AT&T Posts Profit Despite Slow Contract Growth
By BRIAN X. CHEN
Published: April 24, 2012
AT&T, the nation’s No. 2 cellphone carrier, barely added any new monthly contract customers in the first quarter, but the company still managed to post a profit because it made so much money from the data plans of existing customers.
“Strong smartphone sales drive data sales, and data drives this business,” Ralph de la Vega, president and chief executive of AT&T Mobility, said during the company’s earnings calls on Tuesday.
AT&T said that net income in the first quarter rose to $3.6 billion, or 60 cents a share, from $3.4 billion in the same quarter a year ago, while revenue climbed 1.8 percent to $31.8 billion.
Revenue from wireless data jumped 19.9 percent to $6.1 billion from the year-ago quarter, AT&T said. The company said that 60 percent of its data customers were paying for its tiered data plans and of those, 70 percent were opting for the more expensive plans.
AT&T’s numbers for new contract customers, on the other hand, were not as pretty. The company reported adding 186,000 contract customers, the majority of whom bought iPads
“We continue to capitalize on our terrific momentum in mobile Internet,” said Randall L. Stephenson, AT&T chairman and chief executive, in a statement. “Smartphone and branded computing device sales continue to set a record pace, mobile data revenues were up nearly 20 percent, and we achieved this growth with expanding margins. These results add confidence in our outlook for the year.”
AT&T, based in Dallas, said the quarter broke a previous first-quarter record for sales of smartphones, which in turn drove revenue from wireless data. It sold 5.5 million smartphones, up slightly from a year ago, and over the quarter it activated 4.3 million Apple iPhones — 1 million more of the phones than its main rival, Verizon, the largest American wireless carrier, sold during the same period.
Craig Moffett, an analyst for Sanford C. Bernstein & Company, said carriers typically did not count iPad customers as new contract subscribers, so it was possible that AT&T’s number of new customers actually declined in the quarter.
However, he said it was still a strong quarter for AT&T and showed that the company was doing a good job at managing an industrywide transition to slower growth in subscribers, but more growth in data revenue, or “average revenue per user,” or A.R.P.U.
“The real question for the carriers is how gracefully can they handle the handoff from a subscriber growth business to an A.R.P.U. business,” Mr. Moffett said. As for AT&T, he said, “There are a whole lot of fireworks here. It’s a pretty good quarter.”
Mr. de la Vega of AT&T said during the earnings call that the average revenue per user was about 90 percent higher for smartphones than traditional cellphones. He said that two years ago, customers seemed afraid of smartphones, but now they “feel these devices make their lives easier” and are using smartphones much more than traditional cellphones. “They’re accepting smartphones in numbers that we have never seen before,” he said.
AT&T and Verizon are in a race to build faster next-generation networks based on a technology called LTE in an effort to have customers use their data services more. Verizon is in the lead, with LTE deployed in 230 markets, compared with AT&T’s coverage in 35 markets.
Faster networks aren’t cheap to build, but they could turn in big numbers for carriers in the long term by encouraging customers to use data-intensive applications, like video, even more.
Cisco, the networking company, recently published a study showing that use of mobile data more than doubled in 2011, driven by fourth-generation, or 4G, networks. A smartphone on a 4G network is likely to generate 50 percent more traffic than it would on a slower one, Cisco said.