NEW YORK (Dow Jones)--AT&T Inc. (T) locked up more than 4 million iPhone
customers during its last full quarter as its exclusive carrier partner,
but even Apple Inc.'s (AAPL) blockbuster device couldn't prevent a
slowdown in customer growth.
AT&T has been readying itself for the day when it is no longer the sole
iPhone carrier partner, offering early upgrades for existing users,
raising its early-termination fees and diversifying its product portfolio.
That day is rapid approaching, with Verizon Wireless scheduled to begin
selling the highly coveted smartphone on Feb. 10.
Yet even with the exclusivity, AT&T could only muster 400,000 net new
contract customers in the fourth quarter, down from 1.3 million a year ago
and below Wall Street expectations. Verizon Wireless added 872,000
contract customers in the same period, although the figure included a
larger mix of data-centric devices. The weaker number underscores the
broader slowdown facing the industry and could bode poorly for the
company's ability to compete with the Verizon iPhone for new customers.
The Dallas-based telecommunications company, meanwhile, reported a 60%
drop in its quarterly profit as a result of a previously disclosed change
in its accounting practices.
"The results were disappointing across the board," said Jonathan Chaplin,
an analyst at Credit Suisse.
AT&T shares fell 3% to $27.86 in early trading.
Chief Executive Randall Stephenson, however, said he believes that
postpaid customer growth will continue to be healthy despite the iPhone
heading to a second carrier partner.
"It may be rocky at the beginning of the year, but as the market
stabilizes, we'll be able to grow through it," he told analysts during a
conference call Thursday.
AT&T has aggressively moved into connected devices, creating new
businesses by offering to add a cellular connection to non-traditional
devices such as global-positioning system navigation products and medicine
pill bottles. The company added 1.5 million such devices, which typically
offer lower revenue, but higher margins. It also added 442,000 tablets,
including the iPad and devices running on Google Inc.'s (GOOG) Android
The company posted a fourth-quarter profit of $1.09 billion, or 18 cents a
share, down from $2.73 billion, or 46 cents, a year earlier. Excluding
items such as the accounting charge and severance costs, earnings rose to
55 cents from 50 cents. Revenue rose 2.1% to $31.36 billion.
Analysts polled by Thomson Reuters most recently projected earnings of 54
cents a share on $31.47 billion in revenue.
Wireless revenue rose 9.9% to $15.18 billion, as the postpaid average
revenue per user rose 2.2% to $62.88. The turnover rate for the postpaid
customer base was steady at 1.15%, while the combined rate fell to 1.32%
from 1.42% a year ago.
Chief Financial Officer Rick Lindner said it was tough to gauge how many
consumers held back on buying a smartphone amid speculation that Verizon
would get the iPhone. He noted that the difference between the company's
net new customers and Wall Street's estimate--roughly 100,000--was
insignificant relative to the 2.7 million gross customers added in the
He added that roughly 20% of the company's 4.1 million iPhone activations
came from customers new to AT&T, down from 40% a year ago.
The company is seeing customers increasingly move to higher end
smartphones. As a result, the carrier is investing in bringing out more
smartphones using Android and Microsoft Corp.'s (MSFT) Windows Phone 7
software, as well as tablets.
"We'll be a heavy participant in Android," Stephenson said.
Wireline revenue fell 3.2% to $15.11 billion as customers continue to shed
their traditional landlines and slower DSL connections. The company's U-
Verse offering, which offers a higher end Internet and TV service,
exceeded expectations with 246,000 TV subscribers. It reported 210,000 net
new high-speed Internet customers.
AT&T also projected 2011 per-share earnings to grow at a mid-single digit
rate or better. The company also expects modest improvement in free cash
flow and capital expenditures in the low-to-mid $19 billion range. Wall
Street is looking for 9% growth in earnings this year.
Stephenson said he expects revenue growth this year to be comparable to
2010, when it rose 2.1%.
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