AT&T's Q2: 3.6 million iPhone activations; Android diversification effort underway

AT&T's smartphone diversification effort appears to be paying off as the company added 331,000 net postpaid subscribers, activated 3.6 million iPhones and doubled Android device sales from a year ago.

Updated: AT&T's smartphone diversification effort appears to be paying off as the company added 331,000 net postpaid subscribers, activated 3.6 million iPhones and doubled Android device sales from a year ago.

The telecom giant reported second quarter earnings of $3.6 billion, or 60 cents a share, on revenue of $31.5 billion, up 2.2 percent from a year ago. Wall Street was expecting earnings of 59 cents a share. AT&T's earnings were down from $4 billion, or 67 cents a share, in the second quarter a year ago.

Going into the earnings report, most analysts were focused on AT&T's postpaid additions. On that front, AT&T had a respectable showing. The company added 1.1 million total wireless subscribers to reach the 98.6 million mark. Of that sum, AT&T added 331,000 postpaid additions. Excluding migrations of Alltel and Centennial, AT&T said net postpaid adds would have been 504,000. Barclays Capital analyst James Ratcliffe was expecting 200,000 postpaid subscriber additions and Morgan Stanley's Simon Flannery was looking for 130,000.

Analysts are also going to focus on the T-Mobile purchase given that opposition is starting to emerge. Sen. Herb Kohl (D-Wis.), who heads up the Senate Judiciary Antitrust Subcommittee, asked regulators to shoot down the deal.

The company, which indicated that its acquisition of T-Mobile was on track, said that it added 137,000 prepaid subscribers and 379,000 connected devices such as the Kindle and iPad. Overall, AT&T said the results indicate broad adoption of smartphones.

Among the key points from AT&T's conference call:

  • "iPhone churn by itself improved sequentially. And iPhone sales increased year-over-year," said AT&T CFO John Stephens.
  • General counsel Wayne Watts said AT&T has "developed a very detailed engineering and economic analysis valuing the enormous efficiencies that will result from the combination of the AT&T and T-Mobile networks." As a result, the FCC is now validating the claims. Watts was later asked whether there was a Plan B if the T-Mobile purchase was shot down. Watts indicated that AT&T is focused "entirely on Plan A."
  • AT&T's wireline business is about to turn the corner. Stephens said that AT&T is "continuing to see some investment in the global enterprise space by companies."
  • Customers on AT&T $15 and $25 data plans don't deliver as high-margin returns, but remain profitable for the carrier.

Indeed, smartphones were nearly 70 percent of AT&T's postpaid sales. The company said it sold 5.6 million smartphones, up 43 percent from a year ago. Of those smartphone sales, Android and other devices were 40 percent of the mix.

AT&T didn't offer a breakdown between the non-iPhone devices. Other devices include BlackBerry, Android and Windows Phone 7 smartphones.

By the numbers:

  • Half of AT&T's 68.4 million postpaid subscribers had smartphones up from 35.8 percent a year ago. Of those smartphones subscribers, 85 percent have FamilyTalk or business plans.
  • Total wireless revenue for the second quarter was $15.6 billion. Data revenue was up 23.4 percent from a year ago to $5.4 billion.
  • AT&T said total churn for the second quarter was 1.43 percent, up from 1.29 percent a year ago. Postpaid churn was 1.15 percent, up from 1.01 percent a year ago. That churn rate is stable, but does indicate AT&T is losing a few customers.
  • Wireline revenue for the second quarter was $5.4 billion, up slightly from a year ago. AT&T added 202,000 U-verse TV customers and now has 3.4 million subscribers. Most of those customers have U-Verse Internet access too. Overall, AT&T added 439,000 U-Verse broadband subscribers in the second quarter.
  • The company's business revenue remains a challenge. Second quarter revenue was $9.3 billion, down 4.1 percent from a year ago. AT&T is losing out in its traditional voice and data accounts and trying to offset those losses with services such VPNs, hosting, IP conferencing and application services.

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