AT&T Sees Profit on Low End of Estimates as Rivalry Grows

AT&T Inc., the second-largest U.S. wireless carrier, forecast 2014 profit on the low end of analysts’ estimates as price competition heats up with T-Mobile US Inc.

Earnings per share will grow this year at a “mid-single-digit” rate, AT&T said yesterday. That compared with analysts’ estimates for an increase of 7 percent, according to data compiled by Bloomberg. Sales will climb 2 percent to 3 percent, AT&T said, compared with analysts’ 2 percent projection.

AT&T is offering discounts to hold on to market share as T-Mobile has gained more than 2 million monthly subscribers in the last nine months of 2013. AT&T signed up 566,000 contract wireless customers in the fourth quarter, compared with 780,000 a year ago. Analysts had predicted 575,000, according to an average of nine estimates compiled by Bloomberg.

“Competition is having an impact,” said Colby Synesael, an analyst with Cowen & Co. “If the customer gains are almost all from tablets, it means lower average revenue than you get from smartphone sales.”

Fourth-quarter earnings climbed to 53 cents a share, excluding one-time items, Dallas-based AT&T said in a statement yesterday. Analysts had projected 51 cents on average, according to data compiled by Bloomberg. Sales rose 1.8 percent to $33.2 billion, in line with the average estimate.

AT&T shares fell 1.2 percent to $33.31 at the close in New York. The stock is down 5.3 percent this month.

Capital Spending

Capital spending in 2014 will be about $21 billion, similar to last year, the company said in a statement.

Fourth-quarter net income attributable to AT&T was $6.91 billion, or $1.31 a share, including a non-cash gain for changes in its pension fund and retiree benefit plans. A year earlier, benefit-plan adjustments led to non-cash charges, resulting in a net loss of $3.86 billion, or 68 cents.

Even with the jump in subscribers, AT&T’s gains were dwarfed by Verizon Communications Inc.’s 1.6 million new contract users last quarter and the 869,000 monthly subscribers T-Mobile said it gained in the fourth quarter.

T-Mobile has introduced more aggressive pricing and abandoned industry practices, such as requiring customers to sign long-term contracts. AT&T and T-Mobile have squared off over credits designed to tempt customers to switch service.

Customer Spending

In the fourth quarter, the average monthly wireless bill for AT&T contract customers was $66.35, up from $66.20 in the third quarter and $64.98 a year ago. Analyst predicted $66.14, based on an average of nine estimates compiled by Bloomberg.

Wireless service profit margins were 37.4 percent, down from 42 percent in the third quarter. Analysts predicted a wireless margin of 33.9 percent, based on an average of eight estimates compiled by Bloomberg.

In AT&T’s landline video-and-broadband business, called U-verse, the company added 630,000 Internet users. Its 194,000 new video subscribers were down from the 265,000 gained in the third quarter and in line with the 192,000 added a year ago. Phil Cusick, an analyst with JPMorgan Chase & Co., had predicted AT&T would add 225,000 new video customers.

The big carriers, AT&T and Verizon Wireless, are searching for growth in areas like connected cars and automated homes, though it could be three to five years before they see big returns, Synesael said.

“It’s a long way between now and then,” he said.

AT&T has said over the past year that Europe looks like an interesting growth opportunity as sales of faster mobile Internet service expands beyond the U.S.

In response to reports that it was considering a bid for Vodafone Group Plc, AT&T issued a statement this week saying it doesn’t intend to make an offer for the U.K. company.

Before it's here, it's on the Bloomberg Terminal.