iPhone Subsidies Diminish AT&T Earnings

Wednesday, Apr 22, 2009  |  Updated 8:15 AM CDT
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iPhone Subsidies Diminish AT&T Earnings

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The company says earnings fell nearly 10 percent in the first quarter.

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Strong results from the wireless business softened the effect of the weak economy at AT&T Inc., helping the country's biggest telecommunications carrier beat analyst estimates for the first quarter.

Dallas-based AT&T said Wednesday it earned $3.126 billion, or 53 cents per share, in the first three months of 2009, down 9.7 percent from $3.461 billion, or 57 cents per share, a year earlier.

The earnings were reduced by 5 cents per share for increases in noncash pension and retiree expenses. Excluding that item, the earnings were 58 cents per share. The average estimate of analysts polled by Thomson Reuters, which generally excludes items, was for earnings of 48 cents per share.

Despite strong wireless sales, AT&T says revenue slipped to $30.6 billion from $30.7 billion a year ago. That was short of analyst expectations at $31.1 billion.

Revenue fell because the weak economy exacerbated the long-running decline of AT&T's landline business. Sales of traditional fixed phone service fell 12.2 percent to $8.7 billion.

In pre-market trading Wednesday, AT&T shares rose 92 cents, or 3.6 percent, to $26.20.

AT&T added a net 875,000 customers under contract in the first three months of the year, hundreds of thousands more than expected by analysts. Of the new customers, about three-quarters chose the iPhone.

In total, AT&T added 1.6 million iPhone users, including those switching from other AT&T phones. That's down from 1.9 million from the holiday-boosted fourth quarter, but strong performance for the first quarter.

Signing up more iPhone users is good for the company in the long run, since iPhone users pay 60 percent more than other customers. But in the short term, new users weigh on earnings, because AT&T subsidizes each phone by hundreds of dollars.

Apple Inc.'s phone also helped AT&T avoid getting caught up in a trend analysts are seeing this year: more customers are signing up for prepaid service than for expensive contract-based plans. Only a quarter of new subscribers at AT&T chose prepaid in the quarter. At T-Mobile USA, more than half chose prepaid in the quarter.

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