* $2.08 diluted EPS compared to $0.54 diluted EPS in the third quarter of 2009? EPS of $0.55, excluding $1.53 in one-time gains from a previously disclosed tax settlement and the sale of Sterling Commerce
* Consolidated revenues from continuing operations of $31.6 billion in the third quarter, up $847 million, or 2.8 percent, versus the year-earlier period
* 11.4 percent growth in wireless revenues, with a 10.5 percent increase in wireless service revenues
* Record wireless volumes, with more than 8 million postpaid integrated device sales
* 2.6 million increase in total wireless subscribers — the highest third-quarter net gain in the company's history — to reach 92.8 million subscribers in service
* Postpaid subscriber ARPU (average monthly revenues per subscriber) up 2.0 percent to $62.84, the seventh consecutive quarter with a year-over-year increase
* 1.32 percent total wireless churn, best-ever third-quarter
* 30.5 percent growth in wireless data revenues, up $1.1 billion versus the year-earlier quarter
* First year-over-year growth in wireline consumer revenues in more than two years
* 30.0 percent growth in consumer IP data revenues, driven by AT&T U-verse® expansion
* 236,000 net gain in AT&T U-verse TV subscribers to reach 2.7 million in service, with continued high broadband and voice attach rates
* 148,000 net gain in wireline broadband connections
* 15.4 percent growth in revenues from strategic business services such as Ethernet, Virtual Private Networks (VPNs), hosting and application services
OIBDA and Free Cash Flow Discussions
AT&T Inc. reported third-quarter results highlighted by growth in consolidated revenues, strong sales of integrated devices, gains in IP-based and strategic business services, and disciplined execution on cost initiatives.
“This was a terrific mobile broadband quarter,” said Randall Stephenson, AT&T chairman and chief executive officer. “A record number of customers signed new two-year contracts and integrated device sales outpaced our previous best by a wide margin. Wireless revenues continue to grow, churn is reaching record low levels, and postpaid ARPU increased for the seventh straight quarter.
“These trends add to our momentum and confidence,” Stephenson said. “Mobile broadband is the industry’s most powerful growth driver, and demand is in its early stages in both the consumer and business segments. AT&T is well positioned for the opportunities ahead.”
Third-Quarter Financial Results
(On August 27, 2010, AT&T completed its sale of Sterling Commerce to IBM for approximately $1.4 billion in cash. Third-quarter comparisons are based on results from continuing operations, which exclude results from Sterling Commerce in all periods.)
For the quarter ended September 30, 2010, AT&T's consolidated revenues totaled $31.6 billion, up $847 million, or 2.8 percent, versus the year-earlier quarter, marking the company's third consecutive quarter with a year-over-year revenue increase. Versus the second quarter of this year, consolidated revenues were up $773 million, or 2.5 percent.
Compared with results for the third quarter of 2009, operating expenses were $26.1 billion versus $25.4 billion; operating income was $5.5 billion, up from $5.4 billion; and AT&T's operating income margin was stable at 17.3 percent, compared to 17.5 percent.
Third-quarter 2010 net income attributable to AT&T totaled $12.3 billion, or $2.08 per diluted share, including $1.53 in one-time gains from a previously disclosed tax settlement and the sale of Sterling Commerce. These results compare with reported net income attributable to AT&T of $3.2 billion, or $0.54 per diluted share, in the third quarter of 2009. Excluding one-time gains, earnings grew 3.8 percent to $0.55 per diluted share, compared to $0.53 per diluted share in the year-earlier quarter.
Third-quarter 2010 cash from operating activities totaled $9.5 billion; capital expenditures totaled $5.5 billion, including a nearly 64 percent increase in wireless-related capital investment versus the year-earlier quarter, as AT&T aggressively deploys next-generation wireless broadband networks. Free cash flow — cash from operating activities minus capital expenditures — totaled $4.0 billion.
Compared with results for the first three quarters of 2009, year to date through the third quarter, cash from operating activities totaled $25.4 billion versus $25.4 billion; capital expenditures totaled $13.7 billion versus $11.6 billion; and free cash flow totaled $11.6 billion versus $13.9 billion.
Wireless Operational Highlights
Led by a record quarter of integrated device sales, AT&T delivered solid third-quarter growth in its wireless business, including double-digit wireless revenue gains. Highlights included:
Best-Ever Third-Quarter Subscriber Gain. AT&T posted a net gain in total wireless subscribers of 2.6 million, to reach 92.8 million in service. Third-quarter net add growth reflects rapid adoption of smartphones, increases in prepaid subscribers and growth in a host of connected devices such as eReaders, security systems, fleet management and global positioning systems in both the business and consumer markets. Retail net adds for the quarter include postpaid net adds of 745,000 and prepaid net adds of 321,000. Connected device net adds were 1.2 million, and reseller net adds were 406,000.
Total Churn at Record Third-Quarter Level. Postpaid churn was 1.14 percent — matching the third-quarter record set in 2009 — and total churn reached a best-ever third-quarter level of 1.32 percent versus 1.42 percent in the third quarter of 2009.
Record Integrated Device Sales. More than 8 million postpaid integrated devices were activated in the third quarter, the most quarterly activations ever. More than 80 percent of postpaid sales were integrated devices. (Integrated devices are handsets with QWERTY or virtual keyboards in addition to voice functionality and are a key driver of wireless data usage.)
At the end of the quarter, 57.3 percent of AT&T's 67.7 million postpaid subscribers had integrated devices, up from 42.0 percent a year earlier. The average ARPU for integrated devices on AT&T's network is 1.7 times that of the company's non-integrated device base. More than 80 percent of integrated device subscribers are on FamilyTalk and/or business discount plans. Churn levels for these plans continue to run below the company's postpaid base.
AT&T’s third-quarter integrated device growth included 5.2 million iPhone activations, the most iPhone activations ever in a quarter. This is 62 percent more than the previous quarterly record of 3.2 million activated in the second quarter of 2010. Approximately 24 percent of those activations were for customers who were new to AT&T.
Data Revenue Growth of 30.5 Percent. Wireless data revenues — from messaging, Internet access, access to applications and related services — increased $1.1 billion, or 30.5 percent, from the year-earlier quarter to $4.8 billion. AT&T wireless subscribers on data plans increased by 21.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased about 34 percent to 161 billion and multimedia messages more than doubled to 2.8 billion.
Solid Postpaid ARPU Growth. Driven by strong data growth, postpaid subscriber ARPU increased 2.0 percent versus the year-earlier quarter to $62.84. This marked the seventh consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $22.02, up 19.5 percent versus the year-earlier quarter, and total postpaid subscriber revenues continued recent trends, with double-digit growth, reflecting increases in both voice and data.
Double-Digit Wireless Revenue Growth. Wireless service revenues increased 10.5 percent to $13.7 billion in the third quarter. Total wireless revenues, which include equipment sales, were up 11.4 percent year over year to $15.2 billion and increased 6.6 percent from the second quarter of 2010.
Wireless Margins. Wireless margins were impacted by increased operating costs associated with the company’s record quarter for integrated device activations. Absent the costs associated with these additional activations, service margins would have been similar to the prior quarter of this year. Operational execution and further growth in the company’s high-quality integrated device subscribers helped partially offset these costs. AT&T’s wireless operating income margin was 23.1 percent versus 25.6 percent in the year-earlier quarter, and AT&T’s wireless OIBDA service margin was 37.6 percent, compared to 40.3 percent in the third quarter of 2009 (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues). Third-quarter wireless operating expenses totaled $11.7 billion, up 15.2 percent versus the year-earlier quarter, and wireless operating income was $3.5 billion, up 0.2 percent year over year.