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Apr. 22, 2008

Major phone companies such as AT&T are saying that their core businesses, landline telephone service, is eroding faster today than at any other time in the past twenty years.

Worst, the latest round in the steep decline in phone lines is expected to come tomorrow, when AT&T presents its first-quarter earnings to Wall Street analysts.

Industry observers are expecting AT&T to report that the rate of line losses in the first quarter exceeded the eight percent drop it experienced in 2007 for the corresponding period.

Number Two telecom carrier Verizon has an even higher cancellation rate, losing 8.1 percent of its lines in 2007 compared with a 7.6 percent decline the previous year.

The negative news signals an acceleration of a troubling trend for the sector as consumers, already hit by higher gas prices and more expensive grocery bills, look to their phone bills as a place to trim expenses.

AT&T was the first telco to ring the warning bell when it said four months ago that there was “softness” in some regions of the consumer phone market.

If there’s one area that may help offset the landline defections, it’s wireless. But even AT&T’s high-revving mobile unit (the iPhone’s only U.S. carrier) is feeling the slowdown as the market becomes saturated.

Overall, AT&T is expected to have added about two million net new mobile phone customers in the first quarter, a number that is down seasonally from the 2.7 million user it picked up in the busy holiday quarter that ended in Dec. 2007.

Verizon Wireless is expected to post a retail post-paid net subscriber gain of 1.5 million, down from 1.9 million in the fourth quarter. Verizon is scheduled to post earnings next Monday.

This sluggish economic backdrop has made a tough competitive market even tougher, as cable companies such as Comcast and Time Warner Cable grab market share with their triple play offerings, namely video, Internet and phone services.

AT&T’s so-called landline business accounts for almost 60 percent of total revenue and about 55 percent of its overall after-tax profits.

With the number of landlines falling, AT&T has had to reduce costs to keep in pace. Last week AT&T said it was laying off over 4,640 employees, or 1.5 percent of its staff in a “streamlining” effort...

Overall, Wall Street analysts expect AT&T today to post a pro forma profit of 74 cents a share, up from 65 cents in the corresponding 2007 quarter.

Sales for the first quarter of 2008 are expected to be $30.7 billion, an increase over the $29 billion done in the first quarter of 2007.

Number Three wireless player Sprint has already indicated that it may lose as many as 1.2 million subscribers in the first quarter, as users continue to flee its ailing service in droves.

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    This article was featured on Business 5.0.

Source: AT&T.