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AT&T Forecast Falls Short as IPhone Boosts Subsidy Costs

AT&T Inc. (T), the largest U.S. phone company, predicted 2012 earnings that trailed analysts’ estimates as record demand for smartphones such as the iPhone drive up subsidy costs. The stock fell.

The carrier projected “mid-single-digit or better earnings growth” for 2012, according to statement today. Analysts predicted 11 percent on average. Dallas-based AT&T also reported a fourth-quarter net loss of $6.68 billion because of a pretax charge of about $4 billion for the failed takeover of T-Mobile USA, and expenses for revaluing benefit plans and other assets.

AT&T and main rival Verizon Wireless sell Apple Inc. (AAPL) iPhones and other smartphones at a loss as they compete to get customers to sign on for two-year service contracts. Activations of the iPhone soared to 7.6 million last quarter, boosted by the new 4S model and a previous version that AT&T offered for free with a contract.

“What’s driving the stock down this morning is the 2012 outlook,” Colby Synesael, a Cowen & Co. analyst in New York with a “neutral” rating on AT&T stock, said in an interview. “Overall the fourth-quarter numbers were pretty much in line.”

AT&T fell 2.5 percent to $29.45 at the close in New York, the most since August. It added 2.9 percent last year, compared with a 12 percent gain by Verizon Communications Inc. (VZ), which owns Verizon Wireless with Vodafone Group Plc. (VOD)

Subscriber Growth

AT&T gained 717,000 subscribers on monthly contracts, more than the 574,000 projected by nine analysts surveyed by Bloomberg on average. James Ratcliffe, a Barclays Capital analyst, predicted iPhone activations of 6.6 million.

Sales rose 3.6 percent to $32.5 billion, AT&T said. Analysts predicted $32 billion, the average of estimates compiled by Bloomberg. The net loss was $1.12 a share, compared with a profit of $1.09 billion, or 18 cents a share, a year earlier. Earnings, excluding some items, fell to 42 cents a share, AT&T said. Analysts predicted 43 cents.

Revenue at the wireless business increased 10 percent to $16.7 billion, boosted by Web browsing and e-mailing by smartphone users. Smartphone subsidies helped reduce operating profit at the unit to 15.2 percent of sales from 22.9 percent.

The average monthly revenue was $63.76 per wireless contract customer, compared with $63.69 in the third quarter. Analysts projected $64.16, according to the Bloomberg survey.

The monthly defection rate, or churn, of wireless contract customers was 1.21 percent, compared with 1.15 percent in the third quarter. Analysts predicted 1.2 percent.

Spending Increase?

AT&T withdrew its $39 billion bid for T-Mobile USA last month after authorities said the deal would diminish competition. The company said at the time it would record the pretax charge to reflect cash payments and other considerations due to Deutsche Telekom AG (DTE), T-Mobile’s parent.

In the absence of the T-Mobile network, and a year behind Verizon Wireless in the construction of a higher-speed LTE network, AT&T may have to increase spending in 2012, Synesael said.

AT&T said capital expenditures will be about $20 billion this year, little changed from 2011, with an increase in wireless spending and decline in wireline spending.

Wireline revenue dropped 1.4 percent to $9.3 billion. AT&T added 208,000 subscribers to its U-verse TV service for a total of 3.8 million.

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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