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3/17/2009
02:46 PM
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AT&T Bets Heavily On iPhone Strategy

The company is hoping that iPhone users will eventually generate enough revenue from data use to help avert its own financial crisis.

AT&T is betting heavily on its iPhone strategy to help avert its own financial crisis.

Standard & Poor's Rating Services dropped its long-term rating outlook on AT&T, citing several factors including the telecommunications company's expensive purchase of spectrum in last year's 700-MHz FCC spectrum auction and its private purchase of spectrum from Aloha Partners.

The ratings agency gave AT&T an "A" rating -- well below the top triple-A rating. S&P also cited market value losses in AT&T's pension and other benefit plans. The unfunded parts of the company's benefit obligations were recently $34.2 billion -- an increase of $28 billion from a year earlier. The telecom firm has already said that pension charges are expected to trim its full-year earnings.

AT&T has been betting heavily on Apple's iPhone, a product in which it has exclusive rights in the United States. While the iPhone strategy, heavily promoted by AT&T chief executive Randall Stephenson, has been a success, AT&T's heavy subsidization of the popular mobile phone has impacted its finances. The subsidies cost AT&T some $450 million in profits in its latest financial quarter.

AT&T's iPhone strategy is based on heavily subsidizing the cost of the handset while waiting for iPhone users to generate revenue through heavy data usage -- and charges. In its latest quarter, AT&T noted that its wireless data services revenue surged 51% to $3.2 billion.

AT&T is still challenged to roll out its 3G nationwide network and earlier this month listed some $11 billion in planned expenditures to beef up its network, which is based on the GSM infrastructure. The company eventually plans to switch its network to Long Term Evolution infrastructure. The company said it is planning to nearly double its 3G network capacity in the buildout.

AT&T has generally fared below archcompetitor Verizon Wireless in consumer polls, including those taken by Consumer Reports and J.D. Power market researchers.

AT&T recently said it will cut 12,000 jobs this year and in addition will delay the rollout of its U-verse television service.


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