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AT&T's Q2 Profit Lowered by iPhone Launch

AT&T Inc. (NYSE: T) reported a 15 percent profit drop for its second quarter today, in part because the upfront costs of the new Apple Inc. (Nasdaq: AAPL) 3GS iPhone launch ate into earnings.

The largest 3G GSM operator in the U.S. reported that it sold a stunning 2.4 million iPhones in the quarter, with 35 percent of those activations being new customers. This helped AT&T add 1.4 million customers over the quarter. (See AT&T Closes Q2.)

Nonetheless, the upfront subsidies on the more expensive iPhone 3GS dragged on AT&T. The company reported a $3.2 billion profit, or 54 cents per share, for the quarter on sales of $30.7 billion. That compared to a profit of $3.7 billion in the same period a year ago, or 64 cents per share, on sales of $30.9 billion. Analysts had expected revenues of about $30.64 billion, according to Reuters.

AT&T says the upfront payments for the new iPhone will result in more money returning to the carrier over the long-term:

Increased operating expenses in the second quarter of 2009, in part, reflect volume-based acquisition costs associated with the success of the iPhone 3GS launch, which started June 19. AT&T’s iPhone customer characteristics are attractive, with Average Revenue Per User [ARPU] significantly higher than and churn rates well below the company’s postpaid averages; as a result, robust iPhone demand drives strong recurring revenues and substantial long-term value.


On the company conference call today, AT&T CFO Richard Linder said that, in total, nearly 9 million of the operator's 79.6 million subscriber base use an iPhone.

The company's continuing faith in the cult gizmo is unsurprising, given the way the iPhone drives wireless data usage. The operator says that wireless data revenue was up 37.2 percent to $3.4 billion and now comprises nearly 30 percent of the operator's overall wireless revenue.

In general, healthy wireless numbers -- along with more advanced wired IP services -- are helping to offset the slow decline of Ma Bell's wireline business.

The company reported overall second-quarter wireless operating income was $3.2 billion, up 2.8 percent, over the same quarter a year ago. ARPU increased 2.3 percent to $60.21 compared with the same period 12 months ago.

Despite the iPhone subsidies hit, and worries about what will happen when AT&T's exclusive operator deal with Apple ends, investors seem generally pleased with AT&T's performance. (See The LTE iPhone.) The firm's stock was up $0.90, or 3.63 percent, at $25.74 per share, after AT&T's earning's call today.

— Dan Jones, Site Editor, Unstrung

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