AT&T Inc (T) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the AT&T first quarter earnings release 2009 conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Ms.

Brooks McCorcle.

Ms.

McCorcle, you may begin.

Thank you, Loraine.

Good morning, everyone.

Welcome to our first quarter conference call.

It's great to have you with us this morning.

As Loraine mentioned, this is Brooks McCorcle, head of Investor Relations for AT&T.

And joining me on the call this morning is Rick Lindner, AT&T's Chief Financial Officer.

Rick will cover our results, and following that, we will have a Q&A session.

Before we get under way, let me remind you that our release, our first quarter investor briefing, supplementary information, and the presentation slides that accompany this call are all available on the Investor Relations page of the AT&T website.

That's www.att.com/investor.relations.

I also need to cover our Safe Harbor statement, which is on slide two.

And that says that information set forth in this presentation contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially.

A discussion of the factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission.

AT&T disclaims any obligation to update or revise statements contained in these presentations based on new information or otherwise.

This presentation may contain certain non-GAAP financial measures, and reconciliations between the non-GAAP financial measures and the GAAP financial measures are also available on our website at www.att.com/investor.relations.

Before I turn the call over to Rick, let me start with a quick financial recap, which is on slide three.

EPS for the quarter was $0.53.

That includes $0.05 of pressure from incremental non-cash pension and retiree benefit costs.

It's consistent with the full-year outlook we provided in January.

Consolidated revenues were relatively stable, reflecting economic pressures, primarily invoice, largely offset by continued strength in wireless, AT&T U-verse, broadband, and strategic business services.

Our first quarter consolidated operating income margin was also in line with our full-year outlook at 18.8%.

This reflects strong wireless results, and good execution on wireline and Company-wide cost initiatives.

Finally, there was a strong free cash flow quarter -- $4.6 billion versus $700 million in the first quarter a year ago, reflecting lower capital expenditures and cash tax payments.

With that as a quick overview, I will now turn the call over to AT&T's Chief Financial Officer, Rick Lindner.

Rick?

Thanks, Brooks.

And good morning, everyone.

It's great to have you with us this morning.

Before I cover the details, I'd like to take a moment and step back and talk just briefly about what we're seeing across the business, and how we're executing and approaching things in this environment.

First, no surprise to anyone, the economy has put pressure on usage and volumes, particularly wireline voice in our business operations, and access line loss continues to impact consumer revenues.

Second, in this environment, we've taken a disciplined approach to costs, which is reflected in our first quarter margins in free cash flow.

And we will continue to maintain a sharp focus on cost management as we go throughout this year.

Third, we've continued to invest in, and to ramp growth, in the areas that are key to our future.

Those are wireless data, advanced business services, and our AT&T U-verse platform.

Our goal is simple -- it's to make sure that when this economy rebounds, that number one, we're strong financially; and two, we're strong operationally, with good momentum in the areas that will lead the next wave of growth.

With that perspective, we are proud of what we accomplished in this first quarter.

The highlights are on slide four.

We delivered strong wireless growth with postpaid net adds up 24%.

Our iPhone activations continue to be strong, and we've seen no lessening in the iPhone's attractive ARPU and sharing characteristics.

Our wireless EBITDA margin expanded to over 40% this quarter, and our U-verse TV growth continues to ramp.

We took a significant step up in broadband net adds.

In wireline, IP data revenue growth improved to 16%, driven by U-verse and advanced business services.

And as Brooks mentioned, our consolidated margins are on track with full-year outlook that we provided in January.

So, all in all, it was a solid first quarter with good execution on the cost side and positive momentum in our key growth drivers.

Slide five shows how these drivers impacted our revenue trends.

Total consolidated revenues were $30.6 billion -- that's down slightly year over year.

This reflects a 12% reduction in wireline voice revenues and reductions in print advertising, offset by growth in wireless and data services.

Wireless service revenues were up more than $1 billion, 9.6%, and wireline data revenues were up 5.3%, slightly above our growth rate in this category over the past few quarters.

Wireline IP data revenues were up 16.4% with double-digit growth in both consumer and business.

We've included on this slide a look at our first quarter revenue mix, which is increasingly weighted to the growth areas of wireless, data, and managed services.

Two-thirds of our first quarter revenues came from these categories.

Details on wireless results start on slide six.

Total wireless service revenues were up more than $1 billion versus first quarter a year ago, and wireless subscribers were up 6.9 million.

And we had a very strong post-paid quarter.

Gross adds were up 9%, net adds increased 24%, and it was our third straight quarter of strong double-digit growth in postpaid net adds.

We continue to have industry-leading postpaid data ARPU, which was up 27% to $16.48.

Total postpaid subscriber ARPU was up 2%.

Wireless data growth continues to be robust, driven by data-capable devices and richer content in applications.

The details are on slide seven.

Wireless data revenues were up nearly $900 million versus the first quarter a year ago.

And in the first quarter, our network carried more than 94 billion text messages, more than double our total in the year-earlier quarter.

For the first time, we had more than 1 billion multimedia messages.

Media bundles and Internet access revenues both grew better than 40%, and nearly 50% of our postpaid subscribers now are on monthly recurring data plans.

Data usage and data revenues are driven by integrated devices, which are on slide eight.

Over the past year, we've more than doubled the number of integrated devices on our network.

Penetration of our postpaid base also more than doubled to nearly 32%.

And in the first quarter, nearly 60% of our total wireless device sales were integrated devices.

I think that indicates the opportunity in the future in this area.

This growth was led by the iPhone.

We had over 1.6 million iPhone activations in the quarter.

Since the iPhone 3G launch in July of last year, we've had nearly 6 million iPhone 3G activations.

Equally important, the iPhone subscriber characteristics continue to be terrific -- more than 40% of iPhone activations in the first quarter were for new customers.

ARPUs continue to be roughly 1.6 times our postpaid average, and churn is much lower than our postpaid base, and recurring margins continue to be high.

AT&T is well-positioned for the next wave of wireless growth.

The foundation has a strong spectrum position in our GSM technology platform.

The second component is a great device lineup, which we continually keep fresh with exclusives like the iPhone and the BlackBerry Bold, and new offerings, including quick messaging devices and netbooks.

And the third driver for wireless data is applications.

From thousands of developers around the world on all dimensions of wireless data, there's a lot of opportunity ahead.

And I think the good news is that as we drive growth in wireless, we're also delivering strong margins, which are detailed on slide nine.

Our first quarter wireless service EBITDA margin was 40.9%.

That's a 510 basis point sequential increase.

Network and operational improvements continued to deliver benefits.

Churn was down year-over-year more than 10 basis points.

There's a typical seasonal improvement in sales costs, as we move from the fourth quarter to the first.

The other improvement, obviously, is in reduced iPhone dilution.

We said that our upfront investment in iPhone customers would depress margins in the short-term, but given the attractive customer profile, would support margins in the quarters and years ahead.

And that's what you see in our first quarter results.

As we outlined for you in January, we continue to expect long-term wireless service EBITDA margins in the mid-40% range.

Let me turn now and talk about one of our other major initiatives, the AT&T U-verse platform.

Slide 10 has an update.

We continue to ramp our customer base with 284,000 net adds in the quarter.

Across all eligible living units, our U-verse TV penetration now is in the double digits, and we continue to see mid-teens penetration rates in areas marketed to for 18 months.

I think one of the exciting things happening with U-verse is that it is coming into its own as an integrated platform.

In the second half of 2008, we took a big step forward with the rollout of Total Home DVR.

In the first quarter, we further expanded our HD channel lineup with 100 or more HD channels available in every market.

Our all-IP platform lets us to deliver integrated voice and broadband, as well as unified messaging.

With these developments, we're seeing not only a continued ramp in U-verse TV, but also strong growth in U-verse broadband and U-verse voice.

Broadband attach rates continue to run above 90%.

We've now launched VOIP service in 86% of our U-verse markets.

Dallas started in December; Houston and Los Angeles were added in the first quarter.

U-Verse voice attach rates with video is more than 60%.

And as we show in the line chart on this slide, we had a net gain of 170,000 in the quarter.

The potential of U-verse is not just in video, but in a set of integrated, interactive services made possible by an all-IP platform.

And with these results, we're seeing the beginnings of that transformation.

We're also seeing good bundled satellite TV penetration.

In February, we launched our DirecTV relationship Company-wide.

Execution on both sides was very good, and we're pleased with the solid start we had.

At the end of the first quarter, our combined U-verse and satellite video penetration of households served was nearly 13%.

U-Verse made an important contribution to broadband net adds.

The details are on slide 11.

Our first quarter increase in total broadband subscribers combining wireline connections with wireless 3G laptop cards was 471,000.

That's a significant increase versus the fourth quarter of 2008.

Wireline broadband net adds were up more than 50% sequentially, driven by U-verse and continued growth in standalone broadband often combined with wireless.

Customers increasingly choose broadband with the expectation of a range of wired, mobile, and portable choices.

And that's where we're uniquely able to provide -- through our wired broadband network, through the nation's fastest 3G wireless data network, and our industry-leading Wi-Fi footprint.

In the first quarter, regional consumer revenues declined by 6.8%, due to continued access line losses; but trends in both revenue per household and consumer connections improved.

The details are on slide 12.

Revenue per household increased 2% this quarter, driven by 23% growth in consumer IP data revenues.

That's a combination of broadband and U-verse.

In consumer connections, including voice, data, and video, while still negative and down 5.1% year-over-year, have improved sequentially now for three straight quarters.

There's obviously some seasonality as you look at any particular quarter, but the trend also reflects the ramp of U-verse voice, data and video, as well as the value in our consumer bundled offers.

Let's turn now and look at business, starting with slide 13.

Total business revenues, including retail and wholesale, were down 4%.

Excluding CPE sales, they were down 2.8%.

Our first quarter business results highlight I think, two major trends.

First, the economic impacts on revenues are fairly straightforward, reflecting lower employment and slower business activity levels, just as you would expect.

The sectors where we've seen the most impact are financial, transportation, and retail.

About half of the revenue pressure is in low-margin areas, like equipment sales and international long distance, where there are corresponding variable cost offsets.

And fixed cost reductions in sales and network have kept overall business margins stable, despite the revenue decline.

The second major trend that's important to note is that we're seeing continued strong growth in our most advanced business offerings.

Wireline business IP revenues grew in the double-digits and strategic business revenues grew 19.6%.

That's a bucket that includes our most advanced solutions, including ethernet, virtual private networks, hosting, IP conferencing, and application services.

With that overview, let me close with a look at margins and cash flow.

Margin comparisons are on slide 14.

We said in January that we expected our 2009 consolidated operating income margin before incremental pension and retiree benefit costs would be stable with 2008 results.

In the first quarter, our consolidated operating margin was 18.8% and above 20%, when you exclude incremental pension and retiree impacts.

This compares with our full year 2008 margin of 18.6%.

Our full-year margin outlook is unchanged.

This reflects solid progress in both wireless and wireline.

Cost reduction initiatives are on track as we consolidate support functions, network operations, and business services.

And in the first quarter, total force declined by 8,000.

And as I outlined earlier, our iPhone customer base has ramped, and despite continued strong activations, dilution from the iPhone 3G initiative is down significantly.

In concert with solid margins, we've also delivered strong free cash flow.

Slide 15 provides a cash summary.

Cash from operations totaled $7.9 billion in the quarter, up significantly from the first quarter a year ago, due primarily to the timing of cash tax payments.

Capital expenditures were $3.4 billion, and free cash flow before dividends was $4.6 billion.

Our dividend payments for the quarter totaled $2.4 billion.

Since mid-year 2008, we have reduced total debt by $5.8 billion.

And as a result, our balance sheet continues to be sound and debt metrics are solid.

So, to summarize the first quarter, on slide 16, as we said, we continue to take a very disciplined approach to cost for 2009.

Margins are stable despite wireline revenue declines.

At the same time, we're investing in the key growth areas for our future -- wireless, advanced business solutions, and U-verse.

We continue to have excellent wireless momentum, and we're well-positioned for the future growth in wireless and wireless data.

Our U-verse TV platform is growing, with excellent broadband and voice attach rates.

And we're delivering strong free cash flow, while maintaining a sound balance sheet and providing share owners an attractive dividend.

Brooks, with that, why don't we stop here and I think we're ready to take some questions.

Okay, great.

Loraine, why don't you open up the lines for questions?

Thank you.

(Operator Instructions).

John Hodulik, UBS.

A quick question on wireline margins.

There was some -- the numbers were better than we expected.

Could you just talk a little bit about what was driving really the upside in margins maybe from a cost-cutting standpoint?

And then if you could talk a little bit -- look a little bit forward -- you said that it looked like margins should be sort of flattish year-over-year before the pension.

And given that you're likely to see some further room to go, I think, in wireless from your earlier comments, I mean, how should we expect that the wireline margin trends throughout the year?

Is there more cost-cutting or do the revenue trends sort of catch up with you?

John, I think first of all, with respect to the first quarter, we did have a very good first quarter in terms of margins and cash flow.

A couple of things -- one, this was a very clean quarter for us.

We didn't have any unusual items or adjustments impacting costs or margins.

We didn't have any severe weather that typically, in our business, would drive more overtime or more material costs.

So from that standpoint, it was very clean.

Secondly, I think the team really throughout our business did a perfect job this quarter getting out in front of the cost side.

And so we've done a good job and you see it in our force reductions.

You see it in other cost initiatives across the business.

I don't know that there's more upside in total for the year, in terms of the kind of run rate we will get to, but we did get further in the first quarter than we would have expected.

So I think both of those things helped margins in the fourth quarter.

As we go forward in the year, we'll continue to see some pressure as we see reductions, primarily in wireline voice revenues.

But we're going to stay focused on cost and we're going to try to stay out in front of that, in terms of the cost trajectory of the business.

Okay, thanks.

Tom Seitz, Barclays Capital.

Thanks for taking the question.

You had terrific -- you had essentially a doubling of 3G devices in the base year-over-year.

And I think you said 60% of the adds in the quarter came from integrated devices, but the sequential data ARPU essentially stopped growing.

So I'm wondering if you could address some of the pressures that you might be seeing there, and whether you expect that to continue for the balance of the year, or whether they're sort of one-time?

Just the trend on data ARPU going forward.

Yes, that's a good question, Tom.

I think there's a few things happening in terms of the trends and overall in data ARPU and data revenue growth.

One is that it as -- on the business side, as employment has been reduced, particularly at large business customers, we've seen some reduction in Company-paid wireless devices.

And those devices typically have higher ARPU and higher data ARPU and data usage.

On the consumer side, we continue to see consumers try to manage their spend better with the pressure that they're seeing.

And so, in consumer, we've got a lot of consumers that are either migrating from a pay-per-use to some type of unlimited data package, which actually has helped them to, in some cases, reduce their spend.

In other cases, we're seeing consumers try to reduce the amount of their data usage to manage their spend.

And we are looking at some things we can do from a pricing standpoint there, so that it doesn't -- we'd like to see them continue to move to data packages.

We'd like them not to take steps to try to reduce their usage or block their usage.

So, those are a couple of things that are happening from the data standpoint.

We're also, I think, a victim a little bit if you look at percentage increases of just the law of large numbers.

If you step back from it, even in a very difficult economic environment, we're still seeing postpaid ARPU growth of 2%.

And we're seeing that growth really being driven by data.

And on the data revenue side, you know our data revenue stream is now approaching a $13 billion annual business and still grew at nearly a 40% year-over-year growth rate in the first quarter.

So, again, I think there's some pressures there on some usage-based revenues, but overall, it's a business that's very healthy.

And we'll continue to push forward with not just 3G devices, but integrated devices in our base.

Okay, that color is helpful.

Thank you very much.

Simon Flannery, Morgan Stanley.

If I could say on wireless, the margins were tremendous, a nice rebound yet again and earlier than we were expecting, north of 40%.

You talked about some of the seasonal factors, Rick, driving down costs, but as I think about Q2, I would assume that there will be continued improvement on the iPhone dilution.

And looking at last year, it didn't seem like there was a whole lot of tickup in expenses overall.

So is it reasonable to expect that we can continue to see these margins at or at similar levels to what we saw in Q1?

Or are there any other drivers there?

And then if you can also just touch on prepaid.

There's been an explosion in these unlimited prepaid plans.

The GoPhone continues to shed customers at a modest rate.

Any thoughts there?

Thanks.

Sure.

On wireless margins, that was a pleasant surprise for us as well in the first quarter.

I think our expectation and our goal was to get margins back up over 40% during this year.

And we were able to do that in the first quarter.

I think we would expect to maintain margins in that range, in the low 40s, as we go forward in this year.

In addition to some of the seasonal factors and some of the improvement in iPhone dilution -- and we also had one other factor that I think helped this quarter.

And that is, after a couple of quarters primarily driven by the iPhone and some of the integrated devices, where we had higher than normal upgrade activity, a higher percentage of our base upgrading during the last couple of quarters, that started to fall back a little bit, and has come back in what I think I'd consider to be more of a normal range.

That also helped us in this quarter.

You ask about prepaid.

I think there are a couple of things that are happening in prepaid, first of all, that are positive for us, I think, in this quarter.

One is that churn is down year-over-year in our prepaid base -- about 90 basis points.

And that's something in the last year we've been focused on, in trying to continue to increase and improve profitability in prepaid, it's important to bring those churn rates down.

The second is that our prepaid ARPU has stayed very stable.

So those, I think, are two positive signs.

I do think we've had some impact in gross adds and gross sales from some of the new offers that are in the marketplace today.

And we're trialing some new offers in a couple of markets in prepaid as well, that I think will help boost the gross sales as we go forward in the year.

But we'll be, at the same time, very careful with it not to do something that could cannibalize our postpaid base -- that's really where our bread-and-butter is.

Okay, thank you very much.

David Barden, Banc Of America-Merrill Lynch.

Just two questions on wireline.

Maybe first on the line loss in consumer retail.

It was a nice improvement in that.

I was wondering if you could speak to whether, in light of maybe a slowdown in the economic regime impacting home movement and also -- but given the counterforces of wireless substitution, how you see that progressing over the course of the year.

Have we turned a corner or were there some other forces at work?

And then just looking at the new AT&T business solutions reporting segment, it seems that the weakest part of that was what you guys break out as the wholesale and the government piece of it.

And I know that IBM was supposed to be a big contributor this quarter, so something else seems to be really falling in that subsegment.

If you could speak to that as well, it would be helpful.

Thank you.

Sure, David.

First of all, on consumer, I think that was -- for us, I think that was a pleasant surprise this quarter, just a continuation of trends we've seen over the last couple of quarters.

When you look at total revenue connections, as I mentioned earlier, while it continues to be slightly negative in this quarter, certainly the trajectory is better.

I think it reflects a combination of things, frankly.

I think having, possibly due to the economy, less movement, fewer people moving, changing residences and locations, probably provides some help.

But I think, more importantly, we're making good progress, as we mentioned, with U-verse.

And that's bringing along not just video connections, but a very high broadband attach rate.

And when we look at these U-verse customers, by the way, over 60% of those are coming from competitors.

So that's helpful to us.

And at the same time, we're now starting to get a lot of traction behind the U-verse voice product.

And that's certainly helping us offset some of the consumer line loss.

Over and above that, I think we have a very flexible array of products for consumers these days.

We allow them to buy products on a standalone basis; we allow them to bundle them.

They can bundle with video or broadband; they can bundle wired voice or wireline voice.

When they buy broadband from us, they get a very strong mobility and portability aspect, in that they have access to 20,000 Wi-Fi hotspots across the country.

So I think, overall, it's a good offer.

That part of the business, as you know, is challenging.

So it's -- I don't know that I'd be ready to declare that we've turned the corner on it, but we are encouraged by the trends that we're seeing.

The question you asked about the breakout of business revenues -- and I know it will take a quarter or two for everyone to get comfortable with that breakout.

I thought it was important for us to do it, because it does line up now with how we are managing the business within Ron Spears' organization.

But when you look at wholesale, the wholesale government segment particularly, the fact is that government has been -- the government business has been pretty solid.

It has not declined significantly.

We did have a sale of a small government services business unit that impacted the year-over-year results slightly, but the government piece has been solid.

In wholesale, we're seeing impacts in a couple of areas, primarily voice.

And that's where we're seeing some reduction in international LD revenues, as an example.

And then keep in mind, that wholesale segment also includes our switched access revenues and it includes our UNI-P base.

So, both of those provide a little headwind in the overall revenue trends there.

Got it.

Okay, thanks.

Appreciate it.

Mike McCormack, JPMorgan.

Just a couple of things -- on the iPhone side, can you give us a sense -- I think there was a number or a cost per activation that you gave us last quarter.

Maybe if you can provide that, as well as any commentary on -- there's been a lot of discussion around Next Gen iPhone type devices coming out this summer.

Is there anything we can look at, as far as margins go, that might have an impact from that?

And second, on DSL, I guess a lot stronger than we had anticipated.

Was there any promotional activity that was unusual there?

And then sorry to hit you with one more, but just intangible amortization coming down for the year, any sense on how fast it's going to ramp down?

My pen gave out, Mike, I got behind in my writing.

I may need to -- help on these questions.

But first on the iPhone.

What we're saying there is not reflective of any change in terms of activation costs; it's just simply the normal progression of building that base so that the acquisition costs are a smaller percentage relative to the recurring margins going forward.

In terms of new products, new product announcements, pricing and so forth -- that really falls to Apple to make those kinds of announcements.

So we'll leave that to them.

I would just reiterate two things along those lines.

First, is that we have -- continue to have a very good relationship with Apple and we enjoy working with them.

And we're thrilled to have their product as part of our lineup.

As we talked about it, it's a situation where the customer characteristics continue to be very strong.

I guess I was just looking at the 1.6 million iPhones, if there's any meaningful acquisition costs, which I'm assuming there is -- it just seems like there's a -- absent iPhone continuing at these kind of levels, there's probably some margin opportunity there.

Well, and as we've said, we believe there is margin opportunity in the wireless business and that that will continue to give us some upside as we go forward.

I'm sorry, what was your third question?

The DSL -- whether or not -- the numbers are higher than we're expecting, if there's any promotional activity that really drove that.

Oh, yes.

On DSL, Mike, it's -- and broadband overall -- and one thing's interesting -- we were positive in DSL this quarter.

And I think it reflects some of the things I mentioned earlier.

I think the fact that we're very flexible in our bundles; our standalone DSL product, which about 50% of the time is bundled with wireless, has been very strong for us.

We haven't been running any significant promotional activities.

I think, in the last few quarters, we've improved our focus in the sales channels and in the call centers around selling broadband.

And I think that's helped.

We've been very active with save activities as well.

And I think that's helped and it's reflected in some reductions in churn rates.

So I think it's just a combination of factors.

But at the end of the day, it comes down to having offers in the marketplace that I think consumers value.

And the last question, in terms of intangible amortization, we will have some reduction in tangible amortization this year.

We'll have to get back to you with the number.

I just -- I don't remember it off the top of my head, but it's -- the expectation is that it is offset largely with increases in depreciation to some degree.

As we add more U-verse customers, the set-top boxes and the home Gateways, the equipment that gets installed in customer premises are capitalized, and those are amortized or depreciated over fairly short periods.

So, depreciation and amortization I think for the year will be relatively flat.

Great.

Thanks a lot, Rick.

Jason Armstrong, Goldman Sachs.

A couple of questions.

Maybe first just on the dividend.

We came into the week with you guys sort of having the distinction of being the highest dividend-yielding Dow component.

If you look at the last several companies to hold that distinction recently, they've all ended up cutting their dividends, which sort of begs the question here, just -- Rick, it would be great to hear you sort of walk through the framework and hear about commitment levels to the existing dividend.

And then maybe second question here, just on wireline margins, maybe if we can step back and think about a framework relative to the last cycle.

Because it's -- we sort of look at this in aggregate -- you know, the BellSouth wireline business, the AT&T business, and then legacy SBC business, just trying to get apples to apples, wireline last cycle versus where we are this cycle.

You know, last cycle, those businesses in aggregate troughed had about 30% wireline margins.

So, just thinking through the puts and takes.

I mean, I think the argument would be enterprise is structurally better at this point.

Consumer, obviously, had some mix issues, but would love to sort of hear you think through the puts and takes with us.

Thanks.

Sure.

I wasn't aware of that distinction on dividends, Jason.

I don't know if that's good or bad, but it's nice to be singled out there.

Dividends are extremely important to us and to our share owners.

We look upon the dividend yield as an important part of the total return that we provide to share owners.

And as you know, we've got a good track record in dividend growth.

And we just increased our dividend -- in the middle of this environment, we increased our dividend just last December.

From the standpoint of the management team, our objective and our charge is to deliver the cash flows that support that dividend.

And that's a high priority and an important objective for us.

In terms of future dividend policy, that really is a responsibility of our Board and it's one that they take very seriously.

And they typically review dividends as we get toward the latter part of the year, when we have some visibility into our business plans for the following years.

And so, nothing has changed with respect to how we view dividends and the process we go through on a regular basis.

In wireline margins, I think there's one thing that's very important with respect to this cycle versus past cycles.

And that is, in the last cycle that we went through in the late '90s and the early part of this decade, if you think about things that were happening in the local telephone part of our business, we had significant growth in UNI-P.

And in effect, what happened then is volumes weren't necessarily declining.

We were just moving customers and lines from higher retail rates to lower wholesale rates.

And so those impacts tended to fall right through to the bottom line.

If you looked at the global business in the early part of this decade, a lot of capacity was available in the marketplace.

And so pricing started to drop significantly as some demand fell.

And so, again, what you saw was not necessarily reductions in volumes but more reductions in price.

And, again, those tended to fall right to the bottom line.

This is also a challenging cycle we're in, but it's a little more rational from the standpoint that what -- the kinds of things you expect in this economy are the things that we're seeing, which is some reductions in usage and some reductions in volumes.

And as we mentioned in the presentation, if you look particularly at the business side, half of the pressures at least that we're seeing are in products that carry high variable costs.

So they're not having nearly as significant an impact on margins or on the bottom line.

At the same time, I think we recognize last year that we had to be very proactive in taking fixed costs out of the business.

And we're doing that largely through the reorganization that we began in the fourth quarter.

And that's progressing well.

And I think we're seeing -- not just improvements from a cost perspective, but we're also seeing some positive benefits operationally from the changes we made in the fourth quarter.

So again, as I mentioned earlier, our charge this year is that we know we will see some declines in voice revenues and some changes in our mix.

So our charge, in terms of the management team, is number one, to not just grow revenues in the growth areas of the business, but improve the margins as we scale those products.

And then secondly, to drive fixed costs out of the business to try to maintain stability overall in margins and stability in our cash flow.

Great.

Thanks.

Michael Rollins, Citi Investment Research.

I was wondering if you could talk a little bit more about the sales cycle and some of the pricing trends that you're seeing within the Enterprise segment?

And as we move through 2009, how should investors think about whether the enterprise business will lag or move with the economy, in terms of employment and maybe some other metrics that you look at?

And is that different than it was maybe a few years ago?

Thanks.

Thanks, Mike.

I think in terms of how business will react in the economy, I still think there will be some lag.

Because it will follow -- I think businesses -- let me say it this way -- I think businesses will need to see some improvements in the environment and the economy in consumer spending, and when they see that, then they will react to it.

And the reaction will be as their volumes increase, they will increase employment.

We'll see more new business startups.

We'll see expansion in more locations -- the things that drive our business.

So, I do think there will be some lag.

In terms of the sales cycle, we're still seeing, and I think, winning a fair share of the deals that are coming on the market.

We're still seeing companies going forward with plans to migrate their networks to IP.

I think you see that in the fact that our IP data revenues are growing still at double-digit rates in our business markets.

So I think that's a positive.

And from business's standpoint, our customers' standpoint, there's a benefit to them to move towards IP.

It helps them provide the capability and the bandwidth they need within their business.

It helps them better manage their costs and their infrastructure.

And it fits well in a sweet spot for us, because we've got the capabilities there, not just in the services and products, but the experience to help them manage through that transition.

And if I can just follow-up -- in the last recession, back in the '01 to '03 period, your bad debt expenses as a percent of revenue peaked around the low 3's, if I remember correctly, might have been a little bit volatile.

But it was certainly significantly higher than it is today.

How do you think about credit and customer activity?

Is this time different in terms of what we should expect in terms of the bad debt experience, as we move through this period of economic softness?

Mike, to be honest, I don't remember bad debts moving up into the 3 range.

It may have been -- that was prior to the AT&T acquisition -- it may have been higher on the business side there, I don't know.

But our -- overall, our bad debt expense, our -- not just our uncollectibles but our write-offs, our aging experience across all of the segments right now -- wireline, wireless, consumer business -- are all holding up very well.

I think we're approaching reserves conservatively, particularly on the business side, because there are some increases in bankruptcies and business failures.

And so I think we're being appropriately conservative there.

But I feel -- right now, I feel good about where we are in terms of our collections, our aging and our write-offs.

Thank you very much.

Philip Cusick, Macquarie.

Thanks for taking the questions.

Rick, can you talk about CapEx a little bit?

It was down seasonally as we'd expect, and you projected that pretty well.

But can you talk about the drivers for whether it be high end, low end, or below the range through the year?

What are you thinking about those drivers, as you look at the business and potentially opening up the spigots on that CapEx?

Thanks.

Phil, CapEx for the quarter is about where we expected.

First quarter is seasonally lower for us.

We typically have about -- in the 20% range of CapEx in the first quarter.

And that fits in with the guidance we provided of $17 billion to $18 billion this year.

When you break it down in the first quarter, we had a small increase in wireless spend, which is I think what you'd expect, given the growth in that business and the volumes, particularly on the data side.

The reductions in CapEx have come predominantly in two areas again -- the same areas we talked about when we provided guidance for the year.

About half of the reduction year-over-year came in success-based, demand-related capital.

And about half of it or maybe a little more than half came in portfolio capital.

And again, that's where we've brought CapEx down.

And we focused a little more of our portfolio capital on expanse-related versus revenue-related projects.

So, I think we're right in line with where we expected to be at this point.

We're also comfortable that we're investing in the areas that are important for us to invest in, and as we said, to position ourselves going forward.

So I'm very comfortable with the levels that we're at.

And like all other businesses, I think we'll need to see some pickup in growth and economic activity and in our own volumes.

And when that starts to occur, then we'll start to spend in those areas consistently.

As you went through the quarter and then into April, have you seen any change in the direction of the economy, either a positive or to the negative?

I can't say that, in this first quarter, that we've seen significant changes in the direction.

I think in most respects, what we're seeing is, from the standpoint of the economy and the drivers in the business, for the most part, we're seeing a continuation of the trends that we saw in the fourth quarter; continue to see some pressure on wireline voice revenues primarily, and overall, on usage-based kinds of services.

So I don't think we've seen any change there.

I think that there were two positives in the first quarter, but I think they speak more to our products in these areas than necessarily than the economy.

One was in our sales in wireless of integrated devices and in particular, iPhone sales.

I think having over 1.6 million iPhone sales in the quarter in this environment was very strong.

And then secondly, as I mentioned earlier, I think our trends in wireline revenue connections in consumer, again, given this environment, were good.

And they were a little bit of a pleasant surprise for us.

And I think it speaks to the services that we offer there and it speaks to the success we're seeing with U-verse.

Thanks, Rick.

Loraine, I think we have time for one more question.

Okay.

Craig Moffett, Sanford Bernstein.

Rick, I wonder if I can just follow up on that sort of macroeconomic picture for a second.

If I think strategically, as you think about what is the timing to reposition from cost positioning heading into a worsening economy, to strategic positioning coming out of a worsening economy, do you feel like you're in that position to make that shift?

And where are the places that you say you can take advantage of the weakness of others to really position the business for the turn in the best way?

Would it be in wireless, in expansion internationally?

Would it be out of region opportunities?

Or what are the things that are on your radar screen for coming out of the recession?

Those are great questions, Craig.

First of all, I think I'd -- I want to be careful how we characterize it.

I think I would characterize the position we're taking right now a little differently, in that we are working real hard to do both.

We are focused, obviously, on the cost side of the business and on generating margins and cash flow.

But at the same time, we are investing in areas that we think are important for the future.

So, we are investing in wireless.

And as you've seen over the past year, in what has been a difficult environment, we've continued to invest in wireless spectrum.

We've continued to do some fill-in acquisitions in wireless.

We've invested in products like the iPhone.

We've invested in relationships with integrated device manufacturers.

So, we're doing everything there I think that's important to position the business for the future.

In our business services, we continue to develop our suite of business services; managed services, we've been successful in developing relationships with major customers, developing relationships with IBM -- all of those things that position us, I think, very well on the business side.

And, of course, we're investing in U-verse.

And as I mentioned earlier, I think we're seeing a nice ramp in growth there.

And we're seeing the kind of benefits that we hope to see from the integrated platforms.

So, not just sales of video, but bringing both broadband and voice with it.

So, we are continuing to invest in the areas that are important to us.

And as always, we look at opportunities domestically and internationally.

And certainly, our focus areas are in wireless and our focus areas are in services to business customers.

So, those things haven't changed; it's just a matter of finding the right opportunities at the right time.

All right, thank you, Rick.

Folks, again, I appreciate everyone being with us this morning.

I'll just wrap it up with a closing comment.

And as I said earlier, I think despite economic pressures, I think we had a very solid first quarter.

Cost initiatives are on track.

The margins were stable; cash flows were strong.

And as I mentioned, our focus in this current environment is, first, to execute with discipline and focus on the cost side, but second, to continue to invest and drive growth in areas that are key to the future -- in wireless data, and business services, and in U-verse.

And I think we did the things in the first quarter.

And I think the results give us confidence in our ability to execute going forward in this year and in this environment.

That confidence comes from having, I think, terrific assets in our business with a lot of opportunity ahead.

And our goal this year, as I mentioned, is to make certain that we're well positioned; that we're strong financially, with good operational momentum, so that as this economy turns, we're positioned to grow this business going forward.

And that's our focus.

I want to thank you again for being with us this morning.

And as always, I want to thank you for your interest in a AT&T.

Thanks, everyone.

Thank you, Loraine.

Have a good day.

Thank you.

You too.

And thank you, ladies and gentlemen.

This concludes today's teleconference.

Thank you for participating.

You may now disconnect.