‘You can’t win for losing’ may be good advice for AT&T (NYSE:T) executives following their recent earnings report. The telecom company posted a $6.68 billion loss for the fourth-quarter ended December 31st versus net income of $1.09 billion one year ago. The loss was largely the result of a one-time charge for the failure to complete the acquisition of rival T-Mobile due to regulatory problems and marked the first quarterly loss for the company since 2008. Revenue for the fourth-quarter climbed to $32.5 billion, up 4 percent from one year ago. The fourth-quarter saw AT&T continue its dominance in Apple (NASDAQ:AAPL) iPhone activations which reached a record 7.6 million or nearly 20 percent of all iPhones bought in the fourth-quarter. The iPhone accounted for 80 percent of all smartphone activations by AT&T and crushed competitor Verizon’s (NYSE:VZ) iPhone activations for the quarter which totaled just 4.3 million. The New York Times quoted Randall Stephenson CEO ‘this was a blowout quarter for smartphone sales.’
Competition Is Good, But Not Great
There is no love lost between AT&T and Verizon as the two fight for new subscribers at the high-end of the smartphone market. AT&T lost its exclusive right to provide service to iPhone users last year when Apple opened the market to Verizon and Sprint Nextel (NYSE:S), thus creating a more competitive market for iPhone owners. The majority of new activations have been with AT&T and Verizon as Sprint Nextel struggles with concerns over service quality and reliability over their network. The new activations have been a boon for AT&T, but some promotions for the pricey iPhone have resulted in the company having to subsidize the purchase price, which is sometimes as low as $1 with some multi-year plans. Still, the company reported that 76 percent of revenue growth was from the wireless, wireline data and services business lines.
A Big Market. A Bigger Battle For Marketshare
The initial revenue boost from the iPhone is beginning to give way to stiffer competition from not only Verizon and Sprint, but from handset makers like Nokia (NYSE:NOK). In an effort to hedge the risk of competing handsets from various providers, AT&T has partnered with Microsoft (NASDAQ:MSFT) to offer two new Windows-based smartphones in 2012 to take on the Apple iPhone. The hope is that Microsoft will encourage third party developers to create more applications for Windows-based smartphones and this will drive more sales and attract more buyers to AT&T. The company has been very successful at upselling current subscribers to the iPhone and they expect to maintain high levels of retention in the year ahead.
What To Expect in 2012
A key metric in measuring revenue is average monthly revenue per wireless subscriber. In the fourth-quarter it grew 1.4 percent to $63.76 per customer. The goal is to grow it by 2 percent or more in 2012. While 2 percent does not sound like a lot of money, AT&T has found that by managing their business at the subscriber-level they have been able to improve profitability and contain costs based upon the services that customers pay for and actually utilize. As more phone plans are created to meet the changing needs of consumers, the company finds that it has an opportunity to generate revenue from customers willing to pay for features or services that do not add material incremental cost to the bottomline. The coming year will also see a new share buyback plan with the company spending up to $9 billion to purchase approximately 5 percent of the shares outstanding. The year ahead looks to be another round of preserving market share and reducing costs as the wireless industry continues to mature and evolve. Although, new acquisitions may remain on hold following the failure of the AT&T/T-Mobile hook-up.