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AT&T ups dividend, offers share buyback

AT&T Inc. on Tuesday raised its dividend 12.7 percent, announced a share buyback and set a long-term target for its TV service, which is delivered over phone lines, saying it will be available to 30 million customers by 2010.
/ Source: The Associated Press

AT&T Inc. on Tuesday raised its dividend, announced an expanded share buyback and said it was seeing only small effects from the troubles in the U.S. economy.

Investors greeted the news from the nation's largest telecommunications company by sending the stock up more than 5 percent in afternoon trading, as the broader market declined.

At a conference with analysts in New York, AT&T touted a turnaround in its once-shrinking business of serving corporate clients, as well as strong performance from its wireless division. It expects revenue to grow around 5 percent next year.

The company said it will buy back 400 million shares, which represent about 7 percent of the company's stock, and would cost $15.16 billion. AT&T said it expects to complete the repurchase by the end of 2009.

The company said the new repurchase plan supersedes an existing one announced in 2006. AT&T bought $13 billion in shares under that authorization.

AT&T's quarterly dividend will rise to 40 cents from 35.5 cents. It will be paid Feb. 1 to shareholders of record on Jan. 10, the telecommunications company said.

AT&T shares rose $2.07, or 5.5 percent, to $39.97 in late afternoon trading Tuesday.

UBS analyst John Hodulik said Wall Street was expecting a buyback, but the size was bit larger than expected. The revenue outlook was also on the strong side, he said.

"They're generating a lot of cash and have to do something with it," Hodulik said. He said management also probably looks at the company's own stock as a good value. It has retreated from a 52-week high of $42.97 set Sept. 27.

AT&T's chief financial officer, Rick Lindner, said the outlook assumes a "soft landing" for the economy rather than a recession, but that the company hasn't noticed a wide impact on consumer spending brought on by the trouble in the housing market. There has been a "a slight uptick" in bad debt expense from phone subscribers, however.

By contrast, the nation's largest cable company, Comcast Corp., last week trimmed its revenue and cash flow forecasts for the year, saying consumers had cut back.

One of the drivers behind AT&T's results is the continuing integration of some massive acquisitions, and the attendant cost cuts. The company then known as SBC Communications, the Baby Bell phone company of the Midwest and California, bought its former parent AT&T Inc. in 2005. It followed that up with a $85 billion acquisition of BellSouth Corp., consummated late last year.

Also Tuesday, AT&T sounded an aggressive note on its service delivering television over phone lines, known as U-verse. It expects to have more than 1 million subscribers to its TV service by the end of 2008, and aims to make the service available to 30 million homes and businesses by 2010.

The announcement by chief executive Randall Stephenson reinforces AT&T's commitment to U-verse. Recent news reports said the San Antonio-based company was in talks to acquire satellite TV broadcaster Dish Network Corp., formerly known as EchoStar Communications Corp., which would have given AT&T ownership of a different route to reach customers. However, those talks have likely been shelved because of federal anti-collusion rules surrounding a spectrum auction that will start in January. AT&T already resells Dish service.

The U-verse rollout has been delayed several times. A month ago, AT&T trimmed its coverage target for the end of next year to 17 million homes from 18 million. The delay was due to a shift in resources to the former BellSouth.

U-verse had 126,000 subscribers at the end of September, the latest figures released, but AT&T said it is now connecting more than 10,000 customers per week.

AT&T also confirmed that at least some U-verse subscribers will next year be able to watch two different high-definition channels at the same time, something that hasn't yet been possible because of the way the TV signal is squeezed on to phone lines.

The company also said broadband speeds of up to 10 megabits per second will be available to some subscribers next year thanks to the U-verse system upgrade. The current maximum is 6 Mbps.

AT&T expects to spend between $4.5 billion and $5 billion on U-verse through 2008. The deployment is expected to reduce 2008 earnings by 12 to 14 cents a share.

At the analyst meeting, Ralph de la Vega, the head of AT&T's wireless division, addressed Verizon Wireless' announcement two weeks ago that it would open its network by the end of 2008 to any devices that pass a technical inspection.

De la Vega emphasized that the Global System for Mobile, or GSM, network technology that AT&T uses already means customers can connect any compatible device by inserting a Subscriber Identity Module, or SIM chip.

"AT&T is the most open carrier in the U.S.," de la Vega said. "Open access is a change only for non-GSM carriers."

Verizon Wireless' plans go farther, however, in that they plan to allow device manufacturers to buy wholesale access and deal with end customers themselves, while AT&T envisions keeping the customer relationships. Verizon Wireless is a joint venture of New York-based Verizon Communications Inc. and Vodafone Group PLC of Britain.

Google Inc. made another big splash in the wireless world in November, revealing a project to create a software package for cell phones. AT&T is not a member of Google's alliance, but de la Vega noted that company already carries phones with six different operating systems and would evaluate Google's software, called Android, on the same basis.

But in comments on the sidelines of the conference, de la Vega indicated that he had higher expectations for Apple Inc.'s iPhone, which is exclusively carried by AT&T in the U.S. Apple has said it will make it easier next year for third-party developers to make software for the phone, which is now a relatively closed platform.

"The jury is still out on Android," de la Vega said. "I think Apple has the right model."