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AT&T sees signs of enterprise life in Q2

AT&T is starting to see positive signs out of its business services just like Verizon. Look for both carriers to talk up the enterprise to show they're about more than smartphones.
Written by Larry Dignan, Contributor

AT&T activated 3.7 million iPhones, sold 5.1 million smartphones and talked up its second quarter largely in terms of wireless, but lost in the shuffle is that the carrier is seeing some momentum in its business services.

In other words, AT&T is seeing upside in its business technologies. Sound familiar? It should. Verizon is saying the same thing about its enterprise business.

For these giant carriers, the enterprise business is critical because it offers a counterweight to the iPhone-dependent and the hit driven smartphone market. In many respects, the enterprise business and services such as cloud services, hosting, VPNs and application management can keep carriers from becoming dumb pipes and commodity bandwidth dealers.



These nuances are often lost in carrier results because wireless steals the show. For both AT&T and Verizon, the story revolves around wireless---for now.

AT&T reported second quarter earnings of $3.9 billion, or 66 cents a share, on revenue of $31.6 billion, up slightly from a year ago. AT&T sold its ad business in May. Excluding that sale, AT&T revenue would have been up 2 percent.

The wireless business remains the star at AT&T. The company saw wireless revenue of $14.8 billion in the second quarter, up 4.3 percent from a year ago. Postpaid churn was 0.97 percent in the second quarter and AT&T added 1.3 million total wireless subscribers. Postpaid net additions were 320,000. Of the 5.1 million smartphones sold in the second quarter, 3.7 million were iPhones.

Here's the upshot: AT&T and Verizon have a happy duopoly going in the wireless market. Sure, Sprint and T-Mobile are challengers, but they lag the big two carriers.

On the wireline front, AT&T had second quarter revenue of $14.9 billion and business sales were $9.1 billion, down 1.5 percent from a year ago. However, AT&T is finally to the point where new business services are trumping legacy products.

AT&T said:

Declines in legacy products were largely offset by continued growth in strategic business services. Business revenue comparisons were helped by the first year-over-year revenue growth in enterprise since the first quarter of 2008.

Bottom line: AT&T has had a four-year growth dry spell in the enterprise. Gains were led by next-gen businesses such as hosting, conferencing and application services.

AT&T CFO John Stephens said on the company's earnings conference call:

Large businesses or enterprise customers continue to invest in advanced data services . This has led to improving revenues even without any lift from the economy. In fact, we had our first enterprise revenue growth in more than four years . The growth was small, but still a positive trend. At the other end of the spectrum, our small-business revenue growth was down slightly sequentially, once again challenged by the lack of new business starts . And our wholesale and government sector saw revenue pressure as some customers reduced legacy data connections.

It's a similar story for Verizon. Verizon CFO Fran Shammo said on the company's second quarter earnings conference call:

I think the important thing here is we are really building our business around platforms, and if you look at what we've done, we are rated number one in the world on security. We have built our data center platform around our Terremark acquisition. And now we are going to build our machine to machine and applications platform around the Hughes Telematics and I think that brings a different paradigm to us going forward. I am very optimistic on the enterprise business.

AT&T is also upbeat. As a result, you're going to hear a lot more about enterprise sales going forward. That chatter will naturally come in between a lot of iPhone and Android talk.

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