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AT&T; posts $2.2-billion profit as recent acquisitions pay off

From the Associated Press

AT&T; Inc.'s quarterly profit topped expectations Monday as recent acquisitions continued to boost results, but the big telephone company also disclosed new delays in the full-blown launch of its pivotal entry into cable TV using unproven technologies.

The San Antonio-based company earned $2.2 billion, or 56 cents a share, in the third quarter. It benefited from last year’s takeover of former corporate parent AT&T; Corp., as well as improving results at Cingular Wireless, which became the nation’s biggest wireless provider by acquiring AT&T; Wireless in late 2004.

In last year’s third quarter, before the acquisition of AT&T; Corp. and its shrinking but profitable long-distance phone business, net income totaled $1.25 billion, or 38 cents a share. The company, the dominant local phone provider in the Midwest and Southwest, was known as SBC Communications Inc. until late 2005, when it acquired AT&T; and took that name.

The quarterly report included the first public tally of subscribers for the company’s U-verse TV and high-speed Internet rollout. AT&T; said it had signed up 3,000 of the 30,000 homes offered the services in San Antonio since the launch began in June.

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The company stood by its schedule for a wider launch of the risky initiative by the end of this year but scaled back the number of expected markets to 15, down from an earlier estimate of 15 to 20 markets.

AT&T; said it planned to make its second limited launch of U-verse in Houston by late November, where a trial including high-definition TV was underway. It plans to add HDTV to the San Antonio service in late November as well.

Analysts have viewed the increasingly gradual launch of U-verse and the delay in HDTV as signs that AT&T; is grappling with glitches among the wide array of new technologies from assorted companies that need to be integrated.

AT&T; is using a next-generation form of DSL to boost the bandwidth of its copper phone lines so they can carry video and high-speed Internet services. To deliver the video signal, it is relying on a technology called Internet Protocol TV that breaks up television programs into packets similar to e-mail and other Web traffic.

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“Certainly U-verse remains unproven from a technological standpoint, and certainly their ability to scale that business, we question,” said Chris King, an analyst at Stifel, Nicolaus & Co.

AT&T; Chief Financial Officer Rick Lindner said the company wanted to test the service and didn’t want to sign up too many customers before adding the high-definition component.

Third-quarter revenue totaled $15.6 billion, up from a pre-merger figure of $10.3 billion in the same period last year. Because AT&T; shares management control of Cingular with BellSouth Corp., the cellphone operation’s revenue is not reflected in AT&T;'s tally.

AT&T;'s proposed acquisition of BellSouth is awaiting a final vote from the Federal Communications Commission. The vote was delayed this month as two members of the FCC pushed for the companies to sell certain operations to bolster market competition. The FCC is slated to take up the matter Nov. 3.

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AT&T;'s third-quarter results included acquisition costs of $140 million, or 2 cents a share, for the purchase of the AT&T; long-distance business in the fourth quarter of 2005, as well as $453 million, or 5 cents a share, for merger integration costs at Cingular.

Earnings before acquisition-related costs were 63 cents a share.

The strongest performance of the quarter came from Cingular, at which third-quarter operating profit margins were 4 percentage points higher compared with a year earlier and up 3 percentage points from the second quarter. Cingular reported last week that its third-quarter revenue rose to $9.6 billion from $8.7 billion a year earlier.

AT&T; owns 60% of Cingular and gets an equivalent portion of its profit. BellSouth owns the rest.

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AT&T;'s shares rose 27 cents to $34.71.


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