Jan Dawson
AT&T reports fourth quarter results: the new AT&T takes shape
AT&T reported its Q4 2006 results on Thursday. These results are the last before the company fully integrates Cingular, BellSouth and Yellowpages.com into its results following the completion of the merger with BellSouth on 29 December.Comment: Once again, the reported results are rather meaningless because they are so distorted by the acquisitions AT&T has made over the past 18 months. However, there are some clear trends which emerge both from the pro forma results and from the commentary provided by the company's management.Firstly, enterprise revenue trends are stabilising. It appears that a combination of price stabilisation and AT&T's renewed investment in the enterprise market are paying off and allowing it to slow the decline in revenues. It still anticipates returning to enterprise revenue growth in 2008 even following the BellSouth acquisition, but when this milestone is achieved it will be an important one. Following several years of declines for most major carriers in this space due to price erosion and migration to IP services, this will be an encouraging sign that growth is still possible.Secondly, consumer and small business revenues are growing. Consumer revenues continue to benefit from the growth in broadband and bundling, although access line losses wipe out most of the gain. However, it is the growth in small business revenues which is really encouraging. Year-on-year growth in this segment reached 9.1% in the legacy BellSouth region and 7.5% in the legacy SBC region, thanks to a combination of growth in legacy voice and data products as well as good sales of new products and services being marketed to the SMB base. Combining the enterprise portfolio from AT&T with the local sales and support channel from SBC (and BellSouth in future) will allow AT&T to tap into the latent demand among SMBs for advanced business services including managed services, security and hosting.Thirdly, the company continues to prove how good it is at achieving merger synergies. It was ahead of plan for SBC/AT&T merger synergies in 2006 by $300 million and has raised its guidance for total synergies with BellSouth and Cingular by $5 billion from $18 billion to $23 billion. These synergies alone should ensure that the company grows profits over the coming years while it attempts to turn around the revenue decline in enterprise services and seeks stronger growth in consumer services. The BellSouth merger also means that the company's overall revenues are now growing both year-on-year and quarter-on-quarter - another important milestone.Lastly, the company is pushing ahead with its plans for the rollout of fibre-to-the-node (FTTN). Although it was not explicitly challenged during the results call on its choice of a FTTN architecture (in contrast to Verizon's fibre-to-the-home approach), both the CEO and CFO were at pains to reemphasise that it has made the right decision. It dropped reporting of fibre-based video customers after last quarter's report of 3,000 subscribers led to more chuckles than kudos, but it appears that plans are on track.
