AT&T (T - Free Analyst Report), the nation's largest telecommunications company, has posted September-interim results that fell slightly short of our estimates. Indeed, share net of $0.55 for the period, while a penny ahead of last year's tally, was $0.04 below our $0.59 forecast. This can largely be attributed to an uptick in handset subsidies (paid to Apple (AAPL) and other smartphone makers) and network upgrade costs, which kept a lid on margins at the key wireless division. Average-revenue-per-user metrics were also on the soft side, reflecting, we think, a shift by mobile subscribers to cheaper, lower-end data plans.

These negative factors offset another strong quarter for iPhone activations (a record 5.2 million of the popular devices) and a solid showing from the traditional landline operations. The local telephone business, no longer a growth driver for the giant carrier, benefited from the expansion of U-verse, AT&T's relatively new Internet-powered video service.

Looking ahead, we have reduced our share-net call for 2010 by a nickel, to $2.28, owing to the modest third-quarter earnings miss and the ongoing pressures on wireless margins. That said, we expect the company to remain on a healthy growth track through 2011 and beyond. While it may lose its exclusive rights to sell the iPhone next near (rumors suggest that Verizon (VZ - Free Analyst Report) will offer a version of the phone starting in January), AT&T should continue to get a lift from strong demand for Apple's handheld products, including the new iPad tablet PC.

What's more, the company maintains an impressive lineup of exclusive devices from other OEMs, like Research in Motion (RIMM). And improved network coverage ought to help keep wireless subscriber and data-usage trends headed in the right direction.

Results from the legacy landline unit, meanwhile, should continue to be buoyed by cost-cutting measures, U-verse gains, and the addition of new, big-volume enterprise clients.

All told, we continue to like AT&T's shares for conservative investors with a long-term view. This stock is suitable for income-oriented accounts, too, thanks to the above-average dividend yield.

About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the U.S. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 45 million. In 2009, about 26% of its sales came from voice operations and 21% were from the data segment.


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.