AT&T earnings propelled by iPhone activations, connected devices like e-readers, GPS systems

Updated: AT&T said Wednesday that it added 1.9 million wireless subscribers in the first quarter as the company continued to benefit from smartphone adoption and a bevy of connected devices such as e-readers, alarms and global positioning systems. In addition, AT&T activated 2.7 million iPhones.

Add it up and it's clear that AT&T's growth resides in behind-the-scenes connections instead of direct post paid subscribers. To wit: Connected devices in service jumped 1.1 million in the first quarter to hit 5.8 million. Retail postpaid net additions were 512,000. Overall, AT&T has 87 million wireless subscribers.

AT&T reported first quarter earnings of $2.5 billion, or 42 cents a share, on revenue of $30.6 billion, flat with a year ago (statement). Excluding a 17 cents a share charge due to the removal of Medicare tax subsidies in the health care bill, AT&T reported earnings of 59 cents a share. Wall Street was expecting earnings of 54 cents a share on revenue of $30.7 billion.

Speaking on a conference call with analysts AT&T Chief Financial Officer Rick Lindner was upbeat. Lindner made the following points:

• The economy is showing "some encouraging signs."
• Business spending is improving, but any recovery is a wild card.
• Post paid growth will slow (as prepaid plans become more popular), but revenue growth will be driven by data consumption.
• AT&T is adding more cellphone towers and other capital improvements.

In addition, AT&T reiterated that it is continuing to improve its network.

By the numbers:

• AT&T's postpaid churn rate fell to 1.07 percent in the first quarter, down from 1.15 percent a year ago. Total churn was 1.3 percent.
• Wireless data revenue was up 29.8 percent from a year ago to $4.1 billion. Text messages on AT&T's network jumped 50 percent to 143 billion. Average revenue per unit increased 3.9 percent to $61.89.
• AT&T said half of AT&T's 65.1 million postpaid subscribers had smartphones. iPhone growth has surged.
• On the TV side of the house, AT&T added 231,000 U-verse subscribers to hit 2.3 million total. That's up from 1 million a year ago.

• AT&T added 255,000 net broadband connections, the best showing in a year.
• In the enterprise, AT&T said business services revenue was improving. Business long distance revenue grew sequentially for the first time in six quarters.