Tuesday, January 29, 2008
AT&T, Verizon not affected by slow economy
WASHINGTON (MarketWatch) -- For AT&T Inc. and Verizon Communications Inc., business is pretty good and a slowing U.S. economy has not given executives any ulcers, at least not yet.
How would an anxious investor know? Well, the chief executives of both companies felt free to play hooky during conference calls for fourth-quarter results with Wall Street analysts. They left that task to the finance chiefs.
You can be sure that Randall Stephenson, in charge of AT&T (T:AT&T Inc
VZ, , ) boss Ivan Seidenberg would have been on the calls if the outlook for 2008 had begun to darken.
Instead, Seidenberg devoted a portion of Monday morning to a presentation to the company's employees. Stephenson, for his part, hung out with the global jet set last week in Davos, Switzerland, while his underlings handled investors and analysts.
Ironically, the talk in Davos involved worries about a U.S. economic slowdown, the effects of which would be felt worldwide. That's not the focus of AT&T or Verizon: They expect to do just fine, barring a sudden and dramatic economic dip.
There's been a lot of speculation about the potential impact of an economic slowdown," Verizon Chief Financial Officer Doreen Toben told analysts Monday after the company posted fourth-quarter earnings. "I would say that we have not seen a change in sales expectations through January." Read more on Verizon's results.
AT&T's finance chief, Richard Lindner, made the same point last Thursday during the company's call with analysts. See full story.
A necessary service
Concerns about the slowing economy took center stage in early January after Stephenson said at an investor conference that AT&T had disconnected more nonpaying customers. Although he also described the number of disconnections as immaterial, his words caused the biggest one-day drop in AT&T shares in five years.
So far in 2008, AT&T stock is down 13%, while Verizon is more than 14% lower.
Phone-industry executives have been in damage control ever since. While they downplay the threat from a slowdown, they are careful to hedge their bets. They know a recession would be more than just a mere speed bump.
"The economy is always a risk," Lindner pointed out.
Yet Lindner also noted that phone service is a vital utility for households and businesses, and that telecommunications companies are less susceptible than others in an economic downturn. While some subscribers on the margins might cancel service or fail to pay, most would continue to be customers in good standing.
The bigger question is whether customers will scale back on the addition of new services. Would they spend less on mobile services such as Internet access, a growing source of revenue for mobile operators? Or would customers scrimp on broadband? Wireless and data services have been the engines of growth in recent years.
Early in 2008, AT&T and Verizon say they have only seen small, isolated pockets of problems. Verizon's Toben said that she's been monitoring the housing market, mortgage delinquencies and unemployment rate.
"Obviously, we are monitoring numerous metrics very closely, and at this point we don't see any material changes," she commented.
Were material threats to sales growth arise, executives say, they still have tools available to maintain profits, particularly after years of hard to work to contain costs and develop more flexible business models. Verizon President and Chief Operating Officer Dennis Strigl said that the company could cut back on overtime, limitcontractor or travel-related expenses and even trim more jobs.
The point is Verizon is "very confident about 2008 despite all of the noise we're hearing about the economy," he added.
That's not to say all is hunky-dory at AT&T and Verizon. Both companies saw sharper declines than expected in local-phone lines during the fourth quarter. In the consumer market, the number of local lines served by Verizon was down a sharp 10.6% to 24.84 million from a year earlier, while AT&T reported a 5.6% drop to 35.05 million.
Most customers who've canceled wireline service chose to go entirely with wireless, or switched to phone plans sold by cable-television operators. Few customers disconnected service because of economic pressure, according to AT&T and Verizon execs.
One concern: More customers could choose to give up either mobile service or landline service to save money if they fell economically threatened.
At this point, executives say, there's no evident trend.