AT&T Announces Financial Results, Holds Out Hope for Bundles

AT&T today reported income from continuing operations of $340 million, or earnings per diluted share of 43 cents, for the fourth quarter of 2003. The company’s current-quarter income from continuing operations compares to a loss of $611 million, or a loss per diluted share of 79 cents, in the fourth quarter of 2002, which included more than $1.2 billion of asset-impairment charges.

AT&T reported fourth-quarter 2003 consolidated revenue of $8.1 billion, which included $5.9 billion from AT&T Business and $2.2 billion from AT&T Consumer. This represented a consolidated revenue decline of 12.8 percent vs. the fourth quarter of 2002, primarily due to continued declines in long distance voice revenue, partially offset by the continued success of AT&T Consumer’s bundled local and long distance offering, as well as growth in several key markets of AT&T Business.

AT&T Business revenue in the fourth quarter of 2003 declined 10.9 percent from the prior-year fourth quarter. Full-year revenue declined by 5.9 percent to $25 billion. Pricing pressure, long distance voice competition, demand weakness in data and retail long distance voice, as well as overall telecommunications spending all negatively impacted the unit’s revenue performance. Declines were partially offset by growth in wholesale long distance, local voice and new data services revenue.

AT&T Consumer revenue was, as mentioned, $2.2 billion for the fourth quarter, and $9.5 billion for the full year, representing declines of 18.9 percent and 17.7 percent vs. the same prior year periods, respectively. These declines were driven by lower standalone long distance revenue as a result of the continued impact of competition, wireless and Internet substitution, and customer migration to lower-priced products and calling plans, partially offset by pricing actions. These revenue declines were also partially offset by growth in bundled revenue, which grew nearly 65 percent vs. the prior-year fourth quarter and grew nearly 80 percent for the year. Bundled revenue represented nearly 27 percent of AT&T Consumer’s total revenue for the quarter.

Industry analyst Jeff Kagan opines that AT&T's mixed numbers “capture the essence of the long term transformation that is reshaping the telecommunications industry.” He notes that companies like AT&T used to be able to be profitable selling to single service customers, but as competition increases and margins shrink, it's driving all the companies to focus on bundles, which Kagan says are more profitable.

“We are going to see a continuation of this trend as carriers expand their core offerings and sell complete bundles of local, long distance, broadband and even wireless and television,” according to Kagan. “AT&T is on the right track aggressively expanding into bundles of local phone service, wireless and broadband. These bundles are the wave of the future.”

While it is true that the practice of bundling various services has become a popular practice in both telco and cable company circles, XCHANGE in December 2003 reported that sales of bundled packages can be bittersweet on the balance sheet. “These guys are just heading toward lower profit margins” by offering bundles of services, Danny Briere, CEO of TeleChoice, was quoted in the article saying. “Price wars are going to break out.”

AT&T also today announced its expectations for 2004, including consolidated revenue decline between 7 and 10 percent; consolidated operating income margin between 6 and 8 percent; AT&T Business revenue decline between 4 and 7 percent; AT&T Consumer revenue decline between 15-17 percent; and capital expenditures of approximately $2.5 billion.

In other news today, AT&T announced that its board of directors has authorized the repurchase of up to $3 billion of debt.

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