July 24, 2008

Landlines a Weak Spot for AT&T

By Laura M. Holson

With millions of Americans snapping up the iPhone, AT&T, the exclusive U.S. carrier for the popular phone, should be quite pleased with the stream of revenue it can expect from customers.

But AT&T, the biggest telecommunications company in the United States, has a problem: analysts say consumers are dropping traditional landlines faster than expected. The company, which still gets 32 percent of its revenue from its landline business, said Wednesday it ended the quarter with 58.9 million phone lines in service, down 2.6 percent from 60.42 million three months earlier.

AT&T said it earned $3.77 billion, or 63 cents per share, in the three months ended June 30, up from $2.90 billion, or 47 cents per share, in the same period a year ago.

AT&T is not the only company facing a changing environment in the communications business. All of the major U.S. telecommunications companies - AT&T, Verizon and Sprint Nextel - are figuring out how to make more money from customers as they spend more time sending text messages or browsing the Web on their cellphones, rather than talking.

At the same time, as the U.S. cellphone market gets saturated - about 85 percent of American consumers already own a cellphone - phone companies are finding that growth is slowing.

"In short order, sentiment in the telecom sector has gone from bullish to guarded to ... well, slightly queasy," Craig Moffett, an analyst at Sanford C. Bernstein who follows communications companies, wrote in a recent report.

Cellphones are, by far, more common in the United States than landlines. According to CTIA, the U.S. wireless industry's trade group based in Washington, there are 262 million cellphone subscribers in the United States. In contrast, the Federal Communications Commission counts 163 million business and residential landlines as of June 2007, its latest report.

AT&T has been losing landline subscribers each quarter at an accelerated rate since 2006. It dropped 7.4 percent in 2007. Analysts said the economic downturn could also have an effect on the landline business.

"I think AT&T is pedaling as fast as it can to transform themselves from a wire line to a wireless company," Moffett said. "To a degree it is working." But the question, he said, is: "Is it fast enough?"

Originally published by The New York Times Media Group.

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