Wireless Boosts AT&T in Q3

Wireless was a big driver again for AT&T Inc. (NYSE: T) last quarter, but the iPhone put a serious dent in the operator's operating margins.

AT&T reported today that third-quarter revenues were up 4 percent to $31.3 billion compared with the same quarter last year. Net income was up 3.2 percent to $3.2 billion, compared with $3.1 billion in the same quarter a year ago. And the operator reported earnings per share of 55 cents, up from 50 cents in the third quarter last year.

The biggest contributors to AT&T's revenue growth in the quarter were wireless service revenues, which were up 15.4 percent, and IP data service revenues – including U-verse, VPNs, managed Internet services, and hosting -- which were up 16 percent.

In wireless, Apple Inc. (Nasdaq: AAPL)'s 3G iPhone led the charge. There were 2.4 million 3G iPhones activated in the quarter, about 40 percent of them belonging to new customers. The operator says iPhone subscribers have "significantly higher ARPU" and lower churn than average postpaid subscribers.

AT&T chairman and CEO Randall Stephenson is pleased as punch about the iPhone.

"The new customers we're winning are high-value, with attractive revenue and churn profiles," he said in a statement. "We're expanding the market, as users adopt more data and media-rich services and access a wide array of applications. These achievements are positive for the future of our business."

But the gains in iPhone customers come at a big price in terms of AT&T's wireless margins, thanks to the hefty subsidies the operator pays on the devices.

On an adjusted basis, wireless operating margin was 22.8 percent, compared with 26.4 percent in the same quarter last year. That's a 13.6 percent drop. Operating expenses totaled $9.7 billion, and operating income was $2.9 billion.

The year-on-year margin comparisons take into account about $900 million of "pressure associated with the iPhone 3G," as AT&T put it, and about $55 million of expenses from hurricanes.

Even beyond the iPhone, it was a big quarter for AT&T in terms of net wireless subscriber adds. AT&T reported 1.7 million net postpaid wireless subscribers additions -- up 40 percent compared to a year ago, and, according to the operator, the highest total in a quarter ever. Total subscriber additions in the quarter were 2 million, bringing the operator's subscriber base to 74.9 million.

Wireless data revenue was up 50.5 percent in the quarter to $2.7 billion.

Rolling on with U-verse
AT&T's U-verse subscribers totaled 781,000, and the network now passes 14 million "living units." The operator's broadband customers totaled 14.8 million at the end of the quarter.

Overall, wireline revenues were down 2.2 percent to $17.5 billion compared with the same quarter last year. And wireline income was down 7.6 percent to $2.7 billion compared with the same quarter last year.

— Michelle Donegan, European Editor, Unstrung

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