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April 25, 2004

AT&T Wireless Q1 hit by customer defections

AT&T Wireless Service Inc has lost a sizable amount of customers as chronic technical and operational problems continued to plague the US-based wireless operator.

By CBR Staff Writer

While its competitors have been reporting strong quarterly results, AT&T Wireless reported a first-quarter net loss of $58m, compared to a net profit of $135m in the year-ago quarter. Sales grew a modest 3.2% to $4.07bn, up from $3.95bn.

The number-three ranked wireless service provider was the subject of a frenzied bidding war earlier in the year, when Vodafone Group Plc and Cingular Wireless LLC both submitted rival bids.

Cingular Wireless emerged as the victor on February 18 after its last-minute, final cash offer of $40.7bn was accepted. In addition, Cingular agreed to take on $6bn in debt from AT&T Wireless.

At the time, there was widespread speculation that Cingular had overpaid for a struggling operator, which had reported an unexpected fourth-quarter loss amid a host of technical problems, a view reinforced by its disappointing first quarter.

What caused the Redmond, Washington-based operator to become unstuck are its ongoing technical problems. Customers began to defect late last year when AT&T struggled to cope with new rules that allow customers to switch service providers without changing their phone numbers.

Customers also complained about the company’s handling of the new rules, which chairman and CEO John Zeglis blamed on its customer-care software, and the system it set up for handling the new rules.

Following the release of its results, AT&T Wireless withdrew its 2004 forecasts and said it won’t provide new forecasts because of the pending purchase.

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During the first quarter, the company lost 367,0000 subscribers. This is compared to 257,000 customers it gained in the year-ago quarter. Customer turnover rate, or churn, rose to 3.7% from 3.3% in the fourth quarter, and 2.3% a year ago. Average revenue per user, meanwhile, dropped to $56.60 from $58.70 a year ago.

This was clearly a tough quarter for AT&T Wireless, admitted Zeglis. We are in the momentum business, and the momentum we lost late last year had a carryover effort on our performance in the first quarter. On the other hand, despite disappointing results in the quarter, our trend lines are showing improvement, thanks to the aggressive recovery plans we began putting in place late last year and early in 2004.

This article is based on material originally published by ComputerWire

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