AT&T's Device Mix Shifts Away From PostpaidAT&T's Device Mix Shifts Away From Postpaid

AT&T managed to sell a record-breaking 6.7 million smartphones in the third quarter, but only signed on 178,000 new postpaid smartphone contracts. Instead, most of its growth came from upgraders, prepaid users, or tablet purchasers.

In announcing its third-quarter earnings on Wednesday after the bell, AT&T Inc. (NYSE: T) said it added a total of 989,000 wireless subscribers. Of those, 363,000 were postpaid compared to 192,000 prepaid additions owing to its new LTE GoPhone selections. Another 719,000 were connected device additions, offset by a net loss of 285,000 subscribers from its reseller unit, which CFO John Stephens said were primarily 2G subscribers who AT&T would lose when it sunset its network anyway. (See AT&T: Say Goodbye to 2G in 2017.)

Within its 363,000 postpaid adds, only 178,000 -- about half -- were contract-signing smartphone users. Comparatively, just shy of 90 percent of Verizon Wireless 's 1.1 million customer additions in the third quarter signed on to contract plans.

AT&T did, however, manage to further close the gap on its chief US rival when it came its 4G LTE network. It ended the quarter with an installed base of 21 million LTE devices, compared to Verizon's 36 million. About 40 percent of AT&T's smartphone users are on the LTE network, compared to 50 percent at Verizon. (See Verizon Beefs Up LTE Network, Nears VoLTE.)

AT&T said it now reaches 250 million POPs in 435 markets. It's on track to cover 270 million POPs by the end of the year and be substantially complete by the summer of 2014, covering 300 million POPs by the end of 2014. (See Fall Into 4G: AT&T Adds 13 New LTE Markets.)

"When we complete our LTE build and have a video-centric network out there in the wireless space, we expect to see continued growth," Stephens said on the third-quarter call, adding that AT&T's prepaid business and focus on Digital Life and the connected car will continue to complement its smartphone growth. "We're excited and confident to get really solid returns out of our investment."

Stephens didn't seem concerned about the slowdown in postpaid smartphones, instead noting "more than doubling our postpaid smartphone adds is something I'm pleased with." He also dismissed any added pressure from T-Mobile US Inc. , which this month shook up both its international pricing and its tablet data pricing, pointing to AT&T's steady churn numbers as evidence it isn't yet affecting the company. (See Bills Don't Lie: T-Mobile Drops International Roaming Charges.)

He did, however, admit AT&T is seeing pressure on price-sensitive, low-end subscribers on 2G feature phones. It's counting on its acquisition of Leap Wireless International Inc. (Nasdaq: LEAP) to close in the first quarter of 2014 in order to raise its profile with this market. If the deal closes, it will shutter its own new prepaid brand, Aio Wireless, and take Cricket Communications, Leap's customer-facing brand, nationwide. (See AT&T to Acquire Leap Wireless for $1.19B.)

— Sarah Reedy, Senior Editor, Light Reading