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January 27, 2009

Negative Reaction to Verizon 4Q Raises Stakes for AT&T

AT&T is projected to report EPS of 65 cents on revenues of $31.35 billion. A negative reaction to Verizon's report and some negatives that cropped up took T shares down hard ahead of the report. This may take out risk as the bar is lowered but it also raises the stakes for the "resilience" theme as if T has a slight miss and negative stock price action, investors may decide to that telecom is no longer the place to hide.

Even before VZ reported, investors were going to be focused on slowing wireless growth and negative revenue in Enterprise. VZ's subscriber growth miss and higher churn and larger than expected decline in Enterprise revenue raise the stakes. VZ also announce higher pension expense despite using smoothing while T will does not smooth and may take a larger than expected hit.

On the positive side, VZ had good wireless data growth, solid overall wireless ARPU, and better than expected growth in its advanced broadband and TV services. T should benefit from all these factors especially with iPhone adding millions of subs over the past two quarters. One interesting thing to watch will be whether VZ's sub shortfall will be repeated or T did better in market share than expected.

Other key measures to watch are access lines (down sharply but possibly not getting worse), total broadband adds (213,000 estimated), U-Verse TV subs adds (250,000 estimated), and U-Verse Internet sub adds (225,000 estimated). Wireless churn is supposed to be flat at 1.6% with ARPU trending slightly lower near $50.24.

Wireline revenue and EBITDA is projected at $31.4 billion and $10.5 billion. The Wireline segment should be around $17.6 billion in revenues and $5.85 billion in EBITDA. Wireless consensus calls for $13 billion in revenue and 3.9 billion in EBITDA.

Overall, VZ's report has increased worries that wireless growth will slow more than expected in 2009. T will either confirm that as fact or not. The question is whether the bloom is off for the major telcos. VZ suggests investors are saying yes even if results are decent. T will need to do better to reverse the wavering sentiment.

Posted by Steve Birenberg at January 27, 2009 09:34 AM in Telephone