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AT&T Updates Outlook on Merger Synergies, Details Plans for Growth in Wireless, Broadband and Business Services


Industry’s premier assets and largest synergy opportunities expected to drive double-digit adjusted EPS growthin each of the next three years

* Merger synergies expected to reach $3 billion annual run-rate by 2008, value of expected merger synergies estimated at $18 billion, 20 percent above estimates announced in January of 2005.
* Additional cost initiatives, separate from merger integration, expected to yield annual expense savings reaching $1.2 billion by 2008.
* Merger drives strengthened AT&T revenue mix, with three-fourths of total revenues, including proportionate Cingular results, now coming from wireless, business and wholesale.
* Cingular Wireless continues to be on or ahead of schedule with merger initiatives and expects to largely complete deployment of 3G UMTS/HSDPA wireless data network this year.
* Free cash flow after dividends expected to grow from $2 billion in 2006 to $4 billion or more in 2007 and to $5 billion in 2008; $2 billion in share repurchases expected in 2006. (Free cash flow after dividends is cash from operations including proportionate Cingular cash flow less capital expenditures and dividends.)

New York, New York, January 31, 2006, AT&T Inc. (NYSE: T), the United States’ largest telecommunications company, said today it expects cost synergies combined with solid progress in wireless, broadband and business services to power double-digit adjusted earnings per share growth and strong cash flow growth over the next three years.

Speaking at the company’s conference for investors and analysts in New York, AT&T Chairman and Chief Executive Officer Edward E. Whitacre Jr. said that AT&T has the industry’s premier set of assets, strong operating momentum and by far the industry’s largest upside potential from merger synergies.

“We are at the beginning of a tremendously exciting time for our company,” Whitacre said. "Merger integration is on a good track, and we continue to execute well on all fronts. We are confident that synergies from the AT&T merger will be larger, and that they will come sooner, than in the outlook we provided a year ago.

“Through strategic investments and internal growth, we’ve significantly reshaped our revenue mix to concentrate on the industry’s best growth areas for the future — wireless, broadband and business services,” Whitacre said. “Progress on the revenue side combined with our focus on lowering our overall cost structure provides a clear path for strong performance.”

On Nov. 18, 2005, SBC Communications Inc. completed its acquisition of AT&T Corp. and adopted AT&T Inc. as its name. Just over a year earlier, Cingular Wireless, AT&T’s 60 percent- owned affiliate, acquired AT&T Wireless to create the nation’s largest wireless provider.

As a result of these transactions and its own organic growth, AT&T today is the U.S. industry leader in key business categories: No. 1 in communications services for businesses; No.1 in DSL broadband, with 7 million lines in service; and through Cingular, No. 1 in wireless, with more than 54 million subscribers nationwide. In addition, AT&T’s directory operations are the world’s largest, publishing more than 700 Yellow Pages titles and more than 100 million copies of directories annually.

In terms of revenue mix, including proportionate results from Cingular Wireless, more than three-fourths of AT&T’s revenues come from wireless, business and wholesale, with less than one-fifth coming from consumer voice services.

Merger Integration Progress, Synergy Expectations

Whitacre reported that AT&T has made solid early progress in merger integration. “The assets we acquired are in excellent shape, their 2005 performance topped expectations, we have a good integration plan, we retained key talent, and the response from customers has been overwhelmingly positive,” Whitacre said. “The AT&T merger is everything we hoped it would be and more.”

The company said the net present value of AT&T merger synergies is now expected to be approximately $18 billion, versus its January 2005 estimate of $15 billion. AT&T now expects total synergies from the merger to reach an annual run-rate approaching $3 billion in 2008. Overall integration costs are largely unchanged from earlier estimates, although they will be incurred sooner due to the transaction’s earlier-than-expected close and accelerated project schedules.

The merger is now expected to contribute more than $0.30 to adjusted earnings per share (before merger-related costs) in 2008, and it is now expected to be earnings-per-share positive on a reported basis in 2007, more than a year ahead of earlier projections.

Driven by these synergies and continued progress at Cingular Wireless, AT&T expects to generate growing free cash flow after dividends over the next three years, increasing to $4 billion or more in 2007 and to $5 billion in 2008. (Free cash flow after dividends is cash from operations including proportionate Cingular cash flow less capital expenditures and dividends.)

Four Key Focus Areas

Beyond a smooth merger transition, Whitacre added that AT&T has four major operational priorities over the next three years: lead in business, lead in wireless, grow in broadband and reshape the company’s cost structure.

In wireless, Cingular is on or ahead of schedule in all of its major integration initiatives and expects to deploy its 3G UMTS/HSDPA wireless data network in most of the top 100 metropolitan areas by the end of this year. Over the past several quarters, Cingular has seen accelerating revenue growth rates, and in 2006, it expects to deliver an upper single-digit percentage increase in revenues. Cingular expects to achieve industry-leading metrics, including margins, by the end of 2007.
In business services, AT&T offers the industry’s broadest, most reliable network and a broad array of advanced solutions for businesses, and it targets growth in areas such as managed services, network security, optical networking, enhanced VPN (virtual private networking) and enterprise wireless.
AT&T plans to offer a range of integrated wireless voice and data services on a GSM network to enterprises under the AT&T brand starting later this year. Cingular operates the nation’s largest digital voice and data network, and it has more cellular/PCS spectrum in the top 100 U.S. markets than any other provider. AT&T wireless services will let businesses roam internationally, take advantage of volume-based pricing, earn credit toward the business’s overall monthly spend with AT&T and support corporate e-mail on converged PDA devices. Additionally, AT&T announced the general availability of AT&T Multi-Carrier Solutions, a managed service designed to help enterprises analyze and achieve the most cost-efficient and effective wireless services for their business needs. This new service gives enterprise customers visibility and control of their wireless services and costs by providing a consolidated view of their wireless operations with the ability to monitor changes to usage and plans.

In broadband, AT&T expects to continue expansion of its DSL line base, and it is on track to scale Project Lightspeed service starting in mid-2006, reaching 21 markets by year’s end. Project Lightspeed is AT&T’s next-generation network deployment to bring integrated, IP-based video, Internet access and communications services to customers, including a first-of-its-kind video entertainment service. AT&T began a controlled market launch of the service in December 2005. Customers are seeing bandwidth speeds of at least 20-25 megabits per second, which will deliver four streams of high-quality video — including one HD stream — along with high-speed Internet access and, in the future, consumer Voice over IP service.
In cost-structure improvements, AT&T has initiatives under way and planned across its operations. These projects, which are in addition to merger integration, are expected to deliver run-rate cost savings of approximately $500 million this year, growing to $1.2 billion in 2008.
Financial Outlook

Beyond its revised merger expectations, AT&T outlined guidance in a number of additional areas:

Earnings per share, adjusted to exclude merger-related costs, are expected to grow at a double-digit percentage pace in each of the next three years.
Revenue trends, including proportionate results from Cingular Wireless, in 2006 and 2007 are expected to reflect continuing but diminishing declines from AT&T Corp. operations, with total year-over-year revenue growth expected to turn positive in 2008.
Adjusted consolidated operating income margin is expected to expand to 16 percent to 17 percent by 2008, with a 15 percent to 16 percent adjusted margin in 2006. In 2006, pension and retiree costs and Project Lightspeed costs are expected to reduce earnings per share in 2006 by $0.06 to $0.08 and $0.08 to $0.10, respectively.
Capital expenditures in 2006 are expected to be $8 billion to $8.5 billion — in the low teens as a percentage of revenues. This includes capital for merger-integration projects and Project Lightspeed deployment.
Free cash flow after dividends, including proportionate Cingular, is expected to grow to more than $4 billion in 2007 and to $5 billion in 2008. In 2006, when the majority of the company’s merger-integration costs are incurred, free cash flow after dividends is expected to be approximately $2 billion.
AT&T expects to repurchase $2 billion worth of its shares in 2006. This builds on AT&T’s strong record of returning value to owners. In the second half of 2005, AT&T repurchased $1.6 billion of its shares. In December, AT&T’s board of directors approved a 3.1 percent increase in the quarterly dividend; this was the company’s 21st consecutive annual dividend increase. Also, combined with AT&T Corp. debt reduction prior to the merger’s close, and including AT&T’s proportionate share of Cingular’s external debt, AT&T eliminated $7 billion in debt during 2005.
About AT&T
AT&T Inc. is one of the world’s largest telecommunications holding companies and is the largest in the United States. Operating globally under the AT&T brand, AT&T companies are recognized as the leading worldwide providers of IP-based communications services to business and as leading U.S. providers of high-speed DSL Internet, local and long distance voice, and directory publishing and advertising services. AT&T Inc. holds a 60 percent ownership interest in Cingular Wireless, which is the No. 1 U.S. wireless services provider, with more than 54 million wireless customers. Additional information about AT&T Inc. and AT&T products and services is available at

Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s Web site at


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