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Published: Tuesday, 4/24/2012

New wireless subscribers down sharply at AT&T in first quarter; earnings beat estimates

BY PETER SVENSSON
AP TECHNOLOGY WRITER

NEW YORK — When Verizon Wireless started selling the iPhone, AT&T sounded a defiant note, saying that its customers would remain loyal. A year later, it's clear that the Verizon iPhone has crimped AT&T's stride.

Verizon had little problem attracting new customers before it started selling the iPhone. In fact, it was the only wireless carrier that managed to keep up with AT&T's iPhone-fueled growth.

But with the iPhone in its arsenal, the country's biggest wireless company is getting bigger, while No. 2 AT&T Inc.'s growth has slowed precipitously.

On Tuesday, AT&T revealed that it essentially gained no phone subscribers on contract-based plans in the first quarter. That's only happened once before: A year ago, when Verizon launched its version of the iPhone.

Contract-based plans are by far the most lucrative for a phone company, and the number of new customers is an important measure of growth.

AT&T gained a net 187,000 customers on contract-based plans in the January to March period, but these were almost all tablet users, brought in by the launch of the new iPad in March. Even on contract-based plans, tablet customers pay between $15 and $50 per month, whereas smartphone customers often pay more than $100.

By contrast, Verizon last week reported adding 501,000 subscribers on contract-based plans.

Over the last five quarters, Verizon has added nearly three times as many contract subscribers as AT&T. Over the previous two years, the rivals split new subscribers nearly evenly.

AT&T gained a net 726,000 subscribers of all kinds in the first quarter, counting ones on no-contract plans and ones on non-phone devices like the Kindle. That was the lowest figure in eight years, and less than a third of the number of subscribers added in the same period last year.

Weak subscriber figures are usually good for a phone company's earnings in the short term, since it doesn't have to subsidize new devices.

The Dallas-based company's net income for the January to March period was $3.6 billion, or 60 cents per share, up 5 percent from $3.4 billion, or 57 cents per share, a year earlier.

Analysts polled by FactSet were on average expecting earnings of 57 cents per share for the latest quarter.

In particular, AT&T saved money by selling fewer iPhones than analysts expected. AT&T subsidizes each new iPhone by hundreds of dollars, hoping to make the money back over time in the form of service fees.

AT&T said it activated 4.3 million iPhones in the first quarter. That was down from 7.6 million in the fourth quarter, when AT&T began selling the iPhone 4S. However, the number was still up from the 3.6 million iPhones AT&T sold in the same quarter a year ago.

Revenue was $31.8 billion, up 2 percent from a year earlier. It matched analyst expectations.

AT&T shares rose $1.11 cents, or 3.6 percent, to $31.72 in morning trading. The shares are close to a four-year high of $31.97 hit a month ago.

Apple Inc. shares fell on AT&T's report, as investors interpreted its iPhone sales as presaging bad news in Apple's earnings report, due after the market close Tuesday.

Apple shares were down $8.10, or 1.4 percent, to $563.81.



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