Wireless competition is heating up with cheaper, pre-paid service providers luring away customers looking to cut costs and avoid commitment. AT&T appears to be weathering the competitive and economic storm on the wireless end, adding 1.2 million net new subscribers - three quarters of whom signed a long-term contract.
Apple's iPhone was the biggest factor. Dallas-based AT&T activated 1.6 million new iPhone accounts in the quarter. Apple, based in Cupertino, Calif., reports after the bell.
"In Apple we trust," said Roger Entner, who runs the communications practice at Nielsen Co. Given the number of new customers versus iPhone activation, it appears virtually every new subscriber added the highly visible smartphone.
Wireless strength helped AT&T post net income of $3.2 billion, or 53 cents a share, down from $3.52 billion, or 57 cents a share, a year earlier, but above Wall Street expectations. The latest results included 5 cents a share in pension and retiree benefit expenses.
Revenue, meanwhile, fell 0.6% to $30.57 billion and disappointed investors looking for slight growth.
The company's wireless business posted a 13% increase in profit and nearly 9% gain in revenue. The rate of customer cancellations held stable at 1.2% despite increasing pressure for customers to cut costs.
While the iPhone has been a valuable tool for adding customers, it's also been a costly one. AT&T pays a subsidy to Apple for every iPhone it activates. Entner estimates the subsidy totaled $400 million for the period.
"We said that our upfront investment in iPhone customers would depress margins in the short-term," AT&T Chief Financial Officer Rick Lindner told analysts on a call. "But given the attractive customer profile, it would support margins in the quarters and years ahead, and that's what you see in our first quarter results."
The iPhone "effect" is dissipating as AT&T worked through the initial spike of subsidy payments and realized the benefits of customers with a higher monthly cellphone bill. Analysts said the increased data revenue helped AT&T bank in more profits.
"As those iPhone customers get on the network and generate revenue, that should provide further lift to margins in the balance of the year," said William Power, an analyst at Robert W. Baird & Co.
AT&T wasn't completely immune to the competition. Ahead of the company's earnings, several analysts lowered their expectations for new pre-paid customers as a result of more aggressive rival offers.
The wireline business also continues to falter, hit particularly hard by the economy as customers drop their home phone line in favor of a cheaper cable phone service or wireless. Revenue slipped 5.4%, but profit fell by more than a quarter.
Offsetting those declines were strong additions to its high-speed Internet and television businesses. AT&T added 359,000 wired Internet connections in the period, an increase from the fourth quarter. Its U-Verse TV service added 284,000 customers - a slight increase over the December period.
While total wireline revenue fell, AT&T boasted that revenue per household increased slightly. The strength in broadband and continued cost cuts in the legacy phone business allowed the company to boost its margins, analysts said.
But there is little upside to those margins for the rest of the year, Lindner said, noting that revenue would continue to be pressured throughout the year.
Also hit was AT&T's business segment, which saw a 4.4% decline in revenue as businesses, enterprises and governments cut back on spending.
Apple's iPhone was the biggest factor. Dallas-based AT&T activated 1.6 million new iPhone accounts in the quarter. Apple, based in Cupertino, Calif., reports after the bell.
"In Apple we trust," said Roger Entner, who runs the communications practice at Nielsen Co. Given the number of new customers versus iPhone activation, it appears virtually every new subscriber added the highly visible smartphone.
Wireless strength helped AT&T post net income of $3.2 billion, or 53 cents a share, down from $3.52 billion, or 57 cents a share, a year earlier, but above Wall Street expectations. The latest results included 5 cents a share in pension and retiree benefit expenses.
Revenue, meanwhile, fell 0.6% to $30.57 billion and disappointed investors looking for slight growth.
The company's wireless business posted a 13% increase in profit and nearly 9% gain in revenue. The rate of customer cancellations held stable at 1.2% despite increasing pressure for customers to cut costs.
While the iPhone has been a valuable tool for adding customers, it's also been a costly one. AT&T pays a subsidy to Apple for every iPhone it activates. Entner estimates the subsidy totaled $400 million for the period.
"We said that our upfront investment in iPhone customers would depress margins in the short-term," AT&T Chief Financial Officer Rick Lindner told analysts on a call. "But given the attractive customer profile, it would support margins in the quarters and years ahead, and that's what you see in our first quarter results."
The iPhone "effect" is dissipating as AT&T worked through the initial spike of subsidy payments and realized the benefits of customers with a higher monthly cellphone bill. Analysts said the increased data revenue helped AT&T bank in more profits.
"As those iPhone customers get on the network and generate revenue, that should provide further lift to margins in the balance of the year," said William Power, an analyst at Robert W. Baird & Co.
AT&T wasn't completely immune to the competition. Ahead of the company's earnings, several analysts lowered their expectations for new pre-paid customers as a result of more aggressive rival offers.
The wireline business also continues to falter, hit particularly hard by the economy as customers drop their home phone line in favor of a cheaper cable phone service or wireless. Revenue slipped 5.4%, but profit fell by more than a quarter.
Offsetting those declines were strong additions to its high-speed Internet and television businesses. AT&T added 359,000 wired Internet connections in the period, an increase from the fourth quarter. Its U-Verse TV service added 284,000 customers - a slight increase over the December period.
While total wireline revenue fell, AT&T boasted that revenue per household increased slightly. The strength in broadband and continued cost cuts in the legacy phone business allowed the company to boost its margins, analysts said.
But there is little upside to those margins for the rest of the year, Lindner said, noting that revenue would continue to be pressured throughout the year.
Also hit was AT&T's business segment, which saw a 4.4% decline in revenue as businesses, enterprises and governments cut back on spending.
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