Last week, the CFO of AT&T (NYSE: T ) , Richard Lindner, was kind enough to join a couple of Fools for a discussion on the direction of a newly rejuvenated giant. Need to catch up? Head on back to part 1 of the interview, then come back here for the conclusion.
The Motley Fool: Many international wireless assets were sold off over the years to help pay for mergers. Operations in emerging markets are fueling growth for operators such as Vodafone (NYSE: VOD ) and America Movil (NYSE: AMX ) , which have made significant investments in developing markets. Is AT&T looking internationally for growth, or will the primary focus remain on developing new services and squeezing efficiency here in the U.S.?
Richard Lindner: I think the answer for us is both [that] we will certainly continue to focus on the U.S. market, because they are extremely important to us, but the opportunities for us, from a growth perspective and in terms of penetration of services, in many cases is international. I would think about it in terms of two different opportunities there. The first and most obvious for us is to follow companies that have substantial operations in the U.S. -- that we are providing service for today -- and to follow those companies internationally. The best example of that is a contract we did this year with General Motors (NYSE: GM ) , where now we are providing and coordinating the telecom and communications and data infrastructure for General Motors globally. So we will continue to take opportunities where we can follow these customers and provide services for them in a global environment, particularly as those customers migrate to IP-based services, because outside the U.S. on the enterprise side, virtually everything we do is IP-based.
Then the second opportunity for us, but this is more -- this will be followed more opportunistically, I would say -- is there are markets that I think have the capability for some substantial growth, and we will look for opportunities to play on some of that growth. A couple of examples: We have applied for wireless licenses in Qatar, and we have applied for wireless licenses in India. Those are both opportunities where we see significant market growth, but initially, we are looking at, "Is there a wireless opportunity there for us?" But at the same time, those are markets where there is significant construction and growth overall in infrastructure. In many cases, we are looking for some footholds into those markets, to begin to play in the overall infrastructure build. But those will tend to be more kind of one-off, opportunistic kinds of initiatives.
The Fool: Beyond share-price appreciation, what bars or metrics have you personally set to gauge how the company is serving shareholders, and in terms of those metrics, are there any areas where you feel the company needs improvement or isn't up to expectations?
Lindner: Well, we certainly watch share-price appreciation carefully, and we feel for us, we are a big, large-cap company in a fairly mature business, so I think some of the key metrics for us is to continue to drive solid consistent growth and earnings per share, and we have done that over the last 10 quarters. Our adjusted EPS is up at double-digit pace. We want to continue that as we go forward into 2008. At the same time, we as a company ... produce a lot of cash flow, and we want to supplement the returns to our shareowners with a strong dividend yield. I think a sweet spot for us, frankly, is to maintain a dividend yield in a 3%-4% range. That keeps us in the probably top 10 or 12 of the S&P 100, and when you combine double-digit earnings growth and a 3.5% or so dividend yield, I think you have got ... a basis for just consistent, solid returns to shareowners.
The other metric we look at internally on a regular basis, because -- and frankly, from an executive standpoint, it is the primary metric behind our long-term compensation plans ... we look at return on invested capital. We do that calculation, excluding amortization of some intangible assets, non-cash amortization that comes out of some of the mergers we have done. But by looking at it in that way, I think it gives us good visibility on, "Are we increasing the returns?" and "Are we generating adequate and returns above the cost of capital associated with new investments in the business?" That metric is on a very good trajectory for us right now.
Finally, I guess the fourth thing that particularly right now is important to us is ramping top-line growth. This quarter was a good step in that direction. In fact, the last four our five quarters, we have had positive top-line growth on a pro forma basis. This quarter was up in the 3.2% range; we want to continue to ramp that certainly into the mid-single digits or above. That revenue growth then gives us, I think, the ability to continue good earnings-per-share growth into the future, and so that one is important to us.
... We are probably harder on ourselves than people are externally at times, but I wouldn't say that there is anything [within] any of those metrics that [is] not meeting our expectations at this point. It is just we tend to not be a very patient group, so we want to drive them all in the right direction.
The Fool: As this quarter's numbers reflect, Apple's (Nasdaq: AAPL ) iPhone has been a great success for you guys. Despite the obvious success there, are there any ways in hindsight that you might have handled the launch a little bit differently?
Lindner: Well, I am sure if we talked to the operations folks in wireless, there are some things they might have done differently here or there, but I think they are pretty minor. When you think about the launch of the iPhone, you have to keep in mind, first of all, we are talking about launching a brand new wireless device, which is always subject to a certain amount of peril. But we are also launching a device by a company that had never produced a wireless phone or a wireless device ... and we are talking about launching a device that is fairly different from other devices that are on the market in our base, and that we are familiar with. And it was going to be activated, which is really kind of important and can be a tricky part of the wireless process. It was going to be activated in a completely different way from any other device that we have sold before.
When you put all of those together, I don't think the launch itself could have gone much better than it did. I think the team did a lot of work testing the device, testing the activation process. There were a few glitches in the first weekend, but they were pretty minor in terms of number, and they were resolved pretty quickly. Since then, the device continues to sell very well. I think we are going to have a very good holiday season with the device, and frankly, I think as it continues forward, and as the iPhone continues to evolve, it will just get better and better.