AT&T Earnings Ride on Apple Strength


How appropriate that AT&T's earnings were released the morning after Apple's big introduction of the iPad. AT&T is riding high thanks to its exclusive deal with Apple's popular iPhone.

The company's 25 percent earnings growth was helped dramatically by the addition of 2.7 million more wireless subscribers. Many of those subscribers were lured to AT&T not because of great coverage (complaints about its network quality are rampant) but because of that shiny Apple gadget.

Yesterday's news that Apple is making AT&T the 3-G provider for its new iPad should continue to bolster AT&T. It was quite a surprise that Apple went with AT&T instead of rival Verizon considering how broadly criticized Apple's iPhone service is. Apple even temporarily halted sales of its phones in crowded New York, where it can't always handle all the Internet traffic.

No doubt, AT&T needs to expand its mobile network — it plans to unveil faster network with "LTE" technology next year, which will cost well over $10 billion. Assuming its service steps up in face of expanding demand, AT&T should cash in on that new iPad plan, as owners of the new gadget fork over either $15 or $30 a month.

The company also benefited from some massive cost cutting — it eliminated thousands of jobs to compensate for declines of its old phone business. Sales in that wireline business dropped 5.3 percent. It's not just AT&T, which whole business is suffering: the number of local phone connections in consumer homes dropped 10.6 percent. Another factor putting pressure on the company — business spending on phones hasn't rebounded since the recession.


So what's next for AT&T?

Broadband and video, with its U-Verse TV service, should be at the core of the company's next leg of growth. This past quarter it grew both divisions, finishing the year with over 2 million U-Verse customers and 17.3 million broadband customers. So what happens when Apple's exclusive iPhone deal expires, which is expected to happen at the end of the year? Does AT&T's contract with the iPad indicate that it'll hold onto that relationship with Apple for longer?

Questions? Comments?