10-QPeriod: Q2 FY2006

AT&T INC. Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 4, 2006For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported strong financial performance for the second quarter and the first six months of 2006, largely driven by the inclusion of AT&T Corp. (ATTC) operations following its acquisition in November 2005. Total operating revenues surged by 53.2% in the quarter and 53.8% for the six-month period compared to the prior year, reflecting the consolidated results of the larger entity. Net income saw a significant increase of 80.8% for the quarter and 72.6% for the six months, demonstrating effective integration and synergy realization from the ATTC acquisition. The company highlighted substantial growth in its data services, which now represent a significant portion of overall revenue. While the traditional voice segment faces ongoing pressure from declining access lines and competition, the company is actively investing in and expanding its IP-based services, including the U-verse initiative, to drive future growth. The pending acquisition of BellSouth, expected to close in the fall of 2006, is poised to further consolidate AT&T's market position and unlock additional synergies.

Key Highlights

  • 1Total operating revenues increased significantly by 53.2% year-over-year for the second quarter and 53.8% for the first six months of 2006, largely due to the AT&T Corp. acquisition.
  • 2Net income grew substantially by 80.8% in Q2 2006 and 72.6% for the first six months of 2006 compared to the prior year.
  • 3The company is experiencing strong growth in data revenues, which accounted for approximately 28% of operating revenues in Q2 2006, up from 24% in Q2 2005.
  • 4Despite a decline in traditional voice revenues due to falling access lines, AT&T is strategically investing in its U-verse initiative (Project Lightspeed) to deliver next-generation IP video, broadband, and VoIP services.
  • 5The pending acquisition of BellSouth, valued at approximately $65 billion, is progressing and expected to close in the fall of 2006, aiming to create significant cost savings and operational synergies.
  • 6Cingular Wireless, AT&T's joint venture, added a significant number of customers, with net subscriber additions increasing 57.4% in Q2 2006, and saw a notable improvement in its operating income margin.
  • 7The company repurchased 5.7 million shares for $148 million in the second quarter, underscoring its commitment to returning value to shareholders.

Frequently Asked Questions

The primary driver behind the substantial increase in revenues and net income is the consolidation of AT&T Corp. (ATTC) operations, following AT&T's acquisition of ATTC in November 2005. This acquisition significantly expanded the company's scale and service offerings, leading to higher reported financial results.

AT&T is addressing the decline in traditional voice services by focusing on growth areas like data services and investing heavily in new technologies. The company is actively developing and deploying its U-verse initiative, which offers integrated digital television, high-speed broadband, and VoIP services. This strategy aims to offset revenue declines in voice by capturing opportunities in next-generation communications.

The acquisition of BellSouth, valued at approximately $65 billion, has received approval from both companies' boards and stockholders and is awaiting regulatory review. AT&T expects the transaction to close in the fall of 2006. Upon completion, it is anticipated to further consolidate the company's market position in wireless (through Cingular) and wireline services, leading to significant cost savings, operational efficiencies, and accelerated deployment of IP-based services.

Cingular Wireless, AT&T's 60% owned wireless joint venture, is showing strong customer growth, with net subscriber additions increasing significantly. Its operating income margin has also improved. Cingular is a critical component of AT&T's overall strategy, providing a substantial revenue stream and a platform for future growth in the wireless market. AT&T equity in Cingular's net income has also seen a significant increase.