Record Wireless Sales, Strong Revenue and Earnings Growth Highlight AT&T's Third-Quarter

Note: AT&T's third-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Thursday, Oct. 21, 2010, at www.att.com/investor.relations.

DALLAS--(BUSINESS WIRE)-- AT&T Inc. (NYSE: T) today reported third-quarter results highlighted by growth in consolidated revenues, strong sales of integrated devices, gains in IP-based and strategic business services, and disciplined execution on cost initiatives.

"This was a terrific mobile broadband quarter," said Randall Stephenson, AT&T chairman and chief executive officer. "A record number of customers signed new two-year contracts and integrated device sales outpaced our previous best by a wide margin. Wireless revenues continue to grow, churn is reaching record low levels, and postpaid ARPU increased for the seventh straight quarter.

"These trends add to our momentum and confidence," Stephenson said. "Mobile broadband is the industry's most powerful growth driver, and demand is in its early stages in both the consumer and business segments. AT&T is well positioned for the opportunities ahead."

Third-quarter 2010 cash from operating activities totaled $9.5 billion; capital expenditures totaled $5.5 billion, including a nearly 64 percent increase in wireless-related capital investment versus the year-earlier quarter, as AT&T aggressively deploys next-generation wireless broadband networks. Free cash flow ? cash from operating activities minus capital expenditures ? totaled $4.0 billion.

Led by a record quarter of integrated device sales, AT&T delivered solid third-quarter growth in its wireless business, including double-digit wireless revenue gains. Highlights included:

Best-Ever Third-Quarter Subscriber Gain. AT&T posted a net gain in total wireless subscribers of 2.6 million, to reach 92.8 million in service. Third-quarter net add growth reflects rapid adoption of smartphones, increases in prepaid subscribers and growth in a host of connected devices such as eReaders, security systems, fleet management and global positioning systems in both the business and consumer markets. Retail net adds for the quarter include postpaid net adds of 745,000 and prepaid net adds of 321,000. Connected device net adds were 1.2 million, and reseller net adds were 406,000.

The end of the quarter

At the end of the quarter, 57.3 percent of AT&T's 67.7 million postpaid subscribers had integrated devices, up from 42.0 percent a year earlier. The average ARPU for integrated devices on AT&T's network is 1.7 times that of the company's non-integrated device base. More than 80 percent of integrated device subscribers are on FamilyTalk and/or business discount plans. Churn levels for these plans continue to run below the company's postpaid base.

AT&T's third-quarter integrated device growth included 5.2 million iPhone activations, the most iPhone activations ever in a quarter. This is 62 percent more than the previous quarterly record of 3.2 million activated in the second quarter of 2010. Approximately 24 percent of those activations were for customers who were new to AT&T.

Data Revenue Growth of 30.5 Percent. Wireless data revenues ? from messaging, Internet access, access to applications and related services ? increased $1.1 billion, or 30.5 percent, from the year-earlier quarter to $4.8 billion. AT&T wireless subscribers on data plans increased by 21.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased about 34 percent to 161 billion and multimedia messages more than doubled to 2.8 billion.

AT&T's third-quarter wireline results were highlighted by improving trends in revenues including the first year-over-year growth in consumer revenues in more than two years, further expansion in AT&T U-verse services, sustained growth in revenues from strategic business services and solid cost management. Highlights included:

AT&T's Award-Winning U-verse Services Drive Consumer Growth. AT&T U-verse TV subscribers increased by 236,000 in the quarter to reach 2.7 million. In the third quarter, the AT&T U-verse High Speed Internet attach rate continued to run above 90 percent, and nearly 60 percent of subscribers took AT&T U-verse Voice. More than three-fourths of AT&T U-verse TV subscribers have a triple- or quad-play option from AT&T. ARPU for U-verse triple-play customers was about $160.

Rebound in Broadband Subscriber Growth. Driven by strength in AT&T U-verse High Speed Internet service, AT&T posted a 148,000 net gain in wireline broadband connections.

U-verse Revenues Exceed $1 Billion. Increased AT&T U-verse penetration drove 30.0 percent year-over-year growth in consumer IP revenues (broadband, U-verse TV and U-verse Voice). U-verse continues to drive a transformation in AT&T's consumer business, reflected by the fact that consumer IP revenues now represent 42.6 percent of AT&T's wireline consumer revenues, up from 32.8 percent in the year-earlier quarter. In the third quarter, AT&T U-verse revenues were $1.1 billion, 84.5 percent higher than in the third quarter of 2009.

Consumer Connection Trends. In the third quarter, AT&T posted a decline in total consumer revenue connections due primarily to expected declines in traditional voice access lines, partially offset by increases in broadband, U-verse TV and VoIP (Voice over Internet Protocol) connections. Combined wireline consumer TV and broadband connections increased by 343,000 in the third quarter and 1.3 million over the past four quarters. AT&T U-verse Voice connections increased by 166,000 in the quarter and 759,000 over the past four quarters. Total consumer revenue connections at the end of the third quarter were 43.7 million, compared with 45.7 million at the end of the third quarter of 2009 and 44.3 million at the end of the second quarter of 2010.

Further Signs of Stabilization in Business Markets. AT&T posted its best year-over-year business revenue comparisons in six quarters ? reflecting continued solid sales performance and continued improvement in key economic metrics. Total business revenues were $9.5 billion, a decline of 3.9 percent versus the year-earlier quarter. Business service revenues, which exclude CPE, declined 3.7 percent year over year and decreased slightly sequentially, down 1.3 percent.

Business IP Revenues Continue Growth. Business IP data revenues grew 8.0 percent overall, led by growth in VPN revenues. Global Enterprise Solutions IP data revenues grew 9.7 percent. Approximately 70 percent of AT&T's frame customers have made the transition to IP-based solutions, which allows them to easily add managed services such as network security, cloud services and IP conferencing on top of their infrastructures.

15.4 Percent Growth in Strategic Business Services Revenues. Revenues from new-generation capabilities that lead AT&T's most advanced business solutions ? including Ethernet, VPNs, hosting, IP conferencing and application services ? grew 15.4 percent versus the year-earlier quarter and were up 4.5 percent from the second quarter of 2010, continuing AT&T's strong trends in this category.

Wireline Results. Led by improved consumer and business customer trends, total wireline revenues posted their smallest year-over-year decline in six quarters, down 3.0 percent, and down slightly sequentially. Third-quarter revenues in AT&T's wireline segment totaled $15.3 billion versus $15.7 billion in the year-earlier quarter. Third-quarter wireline operating expenses were $13.4 billion, down 3.9 percent versus the third quarter of 2009 and down 0.6 percent sequentially. Wireline operating income totaled $1.8 billion, compared to $1.8 billion in the third quarter of 2009 and $1.9 billion in the second quarter of 2010. AT&T's third-quarter wireline operating income margin was 12.0 percent, compared with 11.2 percent in the year-earlier quarter and 12.2 percent in the second quarter of 2010.

AT&T Inc. (NYSE: T) is a premier communications holding company. Its subsidiaries and affiliates ? AT&T operating companies ? are the providers of AT&T services in the United States and around the world. With a powerful array of network resources that includes the nation's fastest mobile broadband network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet and voice services. A leader in mobile broadband, AT&T also offers the best wireless coverage worldwide, offering the most wireless phones that work in the most countries. It also offers advanced TV services under the AT&T U-verse® and AT&T ?DIRECTVSM brands. The company's suite of IP-based business communications services is one of the most advanced in the world. In domestic markets, AT&T Advertising Solutions and AT&T Interactive are known for their leadership in local search and advertising. In 2010, AT&T again ranked among the 50 Most Admired Companies by FORTUNE® magazine.

NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management monthly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.