New AT&T phone contracts dive in 1Q

April 20, 2011
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Story Published:
Apr 20, 2011 at 9:29 AM PDT

Story Updated:
Apr 20, 2011 at 9:29 AM PDT

New ATT phone contracts dive in 1Q

NEW YORK (AP) – ATT Inc.’s subscribers are still buying iPhones, but with Verizon Wireless now selling the iconic phones too, they seem to have lost their power to draw new subscribers to ATT.

ATT, the country’s largest telecommunications company, on Wednesday said the first quarter saw the addition of 62,000 net new subscribers on contract-based plans, a record low. In the same quarter a year ago, the figure was 512,000. In several previous quarters, the figure was above a million.

Subscribers on contract plans pay the most every month, so they’re crucial to wireless companies. At ATT, contract subscribers pay an average of $63.39 per month, while non-contract subscribers and devices pay $12.94 per month.

ATT had an average quarter in terms of total new subscribers: 2 million. That number was bolstered by another Apple Inc. product, the iPad, as ATT said it added 322,000 subscribers with tablet computers. But the bulk of the net additions, 1.3 million, came from non-phone, non-tablet devices like Amazon.com Inc.’s Kindle, security systems and GPS units, which yield ATT about $2 to $4 in revenue per month.

ATT said it activated 3.6 million iPhones, up from 2.7 million a year ago. But given the low number of net new contract subscribers, the new phones were clearly going to people who already had ATT service. ATT also said the percentage of iPhone subscribers cancelling service was the same as last year, meaning Verizon Wireless doesn’t seem to be pulling a lot of iPhone subscribers from ATT. Analysts say the full impact of the Verizon iPhone will take time to be felt, since smartphone subscribers are tied up by two-year contracts.

Verizon Wireless started selling its version of the iPhone on Feb. 10, ending three and half years of exclusivity for ATT. In most other countries where the iPhone is sold, there were already multiple carriers. Verizon Communications Inc., which controls Verizon Wireless through a 55 percent ownership stake, reports its first-quarter results Thursday morning.

ATT’s net income rose 39 percent to $3.41 billion, or 57 cents per share, for the January-March period, up from $2.45 billion, or 42 cents per share, a year ago.

The earnings matched the average estimate of analysts polled by FactSet.

The earnings increase was mainly due to a reduction in taxes – ATT’s operating income fell 2.7 percent as expenses grew faster than revenues on the wireless side, and wireline revenue continued its long slide.

Wireless expenses rose in part because of the cost of issuing new phones to former subscribers of Alltel and Centennial Communications that ATT have taken over.

Revenue was $31.2 billion, up 2.3 percent from $30.5 billion a year ago. That also matched analysts’ expectations.

ATT shares edged up 7 cents to $30.38 in morning trading. The shares are close to their three-year high of $31.

Analyst Craig Moffett at Sanford Bernstein called it a mixed quarter that supports his “Outperform” rating on the stock, since it’s cheap relative to its earnings.

ATT stunned the industry a month ago by announcing that it had agreed to buy T-Mobile USA, the No. 4 wireless carrier, for $39 billion. The deal is opposed by consumer groups and the No. 3 carrier, Sprint Nextel Corp., who fear that the acquisition would bolster one of the big two carriers at the expense of competition.

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