UPDATE 1-AT&T says rural lines sale may be too difficult

Fri Jun 1, 2012 1:00pm EDT

* Rural sales would mean complex regulatory process

* Sees single data plans that bundle call fees

* Expects more attempts at industry consolidation

By Sinead Carew

NEW YORK, June 1 (Reuters) - AT&T Inc Chief Executive Randall Stephenson said on Friday that a sale of rural phone lines may be too difficult to pull off because of regulatory hurdles.

Stephenson had said in January that the company would review the future of its roughly 20 million rural telephone lines, including the possibility for a sale.

But selling the phone lines could be difficult because of their diverse geographic locations, the executive said on Friday in a webcast of a Sanford C. Bernstein investor conference.

"The regulatory issues are the most difficult to deal with. It's more than finding a buyer or the operational aspects," Stephenson said.

Because the lines are in different states a sale would require approval from multiple regulators, creating a complicated process, said Stephenson, who added that the lines span 80 percent of AT&T's geographic footprint.

The executive added, "if you are going to do a sale and you want to do something meaningful, it's going to cover multiple states, which is going to mean multiple approvals, which is going to mean a significant amount of time and so forth. So we're working that," but he said "that's the part that would be causing you to pause."

Stephenson also said AT&T was not surprised by weak U.S. employment numbers announced on Friday as his corporate clients have not been hiring.

As for the wireless side of AT&T's business, Stephenson repeated his complaint about a need for more spectrum because data usage is expected to increase at a rate of 75 percent a year for the next five years.

As a result prices for data services will continue to rise until regulators free up more wireless spectrum for companies like AT&T, Stephenson said.

"I think there's going to be pricing pressure in the industry for the foreseeable future," he said, as new wireless technologies would only partly mitigate the imbalance of supply and demand for data services.

The executive said that wireless business models would change in coming years as operator grapple with high demand.

Along with developing data plans where consumers would be allowed to have one subscription for several devices, AT&T is also talking to content providers who want to contribute to wireless data fees in the hope of attracting consumers to their services.

Stephenson also expects that phone call fees, once AT&T's main source of revenue, will soon start to be bundled with fees for data services at wireless operators.

"I'll be surprised if in the next 24 months we don't see people in the market with data-only plans," he said.

Last year AT&T failed in an effort to get its hands on more spectrum as its $39 billion plan to buy No. 4 U.S. mobile service T-Mobile USA collapsed due to regulatory opposition.

The executive told investors that he would be "stunned and surprised" if more operators did not attempt to consolidate in coming months but he declined to comment on AT&T's plans.

AT&T shares were down 0.7 percent at $33.93 on the New York Stock Exchange on Friday, a day of broad losses for stocks.