AT&T earnings dip 23.6 percent

AT&T, the largest phone company in the country, reported Wednesday that its earnings for the fourth quarter of 2008 fell 23.6 percent, amid a tough economic climate. The company said it earned $2.4 billion, or 41 cents per share, during the fourth quarter, compared to $3.14 billion, or 51 cents per share, during the same period a year ago. Revenue increased 2.4 percent to $31.1 billion, which was slightly short of analyst expectations of about $31.3 billion. Even though AT&T saw strong growth in its wireless business and its IP data business, it also spent more on operations. AT&T's adjusted operating expenses for the fourth quarter of 2008 totaled $24.5 billion compared to $23.1 billion for the same quarter last year. Its adjusted operating income was $6.6 billion, versus $7.3 billion. And the company also saw its operating income margins fall to 21.1 percent versus 24.0 percent. AT&T announced in December plans to cut 12,000 workers or about 4 percent of its workforce in an effort to reduce costs. "Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company," Randall Stephenson, AT&T chairman and chief executive officer, said in a statement. "Looking ahead, while we are cautious about the economic environment, AT&T is well positioned with a strong balance sheet and premier operational assets, and I am very confident in our ability to execute." The biggest growth engine for the company was once again its wireless business. Revenue for wireless grew 13.2 percent compared to the same quarter a year ago to $12.9 billion. Revenue, which excludes handset and accessory sales, grew 13.3 percent to $11.5 billion. Much of this growth was driven by new customers. During the quarter, AT&T added 2.1 million new subscribers, including 1.9 million new iPhone users. AT&T now has a total of 77 million wireless subscribers, an increase of 7 million subscribers during the year. The company increased its post paid customers by 13.9 percent versus the same quarter last year. And it reduced its churn rate to 1.6 percent, down from 1.7 percent for both the preceding quarter and the year-earlier fourth quarter. But the real highlight of the quarter in wireless was the addition of 1.9 million new Apple iPhone 3G subscribers. AT&T reported that approximately 40 percent of these customers were new to AT&T, proving that the iPhone has helped greatly in attracting new customers. Apple launched the iPhone 3G in July. Over the past two quarters, AT&T says it has activated 4.3 million iPhones. The iPhone deal is also proving to be lucrative as the company also reported that the average revenue per user for iPhones is 1.6 times higher than with other AT&T products. The churn rates are also significantly lower than the company's overall postpaid subscriber base, the company said. While adding new iPhone customers in the long run is good for AT&T's business, in the short term it costs the company money, because AT&T subsidizes each unit by hundreds of dollars. It recoups the cost of the phone in service fees over the two-year contract of the phone. AT&T is the exclusive U.S. carrier for the iPhone. Overall AT&T also saw strong growth in data revenue for wireless, which it reports increased 51.2 percent compared to the fourth quarter of 2007. AT&T wireless customers sent nearly 80 billion text messages in the fourth quarter, more than double what they sent during the same quarter a year ago. Internet access revenues and multimedia message volumes also continued their robust growth. AT&T also noted that the fourth quarter marked the 12th consecutive quarter that wireless data revenue grew above 50 percent. Data represented 26.6 percent of AT&T's fourth-quarter wireless service revenues, up from 19.9 percent in the year-earlier quarter. AT&T also saw strong growth in its U-Verse broadband and TV service. AT&T added a total of 264,000 new TV subscribers in the fourth quarter, up from 232,000 added in the third quarter of 2008. The company now has more than 1 million subscribers for this service. AT&T's U-Verse broadband service also helped push growth in the company's IP data services. In total AT&T grew its consumer IP data revenue, which includes broadband and AT&T U-verse services, by 21.4 percent. AT&T executives are hosting a conference call at 10 a.m. ET to discuss results. Stay tuned for an updated story.

Payment processor Heartland reports breach

Heartland Payment Systems, which processes payroll and credit card payments for more than 250,000 businesses, reported Tuesday that consumer credit card data was exposed in what may be the largest security breach ever.

In a statement that coincided with President Barack Obama's inauguration events, Heartland said the breach occurred last year but that it found evidence of the intrusion last week and immediately notified law enforcement and credit card companies. Robert H.B. Baldwin Jr., president and chief financial officer of Heartland, told CNET News he did not know how many credit and debit card accounts may have had their information exposed. The company handles 100 million transactions per month but does not know exactly how many unique cards or consumers that translates to, he said. "We could do that analysis but we have not done it," Baldwin said. "The question is what percentage of transactions did the malware capture and what percentage got out to the bad guys?" He also would not say when the malware arrived in its system. "We have suspicions as to when, but can't nail that down. We're still working on how" the malware got there, he added. "We believe the intrusion is contained." "We understand that this incident may be the result of a widespread global cyber fraud operation, and we are cooperating closely with the United States Secret Service and Department of Justice," Baldwin said in the statement. No merchant data, cardholder Social Security numbers, or unencrypted PINs, addresses, or telephone numbers were exposed, the company said. Heartland was alerted in the late fall to suspicious activity surrounded processed card transactions by Visa and MasterCard and hired forensic auditors who uncovered malicious software that compromised data in the company's network, Baldwin said. The company said it will implement a system to flag anomalies in real time and created a Web site to provide information on the breach to customers, who will not be held responsible for fraudulent charges. Baldwin dismissed any notion that the announcement of the breach was timed so that it could be buried by the inauguration news. "We've been working to get enough facts together," he said. Previously, the largest breach was the 45.7 million credit and debit card numbers reported compromised in 2007 by TJX, which owns retailers TJ Maxx and Marshalls. TJX settled a class action lawsuit in that case. Eleven people, from the U.S., Europe and China, were charged in the case. Reports of data breaches in the United States increased 47 percent in 2008 from the year before, the nonprofit Identity Theft Resource Center reported in a study released two weeks ago. About 14 percent of the breaches were due to hacking, the report said.

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Why Obama's cell phone calls will always go through

After Barack Obama is sworn in next week, he'll be able to enjoy one of the lesser-known benefits of the presidency: phone calls that always go through. That means no more "all circuits are busy" messages. And no waiting for calls to be completed as millions of people crowd into Washington during the inauguration and jam overburdened cell phone towers, despite what have been practically heroic efforts on the part of carriers to add capacity. It may sound a bit like a storyline from the West Wing, but there actually is a branch of the government called the National Communications System tasked with ensuring that telecommunications related to "national security" remain intact and ready to use. President Kennedy created NCS in 1963, and its mandate has expanded to include high-priority Internet and mobile phone calls too. "We found that this program was very helpful during September 11," said Robert Kenny, director of media relations for the Federal Communications Commission's Public Safety and Homeland Security Bureau. "We think it's necessary across the board at all levels of government." Kenny said in an interview this week that NCS' priority-call system, which has been moved from the Defense Department to Homeland Security, is "for emergencies and other times there's a need to get calls out." That's in addition to private Defense Department networks, some of which are satellite-based. Homeland Security did not respond to queries about NCS on Thursday. One of the NCS's offerings is called Government Emergency Telecommunications Service, or GETS, which gives federally approved users special calling cards with instructions to call a certain number in the 710 area code for a guaranteed priority connection. At the prompt, the user enters a 12-digit ID number and the destination phone number. (The 710 area code is reserved for the federal government's exclusive use. It is, of course, a free call from a pay phone.) NCS says that the GETS system is designed to support tasks including "presidential communication," continuity of government, and access to the emergency broadcast system. Once the ID number is verified, the telephone network marks the call as a high-priority one, meaning it's specially routed and exempt from being blocked because of congestion or network overload. A 1984 executive order signed by President Reagan lists NCS's duties as: "National security and emergency preparedness communications for the federal government under all circumstances, including crisis or emergency, attack, recovery and reconstitution." In 2001, the government added an additional high-priority system for mobile phone users. It's called Wireless Priority Service, and gives authorized users including what NCS calls "senior members of the presidential administration" a higher-priority connection to the cell tower. WPS is accessed by dialing *272 before the destination phone number--but, alas, will only work if your mobile provider has authorized your phone. And the federal government needs to approve. "In times of an emergency that's a huge advantage for public safety," said John Taylor, a Sprint spokesman. Taylor said that WPS will come in handy next week during the inauguration. "For the inauguration, we are planning for 2 million people," he said. "We've said up front, if there are more than 2 million people, our customers will have problems. But we're confident public safety will not have problems because of this service." FCC documents (PDF) from 2000 provide a glimpse at the deliberations during the wireless system's creation. The agency concluded that a uniform *272 number was useful because otherwise "communications service users would have to change systems under conditions when compatibility is most important, i.e., during the exercise of the president's war powers." (As a side note, those war powers are breathtakingly expansive: Federal law allows the commander-in-chief to seize all TV and radio stations and cell phone towers, and control all telephone companies, Internet broadband providers and peering points. This can happen if the president believes there's a "threat of war" and such action is "necessary.") Authorization to use WPS is ranked by five different levels. The highest priority is reserved for, according to NCS, "National Command Authority support for military command and control critical to national survival" and "support for the conduct of diplomatic negotiations critical to arresting or limiting hostilities." Law enforcement and public utility companies receive a lower-priority WPS status. If Obama does end up ditching his BlackBerry for General Dynamics' Sectera Edge, a combination phone-PDA that's been certified by the National Security Agency, he won't be the first government employee to use it for priority calls. "Priority services as well as other security elements were considerations in the design of the device," according to a spokesperson for General Dynamics. The NCS has also taken some steps to find similarly-bulletproof ways to prioritize Internet communications. It's a far harder problem, of course, because the protocols underlying the Internet lack a reliable way to mark communications as White-House-high-priority, and the network is packet-switched and far less centralized. A 2004 report lists responses from the Internet industry to the NCS's request for suggestions about prioritizing governmental data communications including video chats and voice over Internet Protocol, or VoIP. It admits that "NCS cannot cause a paradigm shift within the Internet to meet these goals," one of which is "national leadership must receive end-to-end priority treatment over other users." It concluded, sensibly, that more research was required.

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