AT&T's Signal Could Weaken

AT&T turned in a decent fourth-quarter performance, despite being dogged by costs. Nonetheless, the weak economy will blunt the telecom firm's chances of any meaningful growth for the foreseeable future, and it still hasn't figured out how to counteract the loss in sales from those pesky landline defections.

All told, AT&T recorded a 22.6% earnings slide from the previous year's corresponding quarter, to $2.4 billion, or 41 cents per share, from $3.1 billion, or 51 cents per share. Excluding special items, earnings totaled 64 cents per share.

Sales grew 3.3%, however, to $31.1 billion, from $30.1 billion. Both figures essentially met Wall Street's expectations of $31.3 billion in sales, with 65 cents per share in earnings.

Between October and November 2008, AT&T (nyse: T - news - people ) beat expectations by adding 2.1 million wireless subscribers, largely because of its being the exclusive official carrier of the popular Apple (nasdaq: AAPL - news - people ) iPhone in the United States. So, yes, AT&T registered a strong quarter, but times are tough.

Though its wireless sales grew 13.2%, its landline sales 3.3%. Unlike Verizon (nyse: VZ - news - people ), AT&T still hasn't been able to quell sliding sales in the segment by selling broadband and TV services.

The San Antonio-based telecom operator expects sales to grow in the low single digit percentages. In a sign of the times, though, it also expects to cut capital spending by 10% to 15%, from the $19.7 billion it invested in 2008. That will hurt equipment vendors like Ciena (nasdaq: CIEN - news - people ) and Alcatel-Lucent (nyse: ALU - news - people ) since AT&T represents a third of spending on telecoms gear.

As in the case of Verizon, the upheaval in the financial markets is forcing AT&T to fill funding gaps. It announced Wednesday that its 2009 earnings will take a 19 cent per share hit owing to pension and retiree benefit costs. Excluding that cost, though, it expects margins to remain stable.