AT&T activates 2.4 million iPhones; Second quarter tops estimates

Updated: AT&T's second quarter earnings were better than expected courtesy of a strong launch of Apple's iPhone 3GS.In the second quarter, AT&T activated 2.
Written by Larry Dignan, Contributor

Updated: AT&T's second quarter earnings were better than expected courtesy of a strong launch of Apple's iPhone 3GS.

In the second quarter, AT&T activated 2.4 million iPhones, up 29 percent from a year ago and up 31.8 percent from the first quarter. Meanwhile, AT&T churn fell to 1.09 percent -- a record low for the company.

It's no wonder AT&T wants to keep its Apple exclusive going.

Across the board, AT&T's second quarter was better than estimates but down from a year ago. The company reported net income of $3.2 billion, or 54 cents a share, on revenue of $30.7 billion, down from $30.9 billion a year ago. Wall Street was expecting earnings of 51 cents a share on revenue of $30.6 billion.

In a statement Thursday, AT&T CEO Randall Stephenson said that the company is executing well and "work is under way" to deliver faster mobile broadband.

A few takeaways from AT&T's conference call:

  • AT&T executives said the iPhone launch was terrific. "This is the third generation of the product yet demand was strong and continues to be strong well into July now," said AT&T CFO Richard Lindner.
  • On iPhone supply---Apple mentioned it couldn't make enough of them---Lindner said that "we are out of units in some locations." However, AT&T was getting supply and "we're doing a reasonable job of keeping up with demand."
  • Lindner said it was hard to predict the iPhone impact of profit margins in the short term---AT&T subsidizes the iPhone and has to build out its network. Nevertheless, Lindner said the iPhone is good growth to have. "As we start to benefit from the recurring revenue from this customer base margins will grow to 40 percent and eventually into the mid-40s," said Lindner.
  • AT&T is focused on bolstering its balance sheet, deleveraging and reducing debt with its cash on hand.

By the numbers:

  • AT&T had retail post paid subscriber additions of 1.2 million , up 29 percent from a year ago. Total subscribers were 79.6 million.

  • Postpaid churn was 1.09 percent, down from 1.2 percent in the first quarter. Total churn was 1.49 percent, down from 1.64 percent a year ago.

  • Of the iPhone activations in the quarter, a third of them were for customers new to AT&T.
  • AT&T did note that its margins were hit as it prepped its network for the iPhone 3GS launch.

  • AT&T added 248,000 U-verse TV subscribers in the second quarter for a total of 1.6 million. The company added 112,000 wireline broadband connections in the second quarter and 209,000 wireless connections (3G cards).

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