis, AT&T’s wireline adjusted operating income increased
5.1 percent and its wireline adjusted operating income margin improved
100 basis points.
The following wireline highlights include ongoing shifts in customer
categories to reflect AT&T’s management of customer relationships.
CONTINUED STRENGTH IN ENTERPRISE
Over the past two years, AT&T has delivered a major turnaround in enterprise
growth rates, and in the second quarter results were highlighted by an
18.4 percent increase in enterprise IP data revenues, including areas such
as VPNs, managed Internet services and hosting.
Total enterprise revenues in the second quarter were $4.7 billion, down
1.0 percent versus results for the year-earlier quarter, and enterprise service
revenues, which exclude CPE sales, were down 0.1 percent.
9. 9
Wireline
InvestorBriefing | 2Q 2008
Wireline
quarter, leading industry analyst RATES REVENUES — YE
AT&T WHOLESALE
GROWTH firm
AT&T ENTERPRISE IP DATA REVENUES
Gartner, Inc. positioned AT&T in the Leaders
0
Dollars in millions
Quadrant of its Managed and Professional
$851
AT&T sustained strong -1
Network Service Providers, North America
enterprise revenues -2
report. The Gartner Magic Quadrant report
$802
in the second quarter, -3
$796
is a guide for midsize businesses and large
highlighted by -4
companies to identify and evaluate vendors
continued strong -5
$738
that deliver IT services in-6support of connec-
double-digit growth $719 (7.0)%
tivity and communications infrastructure.
in IP-based services. -7
-8
WHOLESALE TURNAROUND
(8.3)% (8.5)%
-9
AT&T is a leading global provider of
Enterprise delivering a full portfolio 4Q07
2Q07 3Q07
wholesale services,service
revenue growth (3.0)% (0.7)% 0.4%
of network, voice, data and IP solutions to
2007 comparisons are to 2006 pro forma
2Q07 3Q07 4Q07 1Q08 2Q08
carriers, wireless operators, cable the former BellSouth and AT
results from providers,
systems integrators, Internetacquired operations.
from
service
AT&T expects to deliver positive growth
providers and content providers.
in total enterprise revenues for the full year
Through the first half of 2008, AT&T has
2008. Enterprise fundamentals in terms
delivered a substantial turnaround in
of closed sales, a strong sales funnel and
wholesale revenue trends. Total wholesale
new service adoption remain solid, and
revenues were $3.5 billion in the second
the company expects revenues from major
quarter, down just 0.2 percent versus the
contracts such as its agreements with Royal
year-earlier quarter. This represents a major
Dutch Shell and with U.S. government
step up from a year-over-year decline of
agencies will increase in the second half
8.3 percent in the second quarter of 2007
of the year.
and marks the company’s second consecutive
AT&T is the premier provider for enterprise
quarter of sequential revenue growth in
customers, delivering networking services
this category.
Wireline
and solutions to multinational corporations,
This improvement reflects solid demand
U.S. governmental agencies and regionally
from wireless carriers, Internet service
based domestic companies. The company
providers, content providers and other
continues to expand its capabilities through
Wireline customers, offsetting expectedTOTAL ENTERPRISE REVENUE
AT&T declines in
network expansion and enhancement of
Wireline
local voice. AT&T expects 2 that wholesale
service capabilities. During the second
revenues will continue to stabilize in the
1
remainder of 2008, as traffic migration
involving carriers thatAT&T 0 merged CONNECTIONS IN SER
U-VERSE TV nears
AT&T WHOLESALE REVENUES — YEAR-OVER-YEAR have
GROWTH RATES (0.2
In thousands
AT&T’s wholesale completion. In addition, last fall AT&T and
(0.2)%
0 -1
revenue growth IBM announced an agreement that calls
-1 (1.7)%
trends continue for AT&T to become the primary global
-2
-2
network management services provider to
to improve, with 3
-3 -3
IBM. As a result, AT&T expects to receive
the second quarter -4 (3.9)%
up to $5 billion of additional revenues
of 2008 marking (4.0)% -4
-5
over the five-year term of the agreement, 231
the company’s -6 1Q07 2Q07 3Q07
Enterprise service
largely in the wholesale customer category
(7.0)%
second consecutive revenue growth (3.0)% (0.7)% 0.4%
-7
at the outset. These revenues comparisons are to 2006 pro form
2007 are 126 expected
quarter of -8
to ramp further in the second half of 2008
results from the former BellSouth and A
(8.3)% (8.5)%
sequential growth. -9 from acquired operations.
51
and in 2009.
2Q07 3Q07 4Q07 1Q08 2Q08
Enterprise service
2Q07 3Q07 4Q07 1
revenue growth (3.0)% (0.7)% 0.4% 1.5% 2.1%
2007 comparisons are to 2006 pro forma results, which combine
results from the former BellSouth and AT&T and exclude revenues
from acquired operations.
10. 10
Wireline
InvestorBriefing | 2Q 2008
Wireline
REGIONAL CONSUMER INITIATIVES
AT&T AVERAGE MONTHLY CONSUMER REV
AT&T U-VERSE TV CONNECTIONS IN SERVICE
Second-quarter regional consumer revenues
PER HOUSEHOLD SERVED
In thousands
continued trends of recent quarters, with
549
AT&T accelerated
2)%
$60.
growth in revenues from broadband and
subscriber growth $59.73
$59.43
AT&T U-verse services in large part offsetting
in its advanced $58.91
traditional voice access line pressures.
IP-based TV service, 379
Regional consumer revenues totaled
with a net gain of
$5.6 billion, down 2.1 percent versus the
170,000 subscribers
year-earlier quarter and down 0.7 percent
231
in the second quarter.
sequentially. In addition to operational
trends, these comparisons also reflect
126
a change in AT&T’s relationship with
51
Yahoo!® Inc., which provides portal services
08
to AT&T’s more than 14 million total wireline
2Q07 3Q07 4Q07 1Q0
2Q07 3Q07 4Q07 1Q08 2Q08
1%
broadband subscribers. Under the new
bine
arrangement, AT&T no longer pays monthly
enues
REGIONAL BUSINESS GROWTH
portal fees and receives a reduced level of
AT&T’s total regional business customer
shared advertising revenues from Yahoo!
revenues increased 1.6 percent versus the
Regional consumer IP revenues, which
year-earlier second quarter to $3.2 billion.
combine revenues from broadband and
Regional business data revenues grew
AT&T U-verse services, grew 19.3 percent
5.2 percent year over year, led by robust
versus the year-earlier quarter, and revenues
growth in Ethernet services and 13.7 percent
per consumer household served increased
growth in IP data services, including
4.2 percent. Regional consumer revenue
double-digit gains in managed Internet
connections (retail voice, high speed Internet
and VPN.
and video) totaled 48.4 million at the end of
AT&T’s broad portfolio of communications
the quarter, versus 49.5 million at the end of
services for its regional business customers
the second quarter of 2007 and 49.3 million
includes wireless, broadband Internet access,
at the end of the first quarter of 2008. Total
business e-mail services, Web hosting,
consumer broadband and TV connections
unified messaging, remote data storage
over the past year increased by 2.2 million.
and network security options.
At the end of the second quarter, AT&T had
AT&T continues to expand these offerings.
14.7 million total broadband connections, up
For example, in May, AT&T announced the
1.4 million over the past year and up 46,000
immediate availability of the AT&T U-verse
in the second quarter of 2008.
.2%
platform for highspeed Internet access to
AT&T U-verse TV, the company’s next-
small businesses in more than 40 U.S.
generation IP-based video service, continued
markets. AT&T High Speed Internet U-verse
its strong ramp during the second quarter,
Enabled Business Edition offers download
with a net subscriber gain of 170,000 to
speeds of up to 10 Mbps, which, depending
reach 549,000 in service. U-verse network
on the applications needed, can serve up to
deployment is on schedule, install times
32 Internet access connections over existing
continue to decline, and the attach rates
telephone wiring in the customer’s business.
for broadband service continue to be high.
The company is on a trajectory to reach its
Q08
target of more than 1 million AT&T U-verse
.1%
TV subscribers by year-end 2008.
mbine
venues
11. 11
Wireline
InvestorBriefing | 2Q 2008
several quarters, reflecting the 2004 decision
AT&T AVERAGE MONTHLY CONSUMER REVENUES
to discontinue proactive marketing in this
PER HOUSEHOLD SERVED
AT&T’s regional space and AT&T’s strategy of migrating
549 $61.40
consumer ARPU has customers within its regional footprint to its
$60.57
$59.73
ramped steadily over regional platforms to deliver better service
$59.43
$58.91
and a broader array of service options.
the past several
National mass markets represented
quarters, reflecting
3.9 percent of total wireline revenues in
growth in broadband
the second quarter and accounted for
and TV revenues.
80 percent of AT&T’s year-over-year decline
in total wireline revenues.
PRODUCT CATEGORIES
2Q07 3Q07 4Q07 1Q08 2Q08
Q08
WIRELINE DATA SERVICES
Increasingly, AT&T is focused on developing
AT&T’s data revenues, which include results
services for consumers that combine and
from several customer categories, grew
integrate the capabilities of its wireless and
5.1 percent versus results for the year-earlier
wired networks. For example, in June, the
second quarter to $6.3 billion.
company launched AT&T Net Reach, a bundle
Data growth was led by a 16.1 percent
providing home and on-the-go high speed
increase in revenues from IP-based services,
Internet services for consumers. Net Reach
with continued gains in high speed Internet,
includes AT&T High Speed Internet and
managed Internet, VPN and hosting services.
LaptopConnect services, in addition to
Data transport service revenues increased
free access to more than 17,000 hot spots
1.1 percent, and packet switched data
with AT&T Wi-Fi service. Plus, as part of
revenues, which include Frame Relay and
the LaptopConnect service, new software
ATM services, were down 13.5 percent,
automatically detects the strongest available
consistent with industry trends.
AT&T signal from a nearby network — 3G,
In the second quarter, 73.2 percent of
EDGE, Wi-Fi or one’s AT&T High Speed
AT&T’s data revenues came from retail
Internet connection at home — making
business and consumer customers. These
connecting simple and easy. AT&T Net Reach
retail data revenues were up 6.6 percent
is available to new and existing residential
versus results for the year-earlier quarter.
customers who subscribe to AT&T High
Speed Internet and AT&T LaptopConnect WIRELINE VOICE SERVICES
services. Customers must also opt to
AT&T’s second-quarter wireline voice
combine their wireless and wireline services
revenues, which include retail local voice
onto one billing statement.
and long distance as well as wholesale
voice, totaled $9.8 billion, representing a
NATIONAL MASS MARKETS
decline of 7.8 percent versus results for
Revenues from AT&T’s national mass markets
the second quarter of 2007. This comparison
category, which includes the remainder of
is consistent with results in recent quarters,
the former AT&T’s standalone long distance
reflecting the industrywide migration of voice
and local bundled business, totaled
usage from wired to wireless platforms,
$680 million in the second quarter,
customer transitions to broadband and
representing a decline of 31.2 percent
VoIP services and increased local voice
year over year. Results are as expected
competition.
and consistent with trends over the past
12. 12
InvestorBriefing | 2Q 2008
Advertising
& Publishing
AT&T is a leader in local AT&T’s Advertising & Publishing segment offers businesses a full suite of local
search options including print and Internet Yellow Pages in addition to Web site
search with more than design, search engine marketing and mobile search.
AT&T’s Advertising & Publishing operations deliver print directories to more
1,250 print directories than 83 million residences and businesses in 22 states and have a premier
online presence nationwide with YELLOWPAGES.COM, which offers consumers
and YELLOWPAGES.COM, access to local business information, the latest business listings, city guides,
maps and driving directions. Combined, these print and online products receive
its fast-growing online approximately 5 billion consumer searches a year for local business information
and provide more than 1 million advertisers with valuable sales leads to help
search service. their businesses grow.
Advertising & Publishing revenue trends reflect migration from print to
electronic search, including rapid growth at AT&T’s YELLOWPAGES.COM.
Advertising & Publishing’s Internet revenues increased 40.2 percent versus
the year-earlier second quarter, and total Advertising & Publishing revenues
declined 4.8 percent, in part reflecting revenues lost through the sale of
a sales agency business that serves independent telephone companies.
That transaction closed early in the second quarter.
Compared with reported results in the year-earlier quarter, operating
expenses totaled $974 million, down 7.7 percent; operating income totaled
$433 million, up 2.4 percent; and the segment’s operating income margin
was 30.8 percent, up 220 basis points.
Adjusted results for Advertising & Publishing exclude merger-related noncash
amortization costs in both quarters. Compared with results in the year-earlier
quarter, second-quarter 2008 adjusted operating expenses totaled $781 million,
down 2.4 percent; adjusted operating income totaled $626 million, down
7.7 percent; and the segment’s adjusted operating income margin was
44.5 percent, down 140 basis points.
13. 13
InvestorBriefing | 2Q 2008
Other
AT&T’s Other segment AT&T’s Other segment includes results from AT&T’s Sterling Commerce operations
and AT&T’s customer information services operations, both of which are included
includes results from its in segment revenues and operating expenses. Customer information services
include operator services and directory assistance. Sterling Commerce is one
Sterling Commerce unit, of the world’s largest providers of multi-enterprise collaboration solutions.
The company serves the retail, consumer packaged goods, manufacturing,
customer information financial services, health care and telecommunications industries.
The Other segment also includes AT&T’s proportionate share of results from
services and equity Telmex, América Móvil and Telmex Internacional, which are shown in the Equity
in Net Income of Affiliates line for this segment. AT&T’s equity interest in each
investments in Telmex, company is more than 8 percent.
América Móvil is one of the leading providers of telecommunications services
América Móvil and in Latin America, with more than 159 million wireless subscribers at the end of
the first quarter of 2008 in countries throughout the region, including more
Telmex Internacional. than 51 million in Mexico.
Telmex is the leading telecommunications company in Mexico. Telmex and
its subsidiaries provide a wide range of telecommunications services, data
and video transmission, Internet access and integrated telecommunications
solutions. Telmex Internacional has telecommunications operations in Argentina,
Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay.
On a reported basis, Other segment income totaled $167 million in the
second quarter versus $117 million in the year-earlier quarter. Segment
revenues totaled $512 million, compared with $558 million for the second
quarter of 2007. Equity in Net Income of Affiliates totaled $209 million,
up from $202 million in the year-earlier quarter.
14. 14
InvestorBriefing | 2Q 2008
AT&T Inc.
Consolidated Statements of Income (Unaudited)
(Dollars in Millions, Except per Share Amounts)
Three Months Ended Six Months Ended
6/30/08 6/30/08
6/30/07 % Change 6/30/07 % Change
Operating Revenues
$10,894 $21,499
Wireless service $ 9,513 14.5% $18,583 15.7%
9,519 19,212
Voice 10,378 -8.3% 20,833 -7.8%
6,054 12,026
Data 5,746 5.4% 11,401 5.5%
1,383 2,781
Directory 1,155 19.7% 2,177 27.7%
3,016 6,092
Other 2,686 12.3% 5,453 11.7%
Total Operating Revenues 30,866 61,610
29,478 4.7% 58,447 5.4%
Operating Expenses
Cost of services and sales (exclusive of depreciation
11,900 23,902
and amortization shown separately below) 11,658 2.1% 23,080 3.6%
7,441 15,300
Selling, general and administrative 7,460 -0.3% 14,727 3.9%
4,958 9,861
Depreciation and amortization 5,416 -8.5% 11,032 -10.6%
Total Operating Expenses 24,299 49,063
24,534 -1.0% 48,839 0.5%
Operating Income 6,567 12,547
4,944 32.8% 9,608 30.6%
Interest Expense 854 1,719
879 -2.8% 1,752 -1.9%
Equity in Net Income of Affiliates 212 455
210 1.0% 383 18.8%
Other Income (Expense) – Net (43) (10)
127 — 631 —
Income Before Income Taxes 5,882 11,273
4,402 33.6% 8,870 27.1%
Income Taxes 2,110 4,040
1,498 40.9% 3,118 29.6%
Net Income $ 3,772 $ 7,233
$ 2,904 29.9% $ 5,752 25.7%
Basic Earnings Per Share $ 0.64 $ 1.21
$ 0.47 36.2% $ 0.93 30.1%
Weighted Average Common Shares
5,926 5,962
Outstanding (000,000) 6,145 -3.6% 6,184 -3.6%
Diluted Earnings Per Share $ 0.63 $ 1.21
$ 0.47 34.0% $ 0.92 31.5%
Weighted Average Common Shares
5,962 5,997
Outstanding with Dilution (000,000) 6,195 -3.8% 6,230 -3.7%