iPhone Helps AT&T Beat Economic Downturn
A sluggish economy hasn’t stopped AT&T shares from rising nearly 4 percent as analysts said the biggest U.S. phone company had reported impressive results.
Experts say the company was helped by the iPhone, and strong growth for its video and high-speed Internet service.
"For this economy, it was an outstanding performance," said Commresearch analyst Gregory Lundberg.
Subsidies for Apple Inc’s iPhone had substantially cost AT&T in recent quarters, but analysts said the partnership is now starting to help rather than hurt profits as users of the touch-screen phone spend heavily on data services.
AT&T said it earned more than $3.1 billion, or 53 cents per share, in the first three months of 2009. Those earnings are down 10 percent from almost $3.5 billion, or 57 cents per share, a year earlier.
AT&T reported a wireless profit margin of 40.9 percent, above the 39.2 percent forecast by Bernstein analyst Craig Moffett.
The company said 1.6 million Apple iPhone customers had activated services on the AT&T network during the quarter, more than 40 percent were new to the telephone operator.
"The base of iPhone customers is now large enough to offset the subsidies for new iPhone users," said Moffett.
The earnings were reduced by 5 cents per share for increases in pension and retiree expenses.
AT&T says revenue slipped to $30.6 billion from $30.7 billion a year ago despite strong wireless sales.
The company says revenue fell because the weak economy amplified the long-running decline of AT&T’s landline business.
Dallas-based AT&T improved its overall profit margin by reducing its work force by 8,000 people since the beginning of the year. It had 294,600 employees at the end of the quarter.
In the first three months of the year, AT&T added a net 875,000 customers under contract, a majority due to the popularity of the iPhone.
Apple’s phone also helped AT&T avoid a trend many are expecting to see this year.
Analysts believe more customers will sign up for prepaid service than for expensive contract-based plans. Only a quarter of new subscribers at AT&T chose prepaid in the quarter, compared to more than half at T-Mobile USA.
Another phone company competitor, Sprint Nextel Corp., introduced a $50 unlimited-calling plan under the Boost brand. It is meeting the threat of upstarts such as MetroPCS Communications Inc. and Leap Wireless International Inc. that are expanding service areas to include big cities in the Northeast.
Chief Financial Officer Rick Lindner said that new prepaid plans from competitors have affected AT&T’s sales. He said the company is trying new plans, but will not do something that would strip customers away from its more profitable contract-based plans.
Some analysts worry that AT&T, the exclusive U.S. provider for the iPhone, depends too heavily on one device, with an estimated three-quarters of its net new monthly bill-paying customers being iPhone users.
"It’s a little bit worrisome as to what happens if and when their exclusivity ends," said Stifel Nicolaus analyst Chris King. "Without iPhone their net adds would be negligible."
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