April 24 (Bloomberg) -- AT&T Inc., the largest U.S. phone company, posted first-quarter earnings that beat analysts’ estimates on lower smartphone upgrade costs and an increase in wireless data sales related to Apple Inc.’s iPad.
Earnings climbed to 60 cents a share from 57 cents a year earlier, Dallas-based AT&T said today in a statement. Analysts projected 57 cents, the average of estimates compiled by Bloomberg. Sales rose 1.8 percent to $31.8 billion, in line with the average analyst estimate.
AT&T activated 4.3 million iPhones and sold 240,000 tablets, with about 180,000 of the tablets on data plan contracts. That helped boost monthly bills and offset slower subscriber growth in a market where most people already have mobile phones. While contract-customer gains narrowed from the fourth quarter and trailed those at Verizon Wireless, the increase in average revenue per user beat analysts’ estimates.
“Rising ARPU means the carriers are able to increase data pricing, which is good for the industry,” Walter Piecyk, an analyst at BTIG LLC in New York who rates AT&T shares neutral. Piecyk also said the upgrade rate -- when users trade in old phones for new ones at a subsidized price -- slowed to 7 percent from 11.9 percent in the fourth quarter.
AT&T rose 3.6 percent to $31.72 at the close in New York. The stock has gained 4.9 percent this year.
To help cut the costs of phone subsidies to device makers for each unit sold at a loss, AT&T increased its upgrade eligibility period to 20 months from one year in February 2011.
Jonathan Chaplin, a Credit Suisse analyst in New York, said in a research note today that the lower rate of upgrades “is an encouraging result -- upgrades and subsidies are the key to margin expansion and better earnings growth for AT&T.” He rates the shares neutral.
The U.S. market is nearing saturation after a growth spurt fueled by sales of the iPhone last year. Wireless penetration in the U.S. is 105 percent when including mobile devices like tablet computers, said Bob Roche, a statistician with CTIA, a wireless-industry trade group.
The slowing market is forcing AT&T into more intense competition with Verizon Wireless and Sprint Nextel Corp., with the carriers fighting over a shrinking pool of people who don’t yet have mobile phones. They’re also trying to get customers to upgrade to smartphones such as the iPhone that let users browse the Web and stream video.
Average monthly revenue per AT&T contract subscriber, or ARPU, increased 1.7 percent to $64.46. Analysts projected $64.29, the average of eight estimates compiled by Bloomberg. ARPU growth slowed from 2.4 percent a year earlier and picked up from 1.4 percent in the fourth quarter.
AT&T’s contract-customer gains were 187,000, compared with the 189,285 average of eight analyst estimates compiled by Bloomberg. While the gains were higher than the 62,000 a year earlier, they declined from the 717,000 customers added in the fourth quarter. Verizon Wireless added 501,000 contract customers in the first quarter.
The iPhone activations increased from 3.6 million a year earlier and slowed from a record 7.6 million in the fourth quarter, when holiday purchases boosted sales.
New sales of the device hurt carriers’ profit margins initially, because they sell the phone at a loss to lure subscribers into two-year contracts. Users of the iPhone and other smartphones are lucrative because they spend more each month browsing the Web, sending e-mail and watching video.
Wireless operating income margin widened to 27.2 percent from 25.8 percent a year earlier. The subsidies for the iPhone, which carriers buy from Apple for an estimated $600 apiece and sell to subscribers for hundreds of dollars less, have cut AT&T’s operating margins from about 30 percent two years ago.
First-quarter net income rose 5.2 percent to $3.58 billion from $3.41 billion a year earlier.
AT&T’s land-line business added 200,000 U-verse TV customers, compared with 218,000 a year earlier. New broadband customers totaled 103,000, compared with 177,000 a year earlier.
AT&T’s first-quarter capital spending rose to $4.3 billion from $4.2 billion a year earlier. This month, AT&T agreed to sell its Yellow Pages directory unit to Cerberus Capital Management LP for $950 million as part of push to jettison slower-growing businesses.
(AT&T is hosting a conference call that began at 10 a.m. New York time to discuss results. Go to LIVE <GO> to listen.}
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