(Adds comment from CEO, analyst comment and details)
By Marina Lopes
WASHINGTON, July 23 AT&T Inc's quarterly
revenue rose a weaker than expected 1.6 percent as cheaper
service plans offered to customers who forgo subsidized cellular
phones cut into margins.
Faced with mounting pressure from competitors, AT&T has
unbundled service and device charges, and slashed its family
data plan and shared value plan prices as it tries to attract
customers in a nearly saturated market.
"What we saw happen throughout the second quarter were very
aggressive promotions by our competitors but all the while our
churn decreased," Ralph de la Vega, chief executive of AT&T
mobility, told Reuters.
"We are confident that what we saw in Q2 was part of the
transition we had to make to go from service to equipment
revenue in NEXT," he said, referring to a pricing plan that
allows customers to pay directly for their devices in exchange
for lower service pricing.
The plan has resulted in a lower average revenue per user,
but higher equipment revenue, as customers take on the majority
of the burden of paying for their devices.
Wireless service revenue decreased 1.4 percent in the second
quarter, while equipment revenue grew 44.8 percent.
AT&T expects two-thirds of its customers to be on the plan
by the end of the year.
"AT&T has quite aggressively moved its existing base of
customers in contract to the new plan. It is a fairly
predictable shift and over time it should be a positive one for
AT&T, but it has an unpleasant short-term impact on results,
said Jan Dawson, chief analyst at Jackdaw Research."
Chief Financial Officer John Stephens said on a conference
call with analysts that Brazil's antitrust regulator has
approved the company's $48.5 billion bid for DirecTV,
which has a significant foothold in Latin America.
The deal has been reviewed by state regulators but is under
review by the U.S. Department of Justice and Federal
The company maintained its free cash flow guidance of around
$11 billion for 2014, exceeding the $9.6 billion it needs to
meet its dividend target, which some investors have worried
could be unsustainable.
The No. 2 U.S. mobile provider said on Wednesday that
excluding items it earned 62 cents per share, one penny less
than Wall Street expectations, according to Thomson Reuters
In late trade, AT&T shares fell 1.1 percent to $35.47 after
closing at $35.88 on the New York Stock Exchange.
AT&T earned $3.6 billion, or 68 cents per share, compared
with $3.8 billion, or 71 cents per share, in the year-ago
Revenue rose to $32.6 billion from $32.1 billion in the
AT&T added 1,026,000 contract subscribers in the quarter,
beating Wall Street expectations of 841,000 customers.
(Reporting by Marina Lopes; Editing by Richard Chang, Bernard