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AT&T earnings dip 23.6 percent

Company saw strong growth in wireless revenue--especially for iPhone 3G subscriptions and text-messaging--during the fourth quarter, but rising costs hurt profitability.

AT&T, the nation's largest phone company, reported Wednesday that its earnings for the fourth quarter fell 23.6 percent year over year, amid a tough economic climate.

The company said it earned $2.4 billion, or 41 cents per share, during the fourth quarter, compared with $3.14 billion, or 51 cents per share, during the same period a year ago. Revenue increased 2.4 percent year over year to $31.1 billion, which was slightly short of analyst expectations of about $31.3 billion.

Even though AT&T saw strong growth in its wireless business and IP data business, it also spent more on operations. AT&T's adjusted operating expenses for the fourth quarter totaled $24.5 billion compared with $23.1 billion a year ago. Its adjusted operating income was $6.6 billion, versus $7.3 billion. And the company also saw its operating income margins fall to 21.1 percent compared with 24 percent.

AT&T announced in December plans to cut 12,000 workers, or about 4 percent of its workforce, in an effort to reduce costs.

"Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company," Randall Stephenson, AT&T's chief executive officer, said in a statement. "Looking ahead, while we are cautious about the economic environment, AT&T is well positioned with a strong balance sheet and premier operational assets, and I am very confident in our ability to execute."

The biggest growth engine for the company was once again its wireless business. Its total revenue for wireless grew 13.2 percent compared with the same quarter a year ago to $12.9 billion. Wireless service revenue, which excludes handset and accessory sales, grew 13.3 percent to $11.5 billion.

Much of this growth was driven by new customers. During the quarter, AT&T added 2.1 million new subscribers, including 1.9 million new iPhone users. AT&T now has a total of 77 million wireless subscribers, an increase of 7 million subscribers for the year.

The company increased its "postpaid" (as opposed to prepaid) customers by 13.9 percent versus the same quarter last year. And it reduced its churn rate to 1.6 percent, down from 1.7 percent for both the preceding quarter and the year-earlier fourth quarter.

1.9 million new iPhone 3G subscribers
But the real highlight of the quarter in wireless was the addition of the 1.9 million new Apple iPhone 3G subscribers. AT&T reported that about 40 percent of these customers were new to AT&T, proving that the iPhone has helped greatly in attracting new customers. Apple launched the iPhone 3G in July.

Over the past two quarters, AT&T says it has activated 4.3 million iPhones. The iPhone deal is proving to be lucrative as the company also reported that the average revenue per user for iPhones is 1.6 times higher than with other AT&T products. The churn rates are also significantly lower than the company's overall postpaid subscriber base, the company said.

While adding new iPhone customers in the long run is good for AT&T's business, in the short term it costs the company money because AT&T subsidizes each unit by hundreds of dollars. It recoups the cost of the phone in service fees over the two-year contract of the phone. AT&T is the exclusive U.S. carrier for the iPhone.

80 billion text messages
Overall, AT&T also saw strong growth in data revenue for wireless, which increased 51.2 percent compared with the fourth quarter of 2007.

AT&T wireless customers sent nearly 80 billion text messages in the fourth quarter, more than double what they sent during the same quarter a year earlier.

Internet access revenue and multimedia message volumes also continued their robust growth. Wireless data revenue grew 51.2 percent to $3.1 billion, year over year. AT&T noted that the fourth quarter marked the 12th consecutive quarter that wireless data revenue grew at a rate above 50 percent.

Data represented 26.6 percent of AT&T's fourth-quarter wireless service revenue, up from 19.9 percent in the year-earlier quarter.

More than 1 million U-Verse subscribers
AT&T also saw strong growth in its U-Verse broadband and TV service. AT&T added a total of 264,000 new TV subscribers in the fourth quarter, up from 232,000 added in the third quarter of 2008. The company now has more than 1 million subscribers for this service.

AT&T's U-Verse broadband service also helped push growth in the company's IP data services. In total, AT&T grew its consumer IP data revenue, which includes broadband and AT&T U-Verse services, by 21.4 percent.

AT&T executives are hosting a conference call at 7 a.m. PST to discuss results. Stay tuned for an updates.