AT&T 2Q11 Conference Call Preview & Initial Read of Results

What We Expect to Hear on the Call Today

1- Update on the T-Mobile Merger

All analysts will be looking for some clues on the progress of the T-Mobile USA acquisition. In all likelihood, through the 2012 presidential elections period the government/regulators will take a mostly hands-off approach to the industry as the Obama administration attempts to position itself as more business-friendly.  We believe that the AT&T+T-Mobile deal will eventually get done (though with concessions and after heavy lifting).  

2- Performance Assessment Post Loss of iPhone Exclusivity

This is the first full quarter in which analysts will try to get a read of the iPhone post-paid net add impact – thus far, AT&T seems to have weathered the storm quite well, handling the Verizon iPhone launch fairly well in the first quarter of 2011, by adding 62k postpaid net adds versus various analysts forecasts which had called for a consensus figure closer to 50k. The chief contributor for this was AT&T’s $50 iPhone offer, a promotion which continued in Q2 and that drove upgrades from existing subscribers and boosted AT&T’s gross add share in the Q.

3- Overall Read of the Business

We will be looking for clues on improvement in fundamentals, premised upon factors such as:

• Handset subsidies peaking
• Improved pricing power
• IP cannibalization peaking
• CAPEX levels have already hit a top, and that might lead to improved FCF generation
• The potential of cloud computing, which can improve the wireline story (including OPEX savings and improved efficiencies)

Early Read of Results

Ahead of the call, AT&T has released a snapshot of its Q2 results this morning.

Highlights include:

• Sales rose 2.2 percent to $31.5 billion; Q2 net income fell 10%, but sales and subscriber trends improved as iPhone adds held steady from the first quarter
• A gain of 331,000 users on contracts beat an average estimate of 96,000 of six analysts that was compiled by Bloomberg
• Of AT&T’s iPhone activations, 24 percent were new subscribers, a sign that it was not only the promotion that delivered 3.6 million iPhone activations in the quarter, up from 3.2 million last year
• U-verse service, which offers packages of home-phone, TV and Internet service, added 202,000 video customers for a total of 3.4 million