October 23, 2008

Tim-ber!: AT&T Joins Others in Felling Stocks

The agonizing US economics class of recent weeks proffered Wed yet another key takeaway: the stock markets have yet to hit bottom. Investor confidence has further frayed after a raft of 3Q earnings disappointments from companies such as Wachovia, Merck and AT&T, which missed Wall St estimates despite posting 5.5% earnings growth. And as the IMF said economic recovery in the US will not begin until the 2nd half of '09, monitoring competitive practices and trends within industries may now be even more important. For cable, AT&T's results included some fodder for future thought. Not surprisingly, the telco's sharp access line losses continued in 3Q (-11% YOY), with Sanford Bernstein forecasting more ahead. "The easy alternatives of 'cutting the cord' or switching to lower-priced cable telephony threaten to make a bad situation even worse," wrote analyst Craig Moffett. Still, AT&T said U-verse and wireless services are helping to mollify the troubling trend. U-verse TV counted 232K net adds in the Q for a total of 781K, but perhaps more importantly has spurred a broadband attach rate greater than 85%, said CFO Rick Lindner. "There have been clear improvements in access line retention in U-verse markets," he said. Data extrapolation points to at least 197K U-verse HSI adds, helping to drive the telco's 148K net wireline broadband connections, up from 46K in 2Q. As for wireless data, AT&T has nearly 5.9mln broadband-speed integrated devices/laptop cards in service, up 2.8mln in 3Q. USB port cards are "just flying" off the shelves, said AT&T Mobility CEO Ralph de la Vega, who noted "a lot of upside on wireless data cards and growth opportunities for us way into the future." Also, customers have responded favorably to bundling options for wireline broadband and wireless laptop connections, said Lindner. The telco activated 2.4mln iPhone 3G s in the Q, and de la Vega said many iPhone customers are using the device as their primary data provider. Lindner also noted solid growth in the SMB market, a result he called "promising, especially since cable's moving in." Despite obvious economic and competitive pressures, both Sanford Bernstein and S&P are bullish on AT&T shares, which dipped 7.6% Wed. Other notables: Comcast (-7.5%), Time Warner Cable (-5.9%), Cablevision (-9.1%), Charter (-9.2%), Verizon (-8.1%), DirecTV (-9.2%) and DISH (-2.2%).