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January 25, 2007 2:09 pm

DSL and Cingular lift AT&T profits

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Cost savings coupled with strong growth in its DSL and Cingular wireless operations enabled AT&T, the largest US telecoms group, to report on Thursday a 17 per cent increase in fourth-quarter profits.

Net income increased to $1.94bn, or 50 cents a share, from $1.66bn, or 46 cents, a year earlier on revenues that grew by 23 per cent to $15.9bn. Excluding some costs tied to acquisitions, profit was 61 cents. That was slightly ahead of the consensus of analysts’ estimates of 60 cents, as compiled by Reuters.

The San Antonio-based company, which changed its name from SBC Communications after buying AT&T in November 2005, benefited from job cuts related savings following the AT&T acquisition and raised its estimate of the savings it anticipates achieving following the $86bn purchase of BellSouth at the end of December.

Ed Whitacre, AT&T’s chief executive, raised his forecast for cost savings tied to the BellSouth merger to about $22bn, up from $18bn previously. Last year the group shed about 26,000 jobs after buying AT&T.

As part of the integration and cost reduction process, AT&T is rebranding the Cingular Wireless unit, which reported strong fourth quarter growth on Wednesday, to the AT&T name.

That process may take a year and is part of a plan by which AT&T will sell fixed and mobile phone service, internet access and advanced IPTV services under one brand.

Cingular's net income jumped to $782m from $204m a year earlier. The mobile phone company, the largest US wireless operator, added 2.4m customers in the latest quarter and ended the year with 61m subscribers. Revenues increased by 10 per cent to $9.76bn.

AT&T also added 383,000 DSL subscribers in the fourth quarter to bring its total to 8.5m, up 1.6m from a year earlier. Together with Cingular’s gains, this offset continuing fixed line losses as residential subscribers move away from traditional phone service.

AT&T lost 227,000 residential phone lines in the fourth quarter as consumers switched to the bundled internet telephony offerings from cable TV operators or dumped their fixed lines in favour of mobile phones.

To fend off increasing competition from cable providers, AT&T is spending $4.6bn to roll out a fibre-optic network designed to deliver IPTV television and advanced video services to as many as 19m homes. Building the new network cost the company 6 cents per share in 2006 and will shave 9-11 cents from earnings this year, excluding any construction in BellSouth's former territory.

Like New York-based Verizon Communications, which is also deploying a huge new fibre-based network, AT&T believes the investment is essential to its growth prospects and will enable the carrier to offer a complete bundle of services in direct competition with its cable TV rivals.

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