[AT&T's third quarter results show 2.4 million iPhone activations in the quarter - 40 percent to new wireless AT&T customers.]

Dallas -- AT&T Inc. today reported third-quarter results that are highlighted by strong wireless gains and stable trends in business services, including continued double-digit IP data growth and a major turnaround in wholesale revenue growth.

Wireless growth was driven by a significant step up in retail postpaid subscriber additions, continued rapid adoption of wireless data services and robust demand for integrated devices, led by the Apple iPhone 3G. Activations of the iPhone 3G — which was launched in the United States as an AT&T exclusive on July 11 — totaled 2.4 million in the quarter, approximately 40 percent of them to new wireless AT&T customers.

“I am particularly pleased with the customer response to the iPhone 3G,” said Randall Stephenson, AT&T chairman and chief executive officer. “The new customers we’re winning are high-value, with attractive revenue and churn profiles. We’re expanding the market, as users adopt more data and media-rich services and access a wide array of applications. These achievements are positive for the future of our business.

“Across our operations, AT&T continues to execute and deliver solid results. In wireless, we posted a record postpaid subscriber gain. Trends in business services continue to be stable, with a major turnaround in wholesale revenue growth. AT&T U-verse video gains continue to accelerate, helping transform our consumer business.

“There are a number of things that set AT&T apart. Our company has premier assets, a sound balance sheet, solid cash flow and an excellent record of returning value to shareowners. These fundamentals, combined with an intense focus on execution, provide a solid foundation for AT&T’s future.”

Reported Results

For the quarter ended Sept. 30, 2008, AT&T’s consolidated revenues totaled $31.3 billion, up 4.0 percent versus reported results in the year-earlier quarter and up 3.3 percent compared with third-quarter 2007 pro forma revenues, which exclude merger-related accounting impacts on directory revenues.

Consolidated revenue growth was driven by 15.4 percent growth in wireless revenues and a 16.2 percent increase in wireline IP data revenues, which includes AT&T U-verse services and business offerings such as VPNs, managed Internet services and hosting. Gains in these areas more than offset pressures in the macro-environment and a decline in wireline consumer voice, which was consistent with trends in recent quarters.

Compared with results for the year-earlier quarter, AT&T’s reported operating expenses for the third quarter of 2008 were $25.7 billion versus $24.8 billion; reported operating income was $5.6 billion, up from $5.3 billion; and AT&T’s reported operating income margin was 17.9 percent, up from 17.6 percent.

AT&T’s reported third-quarter 2008 net income totaled $3.2 billion, up from $3.1 billion in the year-earlier quarter, and reported earnings per diluted share totaled $0.55, up from $0.50 in the third quarter of 2007.

Adjusted Results

AT&T’s adjusted results for the third quarter of 2008 exclude noncash merger-related amortization expenses. For the third quarter of 2007, adjusted results excluded merger integration costs, merger-related amortization expenses and a merger-related directory accounting effect.

Compared with results for the year-earlier quarter, AT&T’s adjusted operating expenses for the third quarter of 2008 totaled $24.6 billion versus $23.1 billion; adjusted operating income was $6.7 billion, compared with $7.2 billion; and AT&T’s adjusted operating income margin was 21.4 percent versus 23.7 percent. AT&T’s adjusted third-quarter 2008 net income totaled $3.9 billion versus $4.3 billion in the year-earlier quarter, and adjusted earnings per diluted share totaled $0.67, compared with $0.71 in the third quarter of 2007.

iPhone 3G Impacts and Hurricane-Related Expenses

AT&T’s third-quarter 2008 reported and adjusted margins and earnings reflect revenue growth and continued progress with previously outlined cost initiatives, offset by hurricane-related expenses and effects on wireless results from the iPhone 3G. Impacts from the company’s iPhone 3G initiative reduced pretax third-quarter earnings by approximately $900 million or $0.10 per share, and costs related to hurricanes reduced pretax earnings by approximately $145 million or $0.02 per share.

Based on third-quarter customer response, AT&T is optimistic regarding continued strong iPhone 3G activations and is confident in the long-term value created by this investment in acquiring high-value, data-centric wireless subscribers. As a result, AT&T expects its dilution associated with the iPhone 3G will run above its previous expectation, and AT&T now expects, depending on volumes, its full-year 2008 wireless service OIBDA margin to be better than 37 percent versus its previous outlook of 39 percent to 40 percent. AT&T expects its full-year adjusted consolidated operating income margin to be approximately 23 percent versus its previous outlook of approximately 24 percent.

Cash From Operations

AT&T’s cash from operating activities for the third quarter of 2008 totaled $9.3 billion, capital expenditures totaled $5.3 billion and free cash flow (cash from operations minus capital expenditures) totaled $4.0 billion. Through the first three quarters of 2008, cash from operating activities totaled $22.8 billion, capital expenditures totaled $14.8 billion and free cash flow totaled $7.9 billion. AT&T continues to expect full-year 2008 capital expenditures in the mid-teens as a percentage of total revenues and expects full-year 2008 free cash flow of approximately $14 billion.

Through the first three quarters of 2008, dividends paid totaled $7.2 billion, shares repurchased totaled 164.2 million for $6.1 billion and AT&T ended the third quarter with 5.9 billion shares outstanding.

Wireless Operational Highlights

AT&T delivered strong wireless growth in the third quarter, powered by a significant step up in retail postpaid subscriber gains, robust iPhone 3G activations and continued rapid growth in advanced data services. Highlights include the following:

Strongest Postpaid Net Add Quarter in Company's History. In the third quarter, AT&T posted the largest postpaid net subscriber gain for any quarter in its history. Retail postpaid net subscriber additions of 1.7 million were up nearly 40 percent versus results in the year-earlier third quarter and accounted for more than 85 percent of AT&T's 2.0 million total wireless net adds. Total monthly subscriber churn in the third quarter was 1.7 percent, flat with results for the year-earlier quarter, and postpaid churn was 1.2 percent, down from 1.3 percent in the third quarter of 2007.

2.4 Million Apple iPhone 3G Activations. Postpaid subscriber growth was boosted by the dramatic market success of the iPhone 3G. Third-quarter activations of the iPhone 3G totaled 2.4 million, approximately 40 percent to customers who were new to AT&T. AT&T's iPhone exclusive has delivered high-value subscribers with ARPU (average monthly revenues per subscriber) approximately 1.6 times higher and churn rates significantly lower than the company's overall postpaid subscriber base. The iPhone and other integrated devices are key to AT&T's success in expanding flow share of high-value subscribers. During the third quarter, more than two-thirds of the company's postpaid net adds came from customers choosing an integrated device, and 22.0 percent of AT&T's postpaid wireless subscribers now have an integrated device, up from 10.5 percent one year earlier.

50.5 Percent Wireless Data Revenue Growth. AT&T's wireless data revenues grew 50.5 percent versus the year-earlier quarter to $2.7 billion, reflecting strong increases in areas such as Internet access, messaging, e-mail and related services. Wireless Internet access revenues more than doubled versus results for the year-earlier quarter, and multimedia message volumes were also more than double third-quarter 2007 levels.

15.4 Percent Total Wireless Revenue Growth. Driven by subscriber gains and data growth, AT&T's total wireless revenues increased 15.4 percent to $12.6 billion, and wireless service revenues, which exclude handset and accessory sales, grew 14.3 percent to $11.3 billion. Retail postpaid subscriber ARPU was $58.99, up 2.6 percent versus the year-earlier third quarter.

Wireless Margins. On a reported basis, third-quarter wireless operating expenses totaled $10.2 billion, operating income was $2.4 billion and AT&T's wireless operating income margin was 18.9 percent versus 18.0 percent in the year-earlier third quarter. On an adjusted basis, third-quarter wireless operating expenses totaled $9.7 billion, operating income was $2.9 billion and AT&T's wireless operating income margin was 22.8 percent versus 26.4 percent in the year-earlier third quarter. AT&T's third-quarter wireless OIBDA service margin was 33.5 percent versus an unadjusted 37.3 percent and an adjusted 39.1 percent in the year-earlier quarter. In addition to operational improvements, year-over-year margin comparisons reflect approximately $900 million of pressure associated with the iPhone 3G and approximately $55 million of expenses due to hurricanes. Without the iPhone and hurricane impacts, AT&T's third-quarter wireless OIBDA service margin would have been approximately 42 percent. (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

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