U-Verse, Line Losses Dog AT&T


The spin might say AT&T did a good job of cutting costs this past quarter, but there’s no hiding the tough road ahead as Ma Bell remakes itself. Buried inside Thursday’s earnings call were hints of how hard that immediate task is, as AT&T continues to lose landlines at a fast clip while struggling to build out its IPTV infrastructure.

ATTOverall, analysts cheered AT&T’s numbers (a 17 percent increase in profit), with some pleasantly surprised at the company’s ability to cut costs. But there’s no shining up the fact that AT&T lost 227,000 phone lines during the quarter — that’s almost 2,500 disconnects a day!

And on the IPTV front, AT&T expects its slowed U-verse rollout to increase its drag on earnings, to somewhere between 9 and 11 cents per share in 2007, roughly a $600 million expense that is almost all customer-acquisition costs, according to one analyst who follows the company. The good news — the Cingular and BellSouth businesses are in top shape, and DSL subscriptions are also up — black ink that should help calm the rough waters in video and POTS.

The company’s big bet for the future, its LightSpeed fiber infrastructure and U-verse IPTV offering, remain mostly stalled from a revenue-generating front as AT&T struggles to roll the service out. On the conference call, CFO Rick Lindner declined to put a guesstimate on how many U-verse subscribers the company would sign up this year, a balk that might mean the company isn’t quite back on its original rollout schedule. “We want to get the product into markets and open up channels,” said Linder. “It’s premature to put [subscriber] numbers out there yet.”

(Which means it’s way way premature to think about revenues, right?)

Additionally, UBS analyst John Hodulik noted that AT&T’s predicted 9-to-11-cents per share drag that U-verse will slap on 2007 earnings — roughly $600 million, with the BellSouth shares counted in — is mostly customer acquisition cost, since equipment costs are largely capitalized, he said. Still, the drag is “lower than we thought,” so UBS, like other analysts, has a positive outlook on AT&T’s overall future, with a buy rating and a $40 target. AT&T closed Thursday at $36.79 per share, up 16 cents on the day.

AT&T CEO Ed Whitacre said the telecom colossus now expects to save $22 billion in costs related to its recently approved BellSouth merger, up from earlier estimates of $18 billion. Part of that savings will come out of equipment providers’ hide, as AT&T said it expects to realize $300 to $400 million per year in capex savings due to equipment consolidation.



I’m getting ready to switch back to Comcast from U-verse. Clearly, the product is not ready for prime time. Also, to the individual who was impressed by the bandwith when recording 4 programs at once, you should know that the programs weren’t being recorded locally. They simply spool the content at their data center and deliver is when you choose to view (as if it were an on-demand channel.)


We have had U-Verse for a couple weeks now and I find it comparable to cable, Dish or DirectTV. We have not experienced any outages, or serious dropouts. The audio and picture have been very good. Granted we do not have an HD set at this time, but we are viewing the standard signals on a 37 inch monitor which tends to show artifacts quite nicely. The quality of the picture far exceeds VHS and is on par or a little better than the signal from our Dish Satellite receiver. The audio is very good compared to cable or satellite and is on par with DVD. The picture is actually brighter than the Dish receiver which I am guessing now may be attributed to the video output circuits in the boxes. We have also taxed the system quite a bit pushing the limits as stated by recording 4 programs at once on the DVR even throwing in an HD stream to record to maximize the bandwidth usage with all four programs recording without problems. The technology is still young, especially in the consumer market though I have been working with similar technology in the corporate market for some years so it is not completely untested though on this scale this may indeed be a first. Looking forward to the forthcoming features and hope the service only improves form here.


By the way, every time I see that new logo, I pour some out for Saul Bass. AT&T committed a brutal murder of a brilliant design.


I have the U-verse service. My impression: it’s far from ready for prime time. When I signed up for the service, the agent’s computer crashed twice. I had to give all my information–everything from the beginning–three times. When they came to install the service, it took–get this–10 hours! And my apartment complex is supposedly already set for U-verse. At one time, there were four AT&T technicians huddled into my closet trying to work with the phone box. After the all-day install, my bill showed an installation charge of $220 (later reduced).

Now that the service is setup, it’s very flakey. HD channels are choppy. Standard channels have horrible audio. Some shows scheduled to record are never recorded. The box + dvr crash–a lot.

There is no way they are ready to expand U-verse into new markets. They need to take this short-term revenue hit and make the service work.

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