Source: Seeking Alpha
AT&T Inc. (NYSE:T)
Q2 2014 Earnings Conference Call
July 23, 2014 4:30 PM ET
Susan Johnson – SVP, IR
John Stephens – Senior EVP and CFO
Ralph de la Vega – President and CEO, AT&T Mobility
Mike McCormack – Jefferies
John Hodulik – UBS
Joe Mastrogiovanni – Credit Suisse
Simon Flannery – Morgan Stanley
Amir Rozwadowski – Barclays
Mike Rollinswtih – Citi Investment and Research
Phil Cusick – JPMorgan
Timothy Horan – Oppenheimer
Ladies and gentlemen thank you standing by. And welcome to the AT&T Second Quarter Earnings Release 2014. At this time phone lines are in a listen-only mode. We will have an opportunity for question-and-answer session later on. Operator Instructions]
At this time I would like to turn the conference over to our first speaker Senior Vice President, Investor Relations, Susan Johnson. Please go ahead.
Thank you, Nick. Good afternoon everyone. And welcome to our second quarter conference call. It’s great to have you with us today. I’m Susan Johnson, Head of Investor Relations for AT&T. Joining me on the call today is John Stephens, AT&T’s Chief Financial Officer; and Ralph de la Vega, AT&T’s President and CEO for Mobility. John will cover our consolidated and wireline results and Ralph will give us an update on our wireless business. And then we’ll follow with a Q&A session.
Let me remind you our earnings material is available on the Investor Relations page of the AT&T website that’s www.att.com/investor.relations. Of course I first need to draw your attention to our Safe Harbor statement before we begin which says that some of our comments today maybe forward-looking. As such they are subject to risks and uncertainties, results may differ materially. And additional information is available in our and DIRECTV’s SEC filings and on the Investor Relations page of AT&T and DIRECTV’s websites. I also wish to direct your attention to the information regarding SEC filings that is included on the slide.
Before I turn the call over to John, I would like to provide some additional context for the quarter on Slide 4. We talked with you the last few quarters about how we’ve been transforming our business for growth. This quarter we saw a significant progress, particularly with our repositioning of the wireless business model. First on the network front. Our Project VIP investment plan continues to deliver or transforming our network to a premier IP video-centric network and the results have been impressive.
Our 4G LTE build now covers more than 290 million people and we expect to complete our deployment by the end of the summer. And our fiber build out to cover more businesses is going well. We’ve now passed more than 500,000 business customer locations since we first announced Project VIP. At the same time we are investing in our network, we are investing in our customers by repositioning the wireless value proposition.
Several years ago we successfully led the transition to usage base to data pricing and now more than 80% of our postpaid smartphone subscribers are on those plans. Now we are making another successful pivot away from the traditional device subsidy model with AT&T and our Mobile Share Value plans. Customers can now pay directly for their devices and exchange for lower service pricing. That’s an equation that really works for our customers, as you can see with this quarter’s record subscriber metrics. And it’s an equation that works for us.
With this an important strategic shift away from device subsidies which has historically netted out to be a multi-billion dollar cost each year. This move away from the subsidy model it’s happening quickly and bringing about many of the expected changes in our financial results.
The shift in revenues from service to equipment and the moderation of quarterly margin trends as we achieved increased savings in device subsidies in the back-half of the year, which as you know historically is our strongest device sales season. But the key point is that we have made a deliberate discussion to go down this path and with the results we are seeing, we believe the strategy is clearly working. We see it in our results and we hear from our customers.
With that, let me turn it over to John to discuss our second quarter results. John?
Thank you, Susan. And hello everyone, thanks for joining us today and as always thank you for your interest in AT&T. Let me begin with our consolidated financial summary which is on Slide 5. Consolidated revenue grew to $32.6 billion up $500 million or 1.6%. This was driven by continued wireless growth as we change our business model. Solid consumer wireline growth once again led by U-verse and growth and strategic business services.
Revenue this quarter was impacted by the shift to no device subsidy plans and wireless. Reported EPS for the quarter was $0.68, as you know during the quarter we sold our equity position in América Móvil. After-tax we had a gain of about $0.08 on the sale. The gain was taxed at a higher effective tax rate due to accounting for deferred tax assets related to foreign tax credits.