AT&T Profit Beats Estimates as iPhone Boosts Bills

AT&T -the largest US phone company- posted first-quarter earnings that beat analysts’ estimates after more users upgraded to the iPhone and boosted spending on browsing the web, watching video and sending email.

Earnings climbed to 60 cents a share from 57 cents a year earlier, Dallas-based AT&T said yesterday in a statement. Analysts projected 57 cents, and sales rose 1.8 per cent to $31.8 billion, in line with the average analyst estimate.

AT&T activated 4.3 million new Apple iPhones, helping it increase monthly bills and offset slower subscriber growth in a market where most people already have mobile phones.

While contract-customer gains declined from the fourth quarter and trailed those at main rival Verizon Wireless, the increase in average revenue per user beat analysts’ estimates.

“The 4.3 million was a very strong number on iPhones,” said Colby Synesael, an analyst with Cowen and Co in New York with a neutral rating on the stock. The results were “better than expected overall.”

The US market is nearing saturation after a growth spurt fuelled by sales of the iPhone last year. Wireless penetration in the US is 105 per cent when including mobile devices like tablet computers, said Bob Roche, a statistician with CTIA, a wireless-industry trade group.

AT&T’s contract-customer gains were 187,000, compared with the 189,285 average of eight analyst estimates, as Bloomberg stated.

While the gains were higher than the 62,000 a year earlier, they declined from the 717,000 customers added in the fourth quarter. Verizon Wireless added 501,000 contract customers in the first quarter.

The iPhone activations increased from 3.6 million a year earlier and slowed from a record 7.6 million in the fourth quarter, when holiday purchases boosted sales.

New sales of the device hurt carriers’ profit margins initially, because they sell the phone at a loss to lure subscribers into two-year contracts.

Users of the iPhone and other smartphones are lucrative because they spend more each month browsing the web, sending email and watching video. Wireless operating income margin widened to 27.2 per cent from 25.8 per cent a year earlier.

The subsidies for the iPhone, which carriers buy from Apple for an estimated $600 each and sell to subscribers for hundreds of dollars less, have cut AT&T’s operating margins from about 30 per cent two years ago.

First-quarter net income rose 5.2 per cent to $3.58 billion from $3.41 billion a year earlier.

AT&T’s land-line business added 200,000 U-verse TV customers, compared with 218,000 a year earlier.

The slowing market is forcing AT&T into more intense competition with Verizon Wireless and Sprint Nextel Corp, with the carriers fighting over a shrinking pool of people who don’t yet have mobile phones.

They’re also trying to get customers to upgrade to smartphones such as the iPhone that let users browse the web and stream video.

Average monthly revenue per AT&T contract subscriber -or ARPU- increased 1.7 per cent to $64.46.

Analysts projected $64.29, the average of eight estimates compiled by Bloomberg. ARPU growth slowed from 2.4 per cent a year earlier and picked up from 1.4 per cent in the fourth quarter.