AT&T’s merger with SBC pays off

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AT&T, the world’s biggest telecommunications company, reported stronger than anticipated earnings on the back of growth in its wireless business and amid higher savings resulting from last year’s merger with SBC Communications.

In addition, AT&T – the brand name the new company has decided to adopt for all its businesses due to its strong recognition among customers – said the recently announced $67bn takeover by SBC of BellSouth was already generating more savings than expected.

“We are off to a strong start in terms of ... merger integration, and we are on track with our targets for the year,” Richard Lindner, AT&T’s chief financial officer, told analysts.

The SBC/BellSouth merger is expected to generate cost savings of $600m to $700m this year, rising to more than $2bn in 2007. Mr Lindner said he expected the merger to be approved by the end of the year.

Telecoms companies’ traditional wireline businesses have come under pressure, with prices falling amid growing competition from cable companies and internet rivals. Customers are also increasingly moving to other providers, including wireless alternatives.

The sector continues to grow strongly, with new subscribers and with decreased churn rates.

On the business side, overcapacity following huge investments in the 1990s resulted in falling prices.

Mr Lindner said there was good progress in both the wireline and the business areas following the merger – cost savings have led to improved margins of 17.2 per cent in the first quarter of the year versus guidance of 15 and 16 per cent.

AT&T, which is reporting its first full quarterly result after the November 2005 merger with SBC, said adjusted earnings in the first quarter were 52 cents a share, topping the average Wall Street forecast of 48 cents a share.

Additional reporting by Andrei Postelnicu

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