AT&T Inc. (T)

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AT&T Inc. (T)

Q4 2008 Earnings Call

January 28, 2009 10:00 am ET

Executives

Brooks McCorcle - Head of IR

Randall Stephenson - Chairman and CEO

Rick Lindner - CFO

Analysts

Simon Flannery - Morgan Stanley

John Hodulik - UBS

David Barden - Banc of America

Jason Armstrong - Goldman Sachs

Mike McCormack - JPMorgan

Philip Cusick - Macquarie

Craig Moffett - Sanford Bernstein

Michael Rollins - Citi Investment Research

Tom Seitz - Barclays

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the AT&T fourth quarter earnings release 2008 conference call. (Operator Instructions.)

I will now turn the call over to Ms. Brooks McCorcle. Ms. McCorcle, you may begin.

Brooks McCorcle

Thank you, John, and good morning, everyone, and welcome. It's good to have you with us this morning. As John mentioned, this is Brooks McCorcle, Head of Investor Relations for AT&T. Joining me on the call this morning are Randall Stephenson, AT&T's Chairman and Chief Executive Officer; and Rick Lindner, AT&T's Chief Financial Officer.

Before we get underway, let me remind you that our release, investor briefing, supplementary information and the presentation slides that accompany this call are all available on the Investor Relations page of the AT&T website. That's www.att.com/investor.relations.

I also need to cover our safe harbor statement, which is on slide three. It says that the information set forth in this presentation contains financial estimates and other financial forward-looking statements that are subject to risks and uncertainties, and that actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in these presentations based on new information or otherwise.

This presentation may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on our website at www.att.com/investor.relations.

With that, it is my privilege to turn the call over to AT&T's Chairman and CEO, Randall Stephenson. Randall?

Randall Stephenson

Thanks, Brooks. Good morning, everyone. Let me just start with a quick look at fourth quarter highlights. You're going to find these on slide four.

As you can see, we delivered our second straight quarter now of 2 million wireless net adds. We had another very strong iPhone quarter. Wireless data growth, as you see, was very good. It was up more than 50%. U-verse is scaling nicely, and we passed the 1 million subscriber mark. Revenues from IP data services grew at a double-digit pace. We did sustain our wholesale turnaround.

And despite iPhone earnings pressure, we maintained the best consolidated operating margins among our telecom peers. At the same time, we returned more than $15 billion to shareowners last year through buybacks and dividends. I'm pleased to say that in the fourth quarter, we increased our dividend for the 25th consecutive year, and that's a record that's unmatched in telecom. So we closed the year with good progress across a number of key areas.

But I'd tell you that from my perspective, more important than any of these metrics, are the steps that we have taken in a tough environment to strengthen our business as we go forward. And as you see, those steps are paying off for us today and they will significantly improve our profile for 2009 and beyond.

I think the most important step that we took in 2008 was our iPhone 3G launch. In less than six months, we activated more than 4 million units; 40% of those were for new customers to AT&T, and 100% of those were for high value customers. These are data intensive. They are high ARPU, low churn, very high recurring margins.

Over the past year, we more than doubled the number of integrated devices on our wireless network. We are the industry leader in integrated devices and the iPhone is obviously a very big part of that. In simple words, what I'd tell you is that we are winning at the high end. We lead in wireless data, which is the industry's best growth area. The iPhone's short-term margin pressure is proving to be just that. It's short-term. In the fourth quarter, our postpaid data ARPU moved up sharply, and we saw sequential margin expansion as well. We expect to deliver more wireless margin expansion as we move forward.

The second major thing we accomplished this past year was the steps we took to future proof this wireless network, and we acquired premium spectrum. We now have great spectrum depth and spectrum quality. We expanded our 3G network to some 350 cities; this is the fastest wireless network in the marketplace. We are on a path to deliver even faster wireless speeds on our way to a full 4G. Because we chose to evolve on this global standard, we can make significant improvement in wireless speeds without having to wait for a flash-cut to 4G. This is an important advantage for us, as we move forward in the next few years.

When you step back and look at AT&T's wireless business, you see a business with $50 billion in annualized revenues. It's growing at a double-digit rate, while margins are expanding. It's targeted to reach the mid-40% range on margins. Don't forget, we also own 100% of our wireless business, and that's a big deal. It's great for our owners and helps us to run the business more efficiently. It's also a plus as we develop new integrated wireless/wireline services.

That brings us to the third major step we took last year, which was to accelerate our U-verse ramp. In the second half in particular, we really hit our stride here. Our subscriber gains ramp now every single quarter. Our U-verse network deployment doubled over the past year to reach 17 million living units. U-verse offers a great service at a fraction of the cost required by other approaches. Customers love this service. In fact, in every region where they included us, U-verse took first place in J.D. Power's customer surveys. It is an all-IP network, which gives us a lot of opportunities in terms of new services down the road.

The fourth area where we've taken some significant steps is global business. We have invested in undersea capacity. We've significantly increased our IP network-based hosting capacity. We have launched new services like Synaptic Hosting and Telepresence this year. We completed the world's largest deployment of 40-gig transport. That's the fastest Internet backbone technology available in the market today. It's across our entire U.S. network.

Increasingly, we are delivering business solutions that integrate wireless as the key component, and we've won a high percentage of the major global contracts that were available – with companies like Shell and Starbucks, Boeing and IBM, just to name a few.

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