In what may prove to be AT&T's last earnings call as an independent customer, Chairman and CEO David Dorman and Vice Chairman and CFO Tom Horton were able to report stronger results than many expected, posting a $520 million profit despite the expected continued decline in sales.

Those results come a year after the historic decision to stop seeking residential and business customers and write down the value of the AT&T network, leading to a net loss of $7.1 billion or $8.99 a share, but also leading to the January merger agreement with SBC.

Since then, AT&T has succeeded in cutting its costs such that it is managing the same volume of traffic today as it had two years ago, but at 25% less cost and with half as many people, said Dorman and Horton. The company now expects to generate revenue of $26.5 billion for 2005, or about $500 million more than previously forecast, Horton said.

As a result, the two executives spent much of the earnings call accepting best wishes and congratulations from financial analysts.

"This does mark the end of an era," said Dorman, after telling analysts that the SBC merger is expected to go through before year's end. "But it's the start of a new chapter for the industry and for our company, and one in which AT&T will continue to play a vital role."

Continued price pressures in the long-distance voice and legacy data makret led to a 13% drop in revenues to $6.6 billion, which includes $5.1 billion from AT&T Business and $1.5 billion from AT&T Consumer. Operating income was $1 billion, representing an improved overall margin of 14.4 percent, due to cost cutting, Horton said. Operating margins were particularly high in the consumer business, hitting 36% based on "dramatic cost reductions" in the sector, he added.

"We still have several million UNE-P customers," Horton said, and the company has negotiated commercial agreements with the incumbent LECs to replace the UNE-P tariff rates, which expire in March. Horton said, however, that until the Federal Communications Commission resolves the issue of reciprocal compensation in the voice-over-IP world, that segment of the industry remains confused and chaotic.

AT&T is also benefiting from wholesale business in the wireless segment, Dorman added.

"In terms of market share, the wholesale market has been strong and growing," he said. "We have significant market share in the wireless sector. We do business with most of the major wireless providers. As their volumes have expanded, we have benefited from that on a variable basis."

The pending mergers of SBC/AT&T and Verizon/MCI have not dimmed intense competition in the long-distance segment, Dorman added. He cited Qwest, Sprint and MCI as constant bidders in corporate competition, as well as the Bells both within and outside their footprint, in addition to systems integrators such as BT, IBM and EDS, who are incorporating communications into their overall IT service packages for large enterprise customers.