AT&T Earnings Conference Call Nuggets: Underperforming Assets

AT&T reported its fourth quarter earnings on Thursday and discussed the following topics in its conference call. Take a look.

Prepaid Platform 

Simon Flannery – Morgan Stanley asked: One of the things you were hoping to get from T-Mobile was a better prepaid platform; prepaid is about two-thirds of the percent of the new subscribers coming on. Can you talk about how prepaid will fit into your strategy given what Verizon (NYSE:VZ) and some others have done here recently for 2012?

Could you expand a little bit more on your comments about looking at underperforming assets? Will we see spin-offs of (several lines), sale of directories? Is that the sort of absorbing we should be thinking about?

Randall L. Stephenson – Chairman, CEO and President responded: On the prepaid platform we’ve been rather transparent about the prepaid area in terms of when you’re spectrum constrained. You get really focused on the markets you want to pursue and we have obviously been very, very focused on the high-end of the market.

The beauty of T-Mobile was it not only came with spectrum, which would allow for some efficiencies within a prepaid platform that allow you to move down market. As we are getting more and more of an improved performance out of our network and as we move to LTE and begin to free up some of the 3G spectrum, this is probably an area that we’ll look to for growth.

In fact, we had a lot of work going on with this right now. I wouldn’t expect or wouldn’t have you expect to see that in the next six months.

When looking to the next 12 to 24 months, prepaid will obviously become a focus for us, especially when you think in terms of mobile data because it’s probably an underserved area where that segment of the market does not have a robust data offering in a prepaid environment.

That will be a focus as we begin to mine out some capacity moving to LTE.

Underperforming Assets

In terms of the underperforming assets, you’ve hit a couple areas. We just took a rather large charge in our directory operations to reflect a lot of the current comparable pricing in the market for those types of assets. That’s one area that were going to obviously take a very hard look at.

While I don’t want to give any indication on M&A activity, it’s one of these areas that we’re going to have to decide: do we keep it or do we restructure it as we move forward? The other is rural access lines; we have been apprehensive on moving, doing anything on rural access lines because the issue here is, do you have a broadband product for rural America?

We’ve all been trying to find a broadband solution that was economically viable to get out to rural America, and we’re not finding one to be quite candid. The best opportunity we have is LTE.

We are obviously excited about the opportunity to use LTE to get to rural America with the T-Mobile transaction.That having been set aside, now we’re looking at rural America and asking, what’s the broadband solution? We don’t have one right now.

You’ll see some activity and some structuring changes over the next couple of months that will provide some idea in terms of where we’re headed. We’re going to have to either completely restructure those businesses, but cost structure has to change including the wage and benefit cost structure. In addition, the cost structure associated with the technology, legacy TDM infrastructure out there, leaving them as they are, they will continue to be underperforming assets.

We’re going to have to make some fundamental changes and there’s more to come on that. As I’ve said, the next 12 months to 24 months will bring more clarity to that.These are areas that we as a company have to address in short order.