Ma Bell's Magic Disappearing Act

AT&T (NYSE: T  ) has been in a cocoon for years, slowly transforming itself from a wireline caterpillar into a wireless butterfly. Last night's earnings report suggests the metamorphosis is accelerating.

The former Ms. Bell booked $13.9 billion in wireless segment revenue, up 8.2% year over year. Wireline revenue declined 4.6% over the same period. We've seen this pattern before:

Metric

Q1 2010

Q4 2009

Q3 2009

Q2 2009

Wireless revenue

$13,897 mil.

$13,838 mil.

$13,654 mil.

$13,245 mil.

As a % of total

45.3%

44.8%

44.3%

43.1%

Wireless operating income

$4,169 mil.

$3,420 mil.

$3,359 mil.

$3,151 mil.

As a % of total

69.4%

70.4%

62.3%

57.2%

Sources: Company press releases and Capital IQ, a division of Standard & Poor's.
Data current as of April 21.

Below the surface, AT&T is profiting almost as much from data connections as it is voice connections. Revenue from wireless data improved by 29.8%, to $4.1 billion, which means data now accounts for roughly 30% of AT&T's wireless business.

Expect this ratio to grow. AT&T said that it activated 2.7 million iPhones during the quarter, the biggest data hog of them all. Historically, Apple's (Nasdaq: AAPL  ) iconic handset tends to account for one-third of the carrier's gross subscriber additions in any given quarter.

Spread those clipped wings ...
Interestingly, despite all this good news, AT&T still reported lower net income due to a $995 million charge related to tax law changes enacted as part of President Obama's recently passed health-care plan. Excluding that $0.17 per share charge, AT&T reported $0.59 in per-share earnings, a healthy increase over last year's $0.53, and better than the $0.55 a share Wall Street was expecting.

Cash from operations fell by $700 million, but at $7.3 billion, there was more than enough for AT&T to fund $3.3 billion worth of expansion of its data network. This is crucial construction. Sprint Nextel (NYSE: S  ) already has WiMax live in select markets, and Verizon (NYSE: VZ  ) is upgrading their networks for 4G data delivery later this year. AT&T won't be ready with 4G before 2011.

And yet, even with its still-clipped butterfly wings, AT&T is handling a massive amount of wireless data because of the iPhone and new handsets built on Google's (Nasdaq: GOOG  ) Android mobile operating system.

I like the trend and the better profit mix it creates. That's why I closed my profitable short of AT&T in Motley Fool CAPS earlier today. Wireless data's too big and important a business to bet against.

Which telecom would you buy today: AT&T, Verizon, Sprint Nextel, or a different one altogether? Discuss in the comments box below.

Apple is a Motley Fool Stock Advisor selection. Sprint Nextel is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy needs to see your license and registration, please.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2010, at 4:07 PM, conradsands wrote:

    Verizon and AT&T = The Most Expensive Wireless Calling Plans in America

    Wireless Profit Margins:

    Verizon Wireless = 45 percent

    AT&T = 39 percent

    Sprint = 18.2 percent

    Now we know where Verizon and AT&T get all that money to run commercials 24x7, pay out huge executive bonuses and hire armies of lawyers and lobbyists -- the American consumer.

  • Report this Comment On April 21, 2010, at 4:07 PM, conradsands wrote:

    AT&T and Verizon have attempted to confuse the marketplace by lowering their pricing to $69.99, but theirs are for calling only. In today’s economic environment customers are interested in more than just voice pricing. They also want the best value for all the other things they rely on their wireless phone for and Sprint delivers. Sprint's Everything Data plans start at $69.99 per month and include Any Mobile, Anytime for unlimited calling with any U.S. wireless user, plus unlimited text, picture and video messaging, e-mail, Web browsing, social networking and more.

  • Report this Comment On April 21, 2010, at 4:08 PM, conradsands wrote:

    AT&T and Verizon have attempted to confuse the marketplace by lowering their pricing to $69.99, but theirs are for calling only. In today’s economic environment customers are interested in more than just voice pricing. They also want the best value for all the other things they rely on their wireless phone for and Sprint delivers. Sprint's Everything Data plans start at $69.99 per month and include Any Mobile, Anytime for unlimited calling with any U.S. wireless user, plus unlimited text, picture and video messaging, e-mail, Web browsing, social networking and more.

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