Broadband Cable Association of Pennsylvania

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January 27, 2012

Breakups are tough. Just ask AT&T. On Thursday the company reported a substantial $6.7 billion loss for the fourth quarter, largely stemming from the breakup fees incurred as a result of its failed acquisition of T-Mobile USA. During the same period a year earlier, the company reported a profit of $1.09 billion, or 18 cents a share. After discounting charges from the $4 billion breakup fee, AT&T's profit was 42 cents a share, down from 55 cents a year earlier; analysts had expected 43 cents.

But the company was able to ride a wave of momentum from record iPhone sales and an influx of new subscribers, which nudged revenue up 4 percent during the quarter, to $32.5 billion from $31.4 billion a year ago. Analysts expected the company to report $31.95 billion in revenue. Consumers showed up in droves to buy the newest version of the iPhone, the 4S, and an older model that AT&T offered to new customers free with a two-year contract. The company sold 7.6 million iPhones in the quarter, beating previous sales records. In all, AT&T sold 9.4 million smartphones.

AT&T surpassed the figures reported by Verizon, the country's largest phone company, which said on Wednesday that it had sold 4.2 million iPhones and 7.7 million smartphones during the same period. Randall L. Stephenson, chairman and chief executive of AT&T, said in a conference call with analysts and investors, that the strong sales were the result of a "blowout holiday season." He also said that the company was keeping rivals on their toes. "In a year when competitors began selling the iPhone, we outsold them in every single quarter," he said.

Verizon added more new contract customers than AT&T, however, which added 717,000 postpaid wireless subscribers during the quarter, its largest increase in five quarters. AT&T added a net total of 2.5 million wireless subscribers, which lifted the company's base to 103.2 million wireless customers. Verizon added 1.2 million, raising its total subscriber base to 108.7 million. Analysts said AT&T's expansion came at a high cost. The company's margins and earnings declined considerably as the company stretched to cover large subsidies on smartphones, which are necessary to lower the cost of the devices enough to convince customers to buy them with a contract. "Here we are at the peak of the smartphone cycle, and it's not translating for companies," said Craig Moffett, an analyst who covers the wireless industry for Sanford C. Bernstein.

Mr. Moffett called AT&T's margins "sorely depressed." During the fourth quarter, they slid to 28.7 percent, down from 37.6 percent in the same quarter a year earlier. In the 2010 quarter, Mr. Moffett noted, AT&T's wireless revenues grew by 6.9 percent. This time they only rose 4 percent. "The original thesis was that AT&T would live through some subsidy pressures but eventually see dramatic growth in revenue," he said. "But we are three and a half years into the iPhone, and we're still waiting to see those results." Mr. Stephenson acknowledged the dip in margins but said that since smartphone customers, in particular iPhone customers, tended to generate more revenue on average than nonsmartphone customers, he expected to "see some lift going into next year."

Executives at AT&T said that so far, 22 million customers had signed up for the tiered data plans, with the majority choosing the higher-priced plans. "I am absolutely convinced that the smartphone is a platform," Mr. Stephenson said. "The customer that you hold with a smartphone, you will also sell a tablet, a connected device, a home monitoring service. I really believe it's become a platform in terms of further penetration of mobile data." That transition is crucial as AT&T, along with the other phone companies, continues to offset the decline of its legacy businesses, including landlines. Already the majority of the company's business is heavily reliant on newer services and technologies. AT&T said that 76 percent of its overall revenue increase stemmed from the company's growth in wireless, wireline data and services. Investors seemed disappointed by the results, with shares slipping 2.52 percent to $29.45. New York Times; AT&T slams the FCC in the Wall Street Journal

In its earnings release Wednesday, Netflix highlighted its fight to "modernize and simplify" the Video Privacy Protection Act to allow the company to integrate its services with Facebook in the United States. Netflix introduced an app on Facebook that will show a users' friends what movies or television shows they are watching, but this integration has been blocked in the United States for fear it will run afoul of a 1988 law that prohibits video rental stores from sharing customer rental records.

The company threw its support behind an amendment to the law, which would let video service providers obtain "informed, written consent" and obtain that consent over the Internet. That amendment passed the House early last month. Critics of the measure, including Electronic Privacy Information Center executive director Marc Rotenberg, said that amending the bill would undercut the law's intention to ensure that people are given the chance to provide meaningful consent to before sharing their video histories. "Such blanket consent provisions transfer control from the individual user to the company in possession of the data and diminish the control that Netflix customers would have in the use and disclosure of their personal information," Rotenberg wrote in a December letter to Rep. Mel Watt (D-N.C.) urging the House not to pass its amendment.

As focus moves to Senate debate over the amendment, Netflix general counsel David Hyman has been tapped to testify at next week's Senate privacy subcommittee hearing on the act, according to a list released by the office of Sen. Al Franken (D-Minn.) on Wednesday. The panel has also invited Rotenberg and data privacy law expert William McGeveran to testify at the Jan. 31 hearing. Washington Post

"Holy cow." That was the reaction from good-government crusader Tim Potts, co-founder of the grassroots reform group Democracy Rising Pa, to news late yesterday that the state Supreme Court trashed a gerrymandered plan to redraw the lines for state House and Senate seats. It was my reaction too. Potts is also quoted, in an Inky story on the stunning move, saying, "The forces of truth and justice have another opportunity to prevail." In Pennsylvania?

Maybe so. By a one-vote margin, the high court, and specifically former Philly Republican pol/now Supreme Court Chief Justice Ron Castille, smacked down the state's GOP leadership in ruling unconstitutional its partisan plan designed to maintain its legislative majorities for the next decade.

This isn't supposed happed in the Land of Low Expectations. Routinely, the high court, every 10 years, endorses or looks away from partisan redistricting, regardless of which party is carving up the state to its own advantage. Not this time. Even though the other six justices voted their partisan backgrounds, Castille broke the mold.

"The Pennsylvania Supreme Court acted with respect for the Constitution, communities across our commonwealth, and the voters," said Democratic Senate Leader Jay Costa in a statement released after the ruling. Costa is right. And this, my friends, represents a significant departure from the usual politics of party-first. It offers at least some momentary hope that some fairness could trump the political thugs that usually shape our state.

It is as surprising as the House taking up legislation to reduce its own size, as it did earlier this week. Two positive steps in the span of a couple days might represent an inching toward change. While the House debate and an actual vote is yet to come on the reduction plan and a final resolution of redistricting - whether to use existing lines for this year's elections or whether legislative leaders quickly submit a new, more acceptable plan - remain in the future, there is today a glimmer of hope, and one win for the good guys. philly.com

"State GOP Chairman Rob Gleason wants to suppress the will of Republican voters by endorsing a candidate before the primary." - Former state Rep. Sam Rohrer, who wants Republican leaders who gather in Hershey tomorrow to stay neutral in the primary election for the U.S. Senate.

"I think Sam would probably accept the endorsement if he thought he was going to get it." - State Republican Chairman Rob Gleason, after Rohrer used the statement above to launch an online petition drive this week. Philadelphia Daily News

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