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Income Investing

Telecom: Go Big or Go Home

By Roger S. Conrad, on Feb. 6, 2015

Media coverage of AT&T and Verizon Communications’ fourth-quarter results has focused on the deep discounts that Sprint Corp (NYSE: S) and T-Mobile US (NYSE: TMUS) have offered to steal customers from the dominant wireless providers.

But this business strategy continues generate more debt than profitability for these pretenders to the throne, while AT&T and Verizon Communications haven’t skipped a beat.

AT&T grew its fourth-quarter revenue 4.5 percent from the prior year, excluding the proceeds from the sale of its Connecticut wireline assets to Frontier Communications Corp (NSDQ: FTR). Meanwhile, earnings excluding one-time items ticked up 3.8 percent.

Wireless revenue climbed 7.7 percent year over year, bolstered by the addition of 854,000 postpaid customers and an 18 percent increase in data billings. On the year, AT&T added 3.3 million postpaid subscribers.

AT&T’s wireless cash flow margins declined to 36.7 percent in the fourth quarter, but that didn’t stop this metric from hitting a record of 42 percent for the full year. Overall, the telecom giant dealt admirably with the growing number of subscribers whose rate plans don’t include equipment subsidies and a churn rate that ticked up to 1.22 percent from a record low of 1.11 percent in the fourth quarter of 2013.

The company’s wireline operations managed to grow their revenue by 0.4 percent relative to the prior year, as consumer broadband offerings and strategic business services offset shrinking sales at its legacy phone business.

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