AT&T profit rises on wireless sales

By Ritsuko Ando

NEW YORK (Reuters) - AT&T Inc (T.N) on Tuesday reported a higher quarterly profit on wireless growth, but a fall in traditional phone subscriptions accelerated and some analysts said the top U.S. phone company may be hurt by a weaker economy.

AT&T's first-quarter profit rose 21.5 percent to $3.46 billion, or 57 cents per share, from $2.85 billion, or 45 cents a share, in the same quarter a year earlier.

Profit before items, such as merger-related costs and severance charges for recently announced job cuts, totaled 74 cents and matched Wall Street expectations, according to Reuters Estimates.

Quarterly revenue rose 6.1 percent to $30.7 billion, compared with $30.6 billion expected by analysts.

AT&T shares were up 10 cents to $37.69 on the New York Stock Exchange.

But Stifel Nicolaus analyst Christopher King said he had expected stronger results from AT&T's wireless business.

"Overall, I think it was largely in line, but not a great quarter. And wireless net adds were less than expected," he said.

AT&T, the exclusive U.S. carrier for Apple Inc's (AAPL.O) iPhone, said it added 1.3 million net wireless subscribers in the quarter, compared to an average estimate of 1.32 million according to seven analysts polled by a Reuters reporter.

King had forecast 1.4 million new subscribers. He also pointed out that net additions of postpaid users, or those who pay monthly subscriptions instead of prepaid fees, rose by 705,000 subscribers, just 3.7 percent higher than in the year-ago quarter.

Postpaid subscribers are considered valuable as they tend to bring in more revenue per user. Analysts have said an increase in consumers with credit concerns -- amid rising unemployment and bankruptcies -- may be forcing more first-time subscribers to sign up for prepaid services.

"We're going to have to see what Verizon says next week. But I'm certainly a little concerned about the wireless side. That number of 705,000 in postpaid is essentially flat year on year," King said.

CONSUMER LINES

Both AT&T and rival Verizon Communications Inc (VZ.N) have banked on mobile phones for growth as traditional home phone users decline.

AT&T said primary retail consumer access lines fell 6.2 percent year-on-year, compared to a 4.9 percent decline in the fourth quarter.

Analysts say a weaker U.S. housing market and increasing foreclosures, in addition to a general consumer shift to wireless services and growing competition from cable services, may be accelerating that decline.