Wireless Growth Gives Biggest Lift To AT&T's Q1 Results

Reinhardt Krause Tue Apr 22, 6:49 PM ET

AT&T on Tuesday reported first-quarter results in line with analyst expectations, fueled by a 17% rise in wireless service revenue.

The telecom service provider said its first-quarter profit, minus special items, jumped 14% from a year earlier to 74 cents a share.

Total sales rose 6.1% to $30.7 billion, including $10.6 billion in wireless sales. The profit and sales figures met the expectations of analysts polled by Thomson Reuters.

Net income rose to 57 cents a share from 45 cents.

The nation's largest telecom provider continues to see its old landline business decline. AT&T's (NYSE:T - News)revenue from wireline voice service fell 7.1% to $9.7 billion, as home phone customers switched to cable plans or wireless-only service.

AT&T added 1.3 million wireless customers in the quarter, up 9% from first-quarter 2007. Analysts say price cuts for Apple's (NasdaqGS:AAPL - News) iPhone and a new $99 unlimited calling rate plan boosted subscriber gains. AT&T is the exclusive U.S. provider of iPhone service.

For AT&T, a key question is whether wireless growth can offset its shrinking residential business.

"Wireless net additions may have met expectations but were nothing to write home about, though the iPhone continues to do fairly well," said Christopher King, an analyst at Stifel Nicolaus. "Consumer line-loss trends were its worst ever."

AT&T shares rose a fraction Tuesday, closing at 37.81. The stock has slipped nearly 10% in 2008 after posting a 19% gain last year.

AT&T is spending heavily to keep its wireless engine humming. It has committed $9.1 billion in 2008 to buying airwaves, including the $6.6 billion it spent in the recent government auction of radio spectrum.

AT&T's wireless data revenue rose to $2.3 billion, up 57% from the year-earlier quarter and 13% from the previous quarter. AT&T said data products -- text messaging, music downloads and Internet access -- accounted for 21.5% of wireless revenue, vs. 16% a year ago.

Average monthly revenue per subscriber rose 2% to $50.18, thanks to data products.

The company ended the first quarter with 71.4 million wireless customers, ahead of No. 2 Verizon Wireless, which has 65.7 million.

AT&T's exclusive deal with the iPhone gives it an edge in signing up heavy users of music and other data, analysts say.

IPhone users spend an average of $95 a month, AT&T says.

Still, much of AT&T's subscriber growth is coming from lower-spending, prepaid customers who buy airtime as they need it. Some 22% of AT&T's 71.4 million wireless customers buy prepaid services, including 9.5 million subscribers of Tracfone.

Tracfone is owned by America Movil (NYSE:AMX - News), which reports its first-quarter results Wednesday. Tracfone leases airtime on AT&T's network. AT&T owns a small stake in America Movil.

"More than ever, wireless is AT&T's engine," said Craig Moffett, an analyst at Bernstein Research. "But (consumer) wireline is its anchor. Wireless subscriber growth and profitability were better than expected, but wireline trends were the worst ever."

AT&T's home-phone customers disconnected 689,000 primary lines in the first quarter, up from 283,000 in the year-earlier period.

AT&T's Internet business slowed but was in line with expectations. It added 491,000 consumer broadband subscribers last quarter, down 29% from a year earlier.

Some analysts have fretted about AT&T's outlook, given the slowing economy. But AT&T said it's sticking with full-year guidance of "mid-single-digit" revenue growth.

Large business customers have not reduced spending, AT&T says.

"In wireless, we continue to see very strong growth ... and we feel good about the enterprise (corporate and government) business," Richard Lindner, AT&T's chief financial officer, said Tuesday on a conference call with analysts.

AT&T might outperform other sectors in a soft economy, Lindner said. "Our business continues to be more defensive than most in times when the economy is weaker or under stress," he said.

AT&T says it added 148,000 customers for its fledgling U-verse TV service in the quarter, giving it 379,000 overall. Lindner says AT&T will hit its target of 1 million U-verse customers by year's end.