While AT&T's (NYSE: T) wireline segment continues to suffer the expected growing pains of declining POTS voice revenue and legacy business services, IP-based business communications continues to rise, a trend that was evident in its Q1 2012 financial results.
During the quarter, business service revenues declined 0.3 percent year-over-year, narrower than the 4.4 percent in Q1 2011, a factor that's attributable to declines in legacy products like Frame Relay and TDM private line.
However, revenues from strategic business services, including Ethernet, VPNs, hosting, IP conferencing and application services, grew 19 percent in the quarter. Overall, next-gen strategic services represent a $6.2 billion annualized revenue stream for the telco.
Despite the challenging economic headwinds, John Stephens, senior executive vice president and CFO, said in the earnings call that AT&T continues to see strong demand for next-gen services from its large business customers.
"We continue to see large businesses willing to invest in strategic services and the efficiencies they bring, and the uptick in strategic services with year-over-year revenue growth of 19 percent gives us confidence that that's going to continue," he said. "Businesses are willing to invest in those next-gen products and services and efficiency."
One of the drivers of business services growth was, not surprisingly, data.
"A big factor of [wireline business services'] success is accelerating data growth," said Stephens. "Its 4.2 percent growth was the best we have seen in years."
At the core of the data growth was an uptick in its three major segments: global enterprise, wholesale and SMB. Global enterprise had its fourth consecutive quarter of growth, while wholesale grew services revenues for the first time in three years, and bundles helped drive growth in the SMB segment.
"This success helped our wireline business margins improve year-over-year for the fifth consecutive quarter," Stephens said. "The progress has been slow but steady and we still expect that the wireline business services will return to growth this year even without the benefit of a lift from the economy."
Interestingly, a big portion of new U-verse broadband subscribers consisted of SMBs adopting the service that they purchase as part of a bundle that includes wireless service.
In Q1 2012, it added 718,000 new U-verse high speed subscribers to reach a total of 5.9 million, offsetting losses from DSL service subscribers that either upgraded to U-verse or opted to go with a cable operator for their data service. As of the end of the quarter, AT&T had 6.2 million U-verse subscribers (both TV and broadband).
"Our U-verse broadband net adds continue to accelerate and are more than three times our TV additions, which includes new U-verse small business customers where we grew subscribers this quarter," Stephens said. "This helped drive overall broadband growth as more customers move from DSL to higher speed U-verse services. Faster broadband speeds plus mobility is something small businesses are looking for."
- see the Q1 earnings webcast
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