AT&T first quarter revenue, profit slip

AT&T first-quarter revenue and net income slipped compared to the same period last year, it reported Thursday.

AT&T first-quarter revenue and net income slipped compared to the same period last year, the company reported Thursday.

Revenue in the quarter to March 31 fell to $7.99 billion, down from $8.99 billion a year earlier, while net income for the quarter fell to $304 million from $571 million in the same period last year. Operating income fell to $281 million from $1.17 billion a year earlier.

The main cause of the decline in revenue was a fall in long distance voice and data service revenue, the company said.

Earnings per diluted share dropped to $0.38, compared to $0.73 in the same quarter last year. A panel of 24 analysts polled by Thomson First Call had predicted earnings per share of $0.33.

Although revenues are falling, this will turn around as the company’s success in retaining and acquiring customers takes effect, Chairman and CEO David Dorman told journalists and analysts during a conference call. “But it will take time for these to translate into improved performance,” he said.

“The short-term performance of the telecommunications sector will continue to suffer due to oversupply,” he said.

AT&T’s business sector contributed $5.9 billion of the revenue, 9.1% down from a year earlier. AT&T blamed pricing pressure, competition and demand weakness in retail long-distance services for the business unit’s performance. Growth in IP & Enhanced services (IP&E) revenue, up 5.9% over the previous year, offset this decline, however. Advanced services such as Enhanced Virtual Private Network and IP-enabled frame relay contributed to this growth, it said.

“We continue to observe erratic pricing in the business sector,” Chief Financial Officer Thomas Horton said during the same conference call.

As customers terminated or reduced the size of outsourcing contracts, revenue from this area and from other professional services dropped 13.4% compared to the previous year, although professional services for government remained a strong area, the company said.

AT&T’s business unit made $470 million of capital expenditure during the quarter, it said. Much of this went into technologies to help the company improve the company’s cost structure, Dorman said.

“Others are spending not even a tenth of that,” he said, and are stopping the race and “harvesting” their investment, he said. AT&T will continue to invest rather than sticking with legacy infrastructure, he said.

Spending on lowering the cost of voice telephony is a sound investment because “I don’t think businesses are going to stop making calls,” Dorman said.

AT&T’s consumer unit brought in first-quarter revenue of $2.1 billion, down 16.2% on the previous year’s first quarter, AT&T said. This was mainly caused by a decline in long distance revenue, driven down by price competition, and customers switching to lower-cost calling plans or other means of communication such as wireless or VoIP, it said.

Revenue from bundled local and long distance services grew 52% over the first quarter last year, accounting for over 30% of AT&T’s consumer revenue. AT&T offers such bundled services in 46 states, and can include DSL service as part of the bundle in 25 states.

The local access market is important for AT&T because “Our ability to reduce one of our largest costs, access expenses, has been largely out of our control,” Dorman said. But while AT&T embraces regulatory moves to preserve competition in local markets, “We view negotiated agreements as more favorable than uncertain regulatory outcomes,” he said.

To compete with other VoIP companies, AT&T has introduced a residential VoIP service in New Jersey, Texas, California and New York, and plans to offer the service in 100 markets by year-end, the company said.

Dorman criticized uneven regulation of the VoIP market, and of telecommunications in general. The current regulatory patchwork, where different regulations apply to local and national carriers, to Internet service providers, and to VoIP operators “makes no sense at all,” he said. They should be replaced by a single set of rules, he said, singling out a recent Federal Communications Commission (FCC) ruling applying different rules to different kinds of VoIP service providers as particularly troublesome.