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NEW YORK – AT&T Inc.- on Monday posted a better-than-expected rise in third-quarter profit, helped by strong growth in its wireless venture Cingular and merger-related cost savings.
The biggest U.S. telecoms carrier, formed through SBC Communications Inc.’s acquisition of AT&T Corp. last November, said profit, excluding merger-related costs and other special items, rose 58.2 percent from a year earlier to $2.4 billion, or 63 cents per share.
That topped the average forecast of 58 cents per share from analysts polled by Reuters Estimates.
Despite the higher-than-expected results, AT&T’s shares rose only modestly on the New York Stock Exchange as investors had already pushed up the stock by 2 percent last Friday, when Cingular reported strong results.
AT&T also said cost savings helped profit growth, and the company had cut 3,600 jobs in the third quarter, reaching a head count reduction of 10,500 so far this year.
While that vindicated the company’s merger strategy, some analysts said it also suggested that AT&T’s core business was not growing as strongly as the bottom line suggested.
“The numbers were slightly better than expected. Certainly the Cingular numbers were good. But cost-cutting was a major factor,” said Surterre Research analyst Todd Rethemeier, who has a “hold” rating on the stock.
The company said primary consumer lines fell by 242,000 in the third quarter, and analysts said consumers were continuing to shift to wireless phones and all-in-one packages of voice, video and Internet offered by cable television providers.
“Looking at the line losses, it seems there is some competitive impact from cable companies,” Rethemeier said.
AT&T is preparing to merge with BellSouth Corp. (NYSE:BLS – news), a move that would consolidate its ownership of Cingular and reinforce its position as the biggest U.S. telecoms service provider. The U.S. Federal Communications Commission has scheduled a November 3 meeting to vote on the merger.
“Wireless delivered impressive margin expansion along with strong subscriber and revenue growth,” said AT&T Chairman and Chief Executive Edward Whitacre.
Analysts also expect Verizon Communications Inc. (NYSE:VZ – news) to post strong quarterly results since its wireless venture, along with Cingular, appears to be taking market share from Sprint Nextel Corp. (NYSE:S – news).
AT&T’s consolidated revenue, which does not include sales from its 60 percent stake in Cingular, totaled $15.6 billion for the quarter ended September 30, up from a pre-merger $10.3 billion in the third quarter of 2005.
Net income was $2.2 billion, up 73.8 percent from the year-ago quarter, or 56 cents per share. That included costs from SBC Communications’ acquisition of AT&T Corp. and from Cingular Wireless’ purchase of AT&T Wireless.
The company said Internet subscriptions also helped to bolster sales. High-speed Internet subscribers increased 25.5 percent from a year earlier to 8.2 million.
AT&T is also aiming to compete with cable companies by expanding its high-definition video service in a plan called Project Lightspeed. The Internet-based video service will be expanded to around 15 cities by the end of the year. It had previously targeted 15 to 20 cities by the end of 2006.
The $5 billion investment, while smaller than a similar project by Verizon, has raised concerns about costs.
“We continue to have concerns about a looming capital expenditure increase commitment to the business, if Project Lightspeed proves incapable of providing a competitive consumer video offering on a wide scale across AT&T’s footprint,” said Stifel Nicolaus analyst Christopher King, who recommends selling AT&T stock.
AT&T shares fell briefly in early trading before recovering to rise 29 cents, or 0.87 percent, to $34.73 on the New York Stock Exchange late Monday afternoon. The shares have risen around 40 percent so far this year.