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AT&T Falls Shy of Analyst Estimates as Discounts Cut Margins

AT&T Profit Falls Shy of Estimates as Discounts Shrink Margins
AT&T Inc. added 551,000 contract customers, compared with 320,000 a year ago. Photographer: Andrew Harrer/Bloomberg

July 24 (Bloomberg) -- AT&T Inc., the largest U.S. phone company, posted profit that fell just below analysts’ estimates as costs rose for smartphone discounts used to persuade more customers to sign long-term contracts.

Second-quarter earnings were 67 cents a share, leaving out one-time items, Dallas-based AT&T said yesterday in a statement. Analysts had estimated earnings of 68 cents, according to data compiled by Bloomberg. Sales rose 1.6 percent to $32.1 billion, topping the average estimate of $31.8 billion.

AT&T added 551,000 contract customers, compared with 320,000 a year ago. Analysts had projected 499,000 new monthly subscribers, according to an average of 10 estimates compiled by Bloomberg. AT&T Chief Executive Officer Randall Stephenson has been unveiling new subscription plans for heavy Internet users to catch up with Verizon Wireless, the largest U.S. mobile-phone carrier, which added 941,000 contract users last quarter.

“For at least the near-term, AT&T does have a number of tools at its disposal that could help to at least partially offset the impact of competitive pressures emerging in the market,” Amir Rozwadowski, an analyst with Barclays Plc, wrote in a note before the results were announced.

The shares dropped 1.1 percent to $35.40 at the close in New York. AT&T has risen 5 percent this year.

Net income fell to $3.82 billion, or 71 cents a share, from $3.9 billion, or 66 cents, a year earlier. Adjusted for the sale of a unit, revenue would have risen 2.6 percent, AT&T said.

Smartphone Record

While discounts helped pushed smartphone sales to a record in the quarter, they reduced the wireless service profit margin to 42.4 percent from 45.8 percent a year ago, missing the 43.4 percent average estimate.

The average monthly wireless bill for contract customers was $66.12, beating the average estimate of $65.76.

AT&T’s landline revenue declined 0.9 percent to $14.8 billion, hurt by demand for traditional phone connections, especially among business customers. The company added 233,000 U-verse TV customers to help make up for landline losses.

Last week, in a nod to a wireless pricing strategy that T-Mobile US Inc. introduced in March, AT&T said it would start selling phones and tablets on an installment plan with the option for customers to upgrade phones more frequently.

T-Mobile used its own plan and the introduction of Apple Inc.’s iPhone 5 to help lure customers and end a three-year streak of contract customer losses in the second quarter, people familiar with the company have said. The carrier, controlled by Deutsche Telekom AG, is scheduled to report second-quarter results Aug. 8.

Earlier this month, AT&T agreed to buy Leap Wireless International Inc. for $1.2 billion. The move, AT&T’s first proposed acquisition since the failed $39 billion T-Mobile takeover, will give the company 5 million customers and additional airwaves.

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

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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