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Wall Street Journal, January 28, 2009 article


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JANUARY 28, 2009, 11:33 P.M. ET

AT&T, Verizon Make Different Calls
As Consumers Drop Landlines, AT&T Relies on iPhone for Growth While Verizon Pushes FiOS TV Service

As the recession speeds the decline of the traditional phone business, AT&T Inc. and Verizon Communications Inc. are pursuing different strategies as they try to outflank one another.

True to form, AT&T's wireless revenue rose, while its landline business continued to shrink.

[verizon phone] Getty Images

Verizon is pressing forward with an aggressive expansion of its FiOS TV and high-speed Internet services.


AT&T is staking its growth largely on the wireless market by aggressively marketing high-end devices such as the iPhone, while Verizon is pushing premium television services to homeowners.

AT&T has its own TV offering, but said Wednesday it plans to slow the roll out of its U-verse service as part of a broader move to slash capital spending by 10% to 15%. The move came as the company posted a 23% decline in fourth-quarter profit, weighed down by restructuring costs.

AT&T is increasingly relying on its wireless division, and particularly the success of the Apple Inc. iPhone, to carry it through tough times.

Verizon, while also counting on growth at Verizon Wireless, its joint venture with Vodafone Group PLC, is pressing forward with an aggressive expansion of its FiOS TV and high-speed Internet services. Verizon said it has no plans to slow its FiOS expansion this year, which ran ahead of schedule in 2008.

Verizon is pressing forward with an aggressive expansion of its FiOS TV and high-speed Internet services.

Industry observers say it is too early to tell which strategy will pay more dividends. While AT&T has taken a conservative tack, Verizon's FiOS gambit has always been more of a risk financially because it will take time to generate healthy margins on the video business. FiOS is expected to generate positive cash flow for the first time in 2009. But long term, Verizon's ability to offer TV as part of a bundle of TV, phone and Internet services may give it a leg up in the battle against cable providers for customers.

Verizon is "of the opinion it can't roll out FiOS fast enough," because one in five potential customers in the markets it covers sign up for the service, said Christopher King, a Stifel Nicolaus analyst. "I think it's a marked difference between the two companies."

AT&T's U-verse service added 264,000 customers in the fourth quarter, bringing its total subscribers to one million at year end. But it lags behind FiOS, which added 303,000 TV customers in the fourth quarter and ended 2008 with 1.9 million subscribers.

Craig Moffett, an analyst at Sanford C. Bernstein & Co., said AT&T has always taken a more cautious approach on its TV service. "You'll never get the kind of margins out of video that you're used to seeing in traditional telecom," Mr. Moffett said.

[disconnect phone lines of att and verizon]  

Unlike cellphones, where the two giants dominate the market and compete head-to-head, their nascent TV services target different cities where the incumbents are cable providers. U-verse mainly covers markets in the West, Southwest and Midwest, while FiOS mostly hits markets in the Northeast and Mid-Atlantic.

"I think it's prudent to be conservative in this particular environment," AT&T Chief Financial Officer Rick Lindner said on an investor conference call.

In the fourth quarter, the Dallas-based company posted net income of $2.4 billion, or 41 cents a share, down from $3.14 billion, or 51 cents a share, a year earlier. The results were weighed down by merger-related and work-force reduction costs. Revenue rose 2.4% to $31.1 billion.

Both AT&T and Verizon, which reported fourth-quarter sales rose 3.4% Tuesday, have seen a landline business that was already in decline deteriorate further amid the recession. Not only are consumers continuing to drop their home phones, but businesses are now cutting back because they have fewer employees after layoffs.

AT&T's fourth-quarter consumer wireline revenue fell 5.3% to $5.3 billion, as it lost one million consumer landline connections. Revenue from large business customers declined 3.7% to $4.5 billion in the fourth quarter.

"In terms of where we see the trough, it will depend how the economy reacts going forward," Mr. Lindner said. He said he expects similar wireline results through at least the first quarter of 2009.

AT&T is banking on wireless. The company added 2.1 million net new customers, including 1.3 million high-value post-pay customers, who pay monthly bills and generally sign two-year contracts. AT&T ended the year with 77 million customers; Verizon Wireless had 72.1 million. Its recent acquisition of Alltel brought its total to about 80 million.

Write to Amol Sharma at


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