AT&T profit rises on wireless, iPhone disappoints

By Ritsuko Ando

NEW YORK (Reuters) - AT&T Inc. (T.N) on Tuesday posted a higher-than-expected quarterly profit on strong wireless subscriber growth, but failed to excite investors as the first two days of iPhone sales fell short of forecasts.

AT&T, the sole U.S. service provider for Apple's first phone, said it activated 146,000 iPhone subscribers in the first two days after launch on June 29.

"They likely sold many more phones than they activated," said Cross Research analyst Shannon Cross. "That being said, the Street was probably around 250,000, so it's maybe a bit light."

AT&T shares were mostly flat in afternoon trade, but shares of Apple Inc. (AAPL.O), which makes the eagerly anticipated device, were down about 2 percent.

AT&T, the top U.S. telecommunications service provider, said second-quarter net profit rose 61 percent to $2.9 billion, or 47 cents a share, from $1.8 billion, or 46 cents a share, a year earlier.

On an adjusted basis, which excludes costs and accounting effects from acquisitions, profit rose to 70 cents per share from 58 cents per share. That beat the average analysts' forecast of 67 cents, according to Reuters Estimates.

Revenue rose to $29.5 billion from $15.8 billion. It bought BellSouth Corp. late last year, consolidating ownership of their Cingular Wireless venture.

Adjusted revenue, which combines sales from AT&T, BellSouth and Cingular Wireless in both periods, rose 2 percent to $29.8 billion, in line with market expectations.

But investors focused on the iPhone data.

Pacific Crest analyst Andy Hargreaves said he had expected 400,000 iPhone sales for the first two days on the market, but added that sales figures for coming months would be more telling.

"The difference (between sales and activations) is going to be what was sold on eBay or activations that didn't happen immediately," Hargreaves said. "There were some problems with activations, but from what we heard it was minimal."

AT&T, which has sought to win over subscribers with the phone that also plays music and videos and surfs the Web, said that more than 40 percent of activated iPhone accounts came from new customers.

WIRELESS GROWTH

Soleil Sur Terre Research analyst Todd Rethemeier said the market might have expected too much from the iPhone, which was only on sale for two days in the quarter.

"The wireless numbers overall were decent," he said.