AT&T Posts 74%
Increase in Profit
Acquisitions Help Expand Margins in Land-Line And Wireless
By Amol Sharma
Tuesday, October 24, 2006
AT&T Inc.'s third-quarter results showed Wall Street that a
string of acquisitions under Chief Executive Edward E. Whitacre Jr.
is starting to pay off.
After a wave of big U.S. telecommunications mergers in recent years,
investors are looking for signs that bigger means better. That isn't
always the case:
Sprint Nextel Corp. has lost significant ground to competitors
since it acquired Nextel Communications Inc. last year and has seen
its share price tumble more than 30%.
At AT&T, however, the upside of dealmaking is starting to come into
focus with margin expansion in wireless and land-line business
units. Revenue jumped 52% to $15.64 billion. That doesn't include
$5.7 billion in wireless revenue linked to the company's 60% stake
in Cingular Wireless, though AT&T's net-income figure reflects
AT&T benefited from 1.4 million net subscriber additions at Cingular
Wireless, a joint venture with
BellSouth Corp. that has successfully completed its integration
of AT&T Wireless. On the wire-line side, the company is seeing cost
savings from its AT&T Corp. acquisition and is preparing to close on
a merger with BellSouth, a deal the Federal Communications
Commission is expected to vote on as soon as Nov. 3.
AT&T, like other giant carriers, is trying to transition into a
high-speed Internet and entertainment provider. The rollout of new
services has been slow: AT&T said it has only 3,000 subscribers for
its high-end television-and-Internet service in the San Antonio
area, where the service launched.
Verizon Communications Inc., which is busy integrating
long-distance provider MCI Inc., has been more aggressive in its
rollout of fiber-optic cable to carry ultra-high-speed Internet and
video, a project that is expected to cost $18 billion through 2010.
The company is in the process of spinning off its directory unit,
which analysts say could generate cash to put toward the fiber
rollout, a share buyback, or a buyout of the 45% stake in Verizon
Wireless owned by Vodafone Group PLC. Verizon reports third-quarter
results next week.
Skeptical about the size of the future U.S. market for online video,
Qwest Communications International Inc. is taking a more
measured approach, forgoing major network upgrades for now -- a tack
investors have cheered. Qwest shares are up about 47% this year. The
company, which reports earnings next week, now has to show it can
keep up with industry trends without the deep pockets of its bigger
For Verizon and AT&T, the transformation from phone company to
Internet provider also applies to their wireless units, which are
trying to offset declining cellular voice revenue by selling more
data services such as downloads of music and ringtones.
Write to Amol Sharma at