AT&T's Q2 wireline growth driven by U-verse, next-gen business services

Consumer IPTV, business grade Ethernet create new revenue opportunities
Tools

AT&T (NYSE: T) may see wireless as the star performer in its overall portfolio, but its continual drive to deliver next-gen consumer and business services such as IPTV and Ethernet services gave the wireline segment a boost in Q2 2012.

AT&T Q2 2012 slides

See selected slides from AT&T's investor presentation.

In Q2 2012, wireline revenues declined 0.8 percent to $14.9 billion and were down slightly sequentially, a factor it attributes to ongoing voice revenue losses. Likewise, Q2 wireline operating expenses were down 1.3 percent to $12.9 billion from the same quarter a year ago and 1.9 percent sequentially. Voice service revenue losses were partially offset by gains in consumer and strategic business revenue gains.

Despite the typical voice line revenue losses, AT&T reported that operating income was $2.1 billion, up 2.2 percent from Q2 2011 and up 12.6 percent from Q1 2012. Meanwhile, Q2 wireline operating income margin was 13.8 percent, compared to 13.4 percent in the year-earlier quarter and 12.2 percent in the first quarter of 2012.

Here's a breakdown of the service provider's key wireline performance metrics:

Landline Losses: Like other traditional telcos, AT&T continued to see revenue decline in its wireline voice subscriber base. During the quarter, AT&T's voice lines declined from 37.8 million to 36.8 million. 

AT&T investor video

Click here for a video of AT&T earnings highlights.

Video and Broadband: AT&T reported that residential customer revenue rose 1.7 percent over Q2 2011 to $5.5 billion. Once again, U-verse continues to be the revenue engine in AT&T's consumer wireline segment with revenues rising 38 percent. During the quarter, it added 155,000 new U-verse TV subscribers and 553,000 U-verse broadband subscribers helping to offset the 96,000 DSL subscribers it lost. A key factor driving U-verse video and broadband growth was the continual adoption of service bundles. The service provider said that "subscribers on triple- or quad-play options drove 18.2 percent year-over-year growth in IP revenues from residential customers (broadband, U-verse TV and U-verse Voice) and 6.2 percent sequential growth. About 90 percent of new U-verse TV customers also subscribed to HSI and about half took voice, AT&T said, and about three quarters of all U-verse subscribers are in triple or double play bundles. These factors helped drive up U-Verse ARPU to $170 a month.

Business services: AT&T continues to see growing pains in its business services revenues as legacy ATM and Frame Relay revenues continue to decline as more businesses transition to next-gen services such as IP/MPLS VPNs and Ethernet. Total business revenues were $9.1 billion, down 1.5 percent versus the same period last year, and it did narrow business service revenue declines to 1.4 percent year-over-year from 3.9 percent in Q2 2011. Strategic business service revenues rose 13.5 percent over the same period a year ago, while total business data revenues grew 2.0 percent year over year.

From an overall financial perspective, AT&T reported gains in both consolidated revenues and operating income.

Consolidated revenues rose 0.3 percent to $31.6 billion, while operating income was $6.8 billion, up from $6.2 billion from Q2 2011.

AT&T shares were at $34.52, down 86 cents or 2.43 percent, in midday trading.

For more:
- see the earnings release

Special report: Wireline in the second quarter of 2012

Related articles:
U-verse drives AT&T wireline business
AT&T, CWA hammer out tentative wireline labor agreements
Report calls AT&T, Verizon top U.S. 'investment heroes'
AT&T, IBEW agree on 1-year contract extension, CWA negotiations ongoing
AT&T agrees to drop $1.15M suit against phone hacking victim