Wireless business boosts AT&T growth

The company reports dismal results for its core long-distance business, but declining revenue is countered by strong growth in its wireless phone business.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
Ma Bell envisions a telecommunications world without wires.

Although the giant reported dismal results for its core long-distance business, the weak numbers were countered by strong growth in its wireless phone business. For the quarter, wireless revenue increased 41 percent compared to year-ago levels.

It's a familiar picture in the communications industry, as rapid growth in wireless overwhelms stagnant or declining revenues in traditional voice markets. For example, local carrier Bell Atlantic yesterday said wireless revenue grew 26 percent last quarter, while its other businesses grew an average of 6.6 percent.

And this is just the beginning of an overall wireless boom, analysts say. While the market for cellular phones is starting to mature, the market for wireless data transmissions is just picking up.

"The wireless platform is going to be one of their biggest revenue (generators) in the future," said Elliot Hamilton, director of U.S. telecommunications consulting at the Strategis Group.

The numbers come as AT&T is preparing to split off its wireless business into a separate tracking stock, following the lead of Sprint's PCS wireless division. Both companies have seen surging growth in their mobile businesses in recent years, and want Wall Street to accurately reflect the value of their assets in their share prices.

The onset of 5 cent per minute and 7 cent per minute plans, along with new marketing pushes from newcomers like Qwest Communications International and America Online-branded long distance, contributed to an overall annual drop of 4 percent in AT&T's consumer revenue.

The company also posted anemic broadband and cable services revenue growth of just 7.9 percent, despite meeting growth targets for its broadband cable Internet and cable local phone trials, the company said. The company is focused on improving the balance sheet in the cable TV side of the business, while looking to the new high-speed Net and cable phone services to pick up soon, it said.

"Broadband data is rapidly becoming a significant market to us," chief executive Michael Armstrong said in a conference call with analysts this morning. "The market demand is very strong for these digital businesses."

But the stronger growth is still coming in AT&T's mobile phone business, where demand is beginning to replicate the stunning growth of wireless markets overseas.

AT&T added another 440,000 subscribers to its wireless list, bringing the total to 9.6 million by the end of the year.

The growth was in large part driven by a renewed advertising campaign, which the company had earlier muted after being unable to keep up with the demand on its networks, the company said.

Wireless revenue growth is expected to slow somewhat next year, as the market becomes more mature, according to John Zeglis, chief executive of AT&T's wireless division. The company predicts growth on the order of 25 percent to 30 percent in 2000, he noted.

But the next two years may prove to be just a breathing period before the real wireless growth sets in, analysts say. A new generation of technology is on the way that will provide Internet connections comparable to high-speed digital subscriber line (DSL) or cable Internet links, as well as helping to drive down the cost of ordinary wireless voice phone calls.

This will allow companies like AT&T Wireless or Sprint PCS to provide a vast new array of services now largely associated with personal computers, as well as to offer prices for mobile phone calls at rates close to 5 cents or 7 cents per minute, analysts say.

"I think you can still look at the wireless industry as being immature, if you look at all the new business segments they can attack in the future," Hamilton said. "I can easily see a doubling or tripling of revenues in the next couple of years."

AT&T is scheduled to hold a special shareholders meeting on March 14 to vote on issuing the tracking stock for its wireless properties. The initial public offering for the division will be held shortly afterwards.