Ask employees or even most investors and they'll tell you the company once known as Ma Bell hasn't existed for years. They're right, of course.
If it's tough to toss away the term completely, it's because of the size of AT&T's
Originally, these networks were built to deliver voice service over wires, and AT&T for years has survived by reliably delivering calls in this way. No longer. In the third quarter completed on Sept. 30, AT&T's wireless revenue accounted for 48% of its overall total and came within $95 million of equaling wireline revenue.
Here's a closer look at what the Street expected and how AT&T performed:
|Revenue||$31.2 billion||$31.6 billion||$30.7 billion|
|Gross margin||Not available||57.2%||58.2%|
|Free cash flow (YTD)||Not available||$11.6 billion||$13.9 billion|
Sources: AT&T press release, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's. YTD = Year to date.
* Excludes $1.53 in one-time tax and other benefits.
The cost of being wireless
Wireless was the key supplier of growth. Overall wireless revenue improved 11.4% as AT&T gained 2.6 million net new accounts and activated 8 million integrated devices. Call it the benefit of opening up to new relationships; AT&T's data network now supports both Apple's
But these activations came at a cost. Wireless operating expense rose by more than 15% during the quarter, wiping out all but a fraction of the segment's operating income gains.
To be fair, AT&T probably had no choice but to spend to get more of its customers under the protective shield of new two-year agreements. Why? A September survey by Credit Suisse found that 23% of iPhone owners would prefer Verizon if given the chance to switch. Press reports have since confirmed a deal to put the iPhone on Verizon's network sometime early next year. I wouldn't be at all surprised to see a deal with Sprint, as well.
Now it's your turn to weigh in. What will AT&T's business look like once it no longer owns the iPhone? Please vote in the poll below and then leave a comment to explain your thinking.
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