AT&T Says IPhone to Help Push Smartphone Sales to Record

AT&T Inc. (T), the second-largest U.S. wireless operator, said smartphone sales in the fourth quarter are likely to hit a record, driven by devices such as Apple Inc. (AAPL)’s iPhone.

The company said it sold 6 million smartphones in the first two months of the period, compared with the previous quarterly record of 6.1 million in the third quarter of 2010. Since December is traditionally one of the strongest months for sales, AT&T said it expects to push past the previous mark.

“We expected this to be one of our strong smartphone sales quarters ever,” John Stephens, the company’s chief financial officer, said today at a UBS AG conference in New York. “What we didn’t know was that we would nearly break our smartphone sales record in just the first two months of the quarter.”

AT&T, the first operator to offer the Apple phone in the U.S., sells the latest model, the iPhone 4S, and the older iPhone 3GS, which is free with a two-year service contract. It also offers devices that run on Google Inc.’s Android operating system from Samsung Electronics Co. (005930) and Motorola Mobility Holdings Inc.

Sales of smartphones, which are typically subsidized by carriers to gain future service revenue, are expected to have a near-term negative impact on margins and earnings, Dallas-based AT&T said in a regulatory filing. Still, the upfront costs are worth the benefits in the future, Stephens said.

T-Mobile Deal

“The benefits of this incredible growth are clear: these subscribers are the premium customers for the industry, helping create long-term value and stability,” he said. “It’s an investment we are more than willing to make.”

Walter Piecyk, an analyst with BTIG LLC, estimates that AT&T will sell 8.7 million smartphones in the fourth quarter, with 5.3 million of those being Apple iPhones.

Stephens declined to give details about the negotiations to complete AT&T’s proposed acquisition of T-Mobile USA, a deal the U.S. Justice Department has sued to block.

AT&T is “motivated to complete” a deal with Deutsche Telekom AG (DTE), T-Mobile’s parent company, he said.

AT&T rose 0.8 percent to $29.40 at the close in New York and is little changed this year.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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