AT&T posts massive quaterly loss

AT&T Inc posted a $6.7 billion quarterly loss due to a hefty break-up fee for its failed T-Mobile USA merger and other charges on top of costly subsidies for smartphones such as Apple Inc's popular iPhone. While the No 2 US wireless provider beat analysts' expectations for subscriber additions, the growth came at a massive cost as its wireless service margins plummeted.
It also took a big non-cash pension-related charge on top of the $4 billion break-up package. While advanced devices like iPhones can help subscriber numbers and revenue, they also shrink earnings as operators like AT&T and its bigger rival Verizon Wireless heavily subsidise the devices to attract customers to two-year contracts.
AT&T's wireless service margin fell to 28.7 percent, based on earnings before interest, tax, depreciation and amortisation, from 43.7 percent in the third quarter and 37.6 percent a year earlier, missing already low analyst expectations.
"If there's any reason to be upset, it certainly is the margins," said Stifel Nicolaus analyst Chris King, who had expected a margin of 32 percent. However, he noted that strong smartphone sales should help AT&T in the long run. Its shares were off 2.1 percent after the news. To help stem the decline, AT&T said it would begin "in short order" to buy back shares under its existing 300 million share buyback plan.
The No 2 US mobile provider said it had added 717,000 subscribers in the quarter, beating the average expectation for 570,000 from seven analysts. AT&T forecast earnings growth in the mid-single-digit percentage range or better for 2012 and said it may be able to accelerate its earnings growth rate after 2012.
It forecast growth of about 2 percent for wireless average monthly revenue per user in 2012 and promised overall revenue growth without giving a specific target. Along with pushing advanced phones, operators are spending billions of dollars on upgrading their networks. Like AT&T and Verizon Wireless, smaller rival Sprint Nextel is also upgrading its network for advanced services this year.
On top of this, analysts see T-Mobile USA as a big competitive threat as it will be desperate to attract new subscribers growth since its AT&T deal failed. AT&T posted a fourth-quarter loss of $6.68 billion, or $1.12 per share, compared with a year-earlier profit of $1.09 billion, or 18 cents per share.