UPDATE 1-AT&T warns of $10 bln Q4 pension charge

Thu Jan 17, 2013 6:28pm EST

NEW YORK Jan 17 (Reuters) - AT&T Inc warned on Thursday that it will take a fourth quarter charge of about $10 billion due to bigger than expected pension obligations, sending its shares down 1.3 percent.

The telephone company also said that results would be hurt by higher than expected smartphone costs and damage due to Superstorm Sandy.

It said that the pension charge related to an actuarial loss of about $12 billion, which was partially offset by an asset gain of about $1.9 billion.

But despite the gain, it said it lowered its expected long-term rate of return due to the continued uncertainty in the securities markets and the U.S. economy in 2013.

"It's not a real huge negative, but a little bit sobering," said Michael Bowen, an analyst with Pacific Crest Securities referring to AT&T's annual review of its pension and post employment benefit plans. "They are saying their obligations are larger than they thought they were."

While AT&T said the pension loss will not affect its operating results or margins, it warned that its fourth-quarter operating earnings would be hurt by other issues.

It expects to report a $175 million reduction in its operating income due to storms, including Superstorm Sandy, which damaged cellphone towers and caused service outages in the U.S. Northeast in November.

Pacific Crest's Bowen said the estimate of Sandy costs seemed "a little bit light" compared to his expectations.

AT&T said its wireless profit will also be reduced by higher than expected smartphone sales in the quarter.

Because AT&T pays a hefty subsidy for each smartphone it sells, high phone sales tend to put pressure on its wireless profit margins. It pays subsidies in order to be able to offer phone discounts to consumers who commit to long-term contracts.

AT&T shares fell 1.3 percent to $32.76 in late trade after closing at $33.20 on the New York Stock Exchange on Thursday.

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