* Added 62,000 subs, Street expected loss of 83,000
* Q1 profit matches analyst view of 57 cents a share
* Q1 Rev $31.25 bln vs Street estimate of $31.26 bln
* Shares down 0.6 percent
(Adds executive quote, share price update)
By Sinead Carew
NEW YORK, April 20 AT&T Inc (T.N) survived the
loss of its exclusive U.S. rights to sell the Apple Inc
The No. 2 U.S. mobile service provider, which is planning
to buy T-Mobile USA, eked out a slight increase in subscribers
in the first quarter, surprising Wall Street, though some
analysts said the growth came at too high a cost.
Its net addition of 62,000 contract customers in the
quarter was much weaker than its fourth-quarter growth of
400,000 but better than the loss of 83,000 customers expected,
on average, by seven analysts polled by Reuters.
The decline reflected the Feb. 10 launch of the iPhone by
Verizon Wireless, a venture of Verizon Communications (VZ.N)
and Vodafone Group Plc (VOD.L).
AT&T, which reported results on Tuesday, also attributed
some defections to changes in network technologies for some
customers that resulted from its acquisition of Alltel assets
But Wall Street analysts were impressed that it managed to
keep customer defections in check as many feared the Verizon
iPhone would send hordes of customers fleeing AT&T, which has
been criticized for poor network performance.
"It doesn't look like (Verizon Wireless) decimated AT&T as
many people thought they might," said Piper Jaffray analyst
AT&T, which reduced the price of one iPhone model to $50 in
the quarter, also noted that it still added 3.6 million new
iPhones to its network in the quarter and that 23 percent of
those customers switched from rival services.
Anticipation of the Verizon Wireless iPhone appeared to
cause a lull in January sales, Chief Financial Officer Rick
Lindner said, but the February launch caused much less of a
ripple among AT&T customers than the company had expected.
"In February strangely we actually saw activity pick up and
March was our strongest month in the quarter. We had good
momentum leaving the quarter and going into the second
quarter," Lindner told Reuters in a telephone interview.
As a result Lindner said he expects an improvement in
subscriber growth for the rest of the year.
But AT&T's efforts to retain subscribers appeared to come
at a heavy cost to profitability.
Its wireless service profit margin based on earnings before
interest, taxes, depreciation and amortization dropped to 39
percent from 44.5 percent a year earlier. It also fell short of
an estimate of 41.3 percent from Pacific Crest analyst Steve
"This should put concerns on iPhone (subscribers) to rest
for the time being, but the margins are still a concern,"
AT&T expects margins to improve during the year, according
to Lindner, but he did not give specific targets on a
conference call with analysts, beyond sticking to the company's
long-term target of roughly 45 percent.
AT&T earnings rose to $3.4 billion, or 57 cents a share,
matching the average Wall Street estimate, according to Thomson
Reuters I/B/E/S. A year earlier it posted a profit of $2.5
billion, or 41 cents per share.
Revenue rose 2.3 percent to $31.25 billion compared with
analyst expectations for $31.26 billion, according to Thomson
Reuters I/B/E/S. Its results came the day before the scheduled
report of Verizon Communications.
AT&T is expected to surpass Verizon Wireless as the No. 1
U.S. mobile service if regulators approve its plan to buy No. 4
T-Mobile USA, a unit of Deutsche Telekom (DTEGn.DE).
AT&T shares were down 17 cents, or 0.56 percent, at $30.14
in midday trading on the New York Stock Exchange.
(Editing by Derek Caney and Steve Orlofsky)