AT&T Is Losing Its Voice

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While losing vocal abilities would be a major annoyance for me, it could be a career-killer for a pop singer. You'd think it would spell similar doom for one of the largest telecommunications companies in the world -- AT&T (NYSE: T) -- but the giant telco seems at peace with its voice business taking a back seat to other segments.

While AT&T is seeing steady drops in revenue from its traditional wireline voice segment, these services still generate huge amounts of cash. But its recent earnings report shows just how dramatically both wireline and wireless voice services are declining in significance in terms of new growth. It's all about data now.

AT&T reported total revenue of $30.7 billion for the first quarter, up 6.1% year over year. Net income grew by 21.5%, to $3.5 billion, although these bottom-line results are colored significantly with expenses and gains related to AT&T's recent spate of mergers and consolidation. Even factoring these out, though, AT&T reported double-digit adjusted net income and earnings-per-share growth.

As usual, much of the growth comes from wireless. AT&T signed up 1.3 million new subscribers this quarter, a number that will be tough for competitors Sprint Nextel (NYSE: S) and Verizon Wireless -- a joint venture of Verizon Communications (NYSE: VZ) and Vodafone -- to match. Data services such as text and multimedia messages now make up an amazing 21.5% of wireless revenue.

I see two major trends pushing the wireless-data wave along: broadband-equipped laptops and the Apple (Nasdaq: AAPL) iPhone. With corporate types and "prosumers" willing to pay a premium for mobile broadband connectivity, AT&T is capturing high-margin revenue as it rolls out this service across the U.S. And the game-changing iPhone is encouraging more people to browse the Web on a mobile device and buy audio and video media -- again, at a high margin.

Apple has also forced other device manufactures like Nokia (NYSE: NOK), Motorola (NYSE: MOT), and Palm (Nasdaq: PALM) to step up with competitive smartphones that enhance the Internet and media experience on mobile devices. Even though AT&T and the other carriers have been bemoaning the commoditization of voice services over the past several years, all are benefiting from the surge in data demand. And from how things look today, AT&T and friends are better off losing their voice.

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