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AT&T Wireless Posts Solid Third-Quarter Results

Posted on: Wednesday, 20 October 2004, 01:00 CDT

Oct. 20--What will Cingular Wireless get after it pays $41 billion in cash to acquire AT&T Wireless later this year?

The answer became clearer yesterday after AT&T Wireless reported third-quarter financial results that signaled the worst times could be behind the Redmond-based company.

Most of AT&T Wireless' key measurements, including revenue, profit and number of customers fell compared with the year-ago period, but only modestly.

"It was a solid financial quarter," said Jonathan Atkin, an analyst with RBC Capital Markets in San Francisco. "I do think Cingular's owners would be pleased."

In February, Atlanta-based Cingular won a bidding war to purchase AT&T Wireless, which had undergone financial and technological problems.

The merger between the two companies is expected to close shortly, pending approval by the Federal Communications Commission and the Department of Justice. Both agencies are expected sign off on the deal, with some conditions.

One concern in yesterday's results, Atkin said, was the high number of AT&T Wireless customers who dropped the service during the quarter.

The turnover rate, or what the industry calls "churn," reached 3.7 percent of subscribers, higher than Atkin's estimate of 3.2 percent and higher than the industry's goal of keeping it at 2.5 percent or lower.

Still, the company was able to offset the losses by adding a net total of 170,000 subscribers, bringing the subscriber base to 21.9 million. After the merger closes, the two companies are expected to have about 46.7 million subscribers, making it the largest cellphone carrier in the country, exceeding Verizon Wireless and its 40 million customers.

The effort to maintain its customer base was reflected in the company's overall results. Total revenue, which comes mostly from wireless services, dropped 3.7 percent to $4.21 billion in the quarter from the year-ago period. The decrease was attributed in part to lower monthly customer bills and higher promotional expenses to retain customers.

That led third-quarter profit to drop to $117 million, or 4 cents a share, compared with the same quarter last year, when the company had a profit of $156 million, or 6 cents a share.

"Customer deactivations persist at unacceptable levels," AT&T Wireless Chief Executive John Zeglis said in a statement. "We have a number of initiatives under way addressing this issue and are extremely focused as an organization on turning it around."

Among other things, the company is maintaining a program where customers are contacted before their contracts expire and are offered new phones or services, spokesman Peter Rowe said.

That directly affects one of the company's key measurements -- average revenue per user, an indication of how much a customer pays per month. For the quarter, that amount was $57.40, a 6.2 percent decrease from $61.20 a year ago.

AT&T Wireless pointed out one highlight yesterday: the 145 percent increase in data revenues it recorded for the quarter. This includes revenue from the company's mMode service, text messaging and other data-based offerings. Such data services were an attraction to Cingular.

Cingular, owned by SBC Communications and BellSouth, is expected to report financial results for the third quarter today.

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Source: The Seattle Times

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