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AT&T Beats Estimates on Lower Discounts for Smartphones

AT&T Inc. (T), the largest U.S. phone company, beat analysts’ estimates for third-quarter profit as a crimped supply of iPhone 5 devices reduced the need for handset discounts given to customers who sign up for contracts.

Net income rose to $3.64 billion, or 63 cents a share, from $3.62 billion, or 61 cents, a year earlier, Dallas-based AT&T said today in a statement. Analysts had projected 60 cents a share on average, according to data compiled by Bloomberg. Sales dropped 0.1 percent to $31.5 billion, compared with the estimate of $31.6 billion.

AT&T added 151,000 monthly mobile contract customers, compared with 319,000 added a year earlier. While the decline hurts sales growth, it means the company didn’t have to dole out so many subsidies -- the payments that make it easier for customers to afford the latest phones. The average postpaid mobile-phone bill increased 2.4 percent to $65.20 as smartphone users spent more to watch videos and listen to music.

“The industry is going through a big transition from subscriber growth to a period where pricing is on the rise,” said Gerard Hallaren, an analyst with Janco Partners Inc. in Greenwood Village, Colorado.

AT&T fell 0.8 percent to $34.71 at the close in New York. The stock is up 15 percent this year.

IPhone Supplies

AT&T had been forecast to add 339,000 monthly contract subscribers, according to the average estimate of eight analysts polled by Bloomberg. AT&T said today monthly contract subscriber growth was “impacted by iPhone 5 inventory constraints.” Apple Inc. (AAPL) said last month that while it sold 5 million of the new devices in their first weekend on sale, the tally would’ve been greater if supplies hadn’t been limited.

“The iPhone inventory issue will balance itself out,” John Stephens, AT&T’s chief financial officer, said in an interview today. “It always has in the past. We expect it will this year.”

AT&T activated 4.7 million iPhones, compared with 2.7 million a year ago. The company also sold 114,000 tablets, a 61 percent decline from the 290,000 tablets sold a year ago.

Bigger Bills

Wireless margins narrowed to 40.8 percent. That was down from second-quarter margin of 45 percent and almost in line with the 40.7 percent average estimate in a Bloomberg survey of seven analysts.

AT&T’s increase in the size of wireless bills was lifted by more people buying data plans. The average revenue per monthly subscriber rose to $65.20 from $63.69 a year ago. The average estimate of seven analysts was $65.03, according to the Bloomberg survey.

Sales from AT&T’s land-line business fell 1.6 percent to $14.8 billion. The carrier lost 42,000 Internet customers, which AT&T said was due to continued declines in users of older DSL technology. AT&T added 198,000 U-verse television subscribers, compared with 176,000 a year earlier.

Excluding the Yellow Pages business, of which AT&T sold a majority portion earlier this year, earnings were 62 cents a share compared with a similarly adjusted 59 cents a year ago. Revenue excluding the Yellow Pages business was $30.4 billion, little changed from the adjusted level a year ago.

AT&T’s third-quarter capital spending was $4.9 billion, down 7.5 percent from $5.3 billion a year earlier. The company now expects total spending to be at the low end of its previous forecast of $19 billion to $20 billion.

“Our network team and our capital team is doing more with less,” Stephens said. “We just lowered it now because they are being so efficient that they are going to end up in the $19 to $20 billion range.”

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

To contact the editor responsible for this story: Crayton Harrison at tharrison5@bloomberg.net

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