AT&T calm in the face of iPhone, LTE uncertainty

AT&T Inc.’s (T) President and CEO Randall Stephenson could never be accused of not looking at the bright side of life.
Speaking at Goldman Sachs Communacopia XIX Conference, Stephenson downplayed any impact the loss of AT&T Mobility’s exclusivity to Apple Inc.’s iPhone as well as any competitive concern regarding its continued focus on expanding its HSPA network while competitors begin rolling out next-generation networks.
Stephenson noted that while the carrier was on pace to post record integrated device sales for the recently completed third quarter, the growth was becoming more evenly spread amongst a wider range of devices beyond the iPhone. He noted that while the iPhone was indeed a major driver, other devices like Samsung Electronics Co. Ltd.’s Captivate and others with Google Inc.’s Android operating system as well as Research In Motion Ltd.’s BlackBerry Torch were helping to spur sales.
“It’s a very different market now than it was a few years ago,” Stephenson said about the current integrated device landscape.
As for the continued talk that AT&T Mobility would soon see the end of its exclusivity offer for the iPhone, Stephenson noted that virtually all customers with integrated devices, like the Apple product, were locked into a two-year contract and “that is really important,” Stephenson explained. He also added that two-thirds of iPhone customers were AT&T Mobility customers prior to the launch of the device, noting that those people are loyal to the carrier. In addition, Stephenson said that about 80% the iPhone base is on either a family plan or a business plan and that those customers churn substantially less than the average customer.
Stephenson added that the continued growth in the integrated device space should help the carrier bolster its service revenues. He noted that 53% of the carrier’s postpaid customer base were currently using integrated devices, which in most cases require customers to purchase a data package of at least $10 per month, and that nearly 80% of current device sales were of the feature-packed handsets.
“The difference between 53% and 80% is revenue accretion,” Stephenson explained.
Stephenson also noted that AT&T Mobility currently had in excess of 500,000 3G-equipped iPad tablet devices connected to its network, a market segment expected to continue to grow.
“The tablet market is a brand new one, and there is really only one device on the market and it’s the Cadillac of the segment going forward,” Stephenson said. “This is a whole new growth prospect that is now in its infancy.”
HSPA important for LTE
As for the carrier’s LTE plans, Stephenson noted that while the carrier planned to have 75 million potential customers covered with the technology by the end of next year, the carrier was more focused at the moment on expanding its HSPA plans. Stephenson explained that the expansion was important in that when customers inevitably move into an area without LTE coverage their ability to tap into a network providing multi-megabit speeds would be essential to keeping them happy.
This appeared to be a dig at rivals Verizon Wireless and Sprint Nextel Corp., which are rolling out so-called “4G” networks on top of their current CDMA2000 1x EV-DO Revision A-based 3G networks that cannot match the network speeds promised by upgraded HSPA networks.
While AT&T Mobility is focused on expanding its HSPA coverage Stephenson added that the company was probably at the high-end limit of capital expenditures with its planned $18 billion to $19 billion expected to be spent company wide this year.
“That’s full capacity for us,” Stephenson said, adding that the company’s ability to spend more was running into capacity issues from its supply chain.
“We have the supply chain stressed now,” Stephenson said. “Our ability to spend more is constrained by the supply chain as much as anything else.”