AT&T Plummets as Sales Miss Estimates on Verizon Competition

AT&T Inc., the largest U.S. phone company, had its biggest one-day drop in four years as first-quarter revenue missed analysts’ estimates, dragged down by sluggish landline sales and competition with Verizon Wireless.

AT&T slid 5 percent to $37.04 at the close in New York, the biggest decline since February 2009. The stock has climbed 9.9 percent this year, compared with an 15 percent gain for the Standard & Poor’s 500 Index.

AT&T’s landline revenue slid 1.8 percent to $14.7 billion, hurt by sluggish demand for traditional phone connections -- especially among business customers. While the company’s wireless division attracted more subscribers than expected last quarter, its growth was still dwarfed by that of Verizon. AT&T added 296,000 contract customers in the period, compared with Verizon’s 677,000.

“AT&T is still in catch-up mode relative to Verizon, and the customer gains show it,” said Roger Entner, an analyst with Recon Analytics LLC in Dedham, Massachusetts.

Sales dropped 1.5 percent to $31.4 billion, Dallas-based AT&T said yesterday in a statement. Analysts had projected $31.7 billion on average, according to data compiled by Bloomberg. Earnings climbed to 64 cents a share, excluding some items, matching the average estimate.

Mixed Blessing

AT&T sold 4.8 million iPhones last quarter, a mixed blessing for the carrier because of the resulting subsidy payments. Like most major U.S. carriers, AT&T offers steep discounts on the iPhone and other smartphones in exchange for a two-year contract. That may have made it more difficult for the company to exceed analysts’ profit estimates last quarter.

“Smartphones are expensive and subsidies are high,” said Todd Rethemeier, an analyst with Hudson Square Research in New York. He has a hold rating on the shares. “You want to see that the payoff of higher-spending customers is happening.”

The subscriber gains were fueled by tablets, as the company actually lost high-paying phone customers in the first quarter, John Hodulik, an analyst with UBS AG in New York, wrote in a research note.

“This trend is likely to accelerate in the second quarter, now that T-Mobile has the iPhone,” said the analyst, who has a hold rating on AT&T. T-Mobile USA Inc. this month became the last of the major U.S. carriers to start selling Apple Inc.’s device.

Payoff Needed

AT&T did see a rise in its average revenue per user, or ARPU, for wireless customers -- a sign that smartphone owners are paying more for wireless data. The ARPU for data use among monthly wireless subscribers increased 18 percent, AT&T said. Total subscriber ARPU, which includes high-margin but lower-revenue-generating tablets, rose 0.9 percent from a year ago.

The company’s wireless service margin, which leaves out items such as interest and taxes, was 43.2 percent, slightly above the 42.5 percent estimate. The company also added 365,000 tablet subscribers, up from 240,000 a year earlier.

In an effort to catch up to Verizon, the largest U.S. mobile-phone carrier, AT&T is upgrading its network to a technology called long-term evolution, or LTE. That effort is going well, AT&T Chief Financial Officer John Stephens said yesterday. The company is far enough along that it can cut capital spending in 2014 and 2015 to about $20 billion a year, from the $22 billion that was originally planned.

“By year-end, we will be nearly 90 percent complete with our LTE build-out,” Stephens said in an interview.

AT&T’s landline business had more success with consumers than business customers last quarter, the company said. It added 731,000 subscribers to its U-verse Internet service, marking AT&T’s biggest single quarterly gain. An additional 232,000 U-verse TV subscribers signed up for the service, exceeding the 200,000 projected by Jennifer Fritzsche, an analyst at Wells Fargo & Co. in Chicago.

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