AT&T revenue misses forecasts as more customers bring own phones

WASHINGTON (Reuters) - AT&T Inc on Wednesday reported a rise in quarterly revenue, but the increase was less than Wall Street expected as a wave of subscribers plugged into the network using pre-purchased devices.

The company cut its outlook for consolidated revenue growth for 2014 to 3-4 percent from 5 percent.

AT&T’s option allowing customers to bring their own devices has become popular this year, and analysts have worried the program may lead to less customer loyalty and a glut of phones in the market.

“People look at this and say, ‘Oh, I can do with my phone a little bit longer,” said Roger Entner, analyst at Recon Analytics in Boston. “It will depress demand for new handsets and puts all the devices in the market longer, which slows down the whole innovation process.”

AT&T said more than 400,000 subscribers brought their own devices when signing up for service this quarter, instead of purchasing one at an AT&T store.

“The value in our customer relationships is in providing good service to the network. The phones themselves are not profitable pieces of business,” Chief Financial Officer John Stephens told Reuters in an interview. “The issue many people don’t understand is that while we don’t have the equipment revenue, we also don’t have the equipment expense.”

Earlier on Wednesday, the U.S. Federal Communications Commission paused its informal “shot clock” deadline on the review of AT&T’s proposed $48.5 billion merger with DirecTV to decide how to handle highly confidential documents related to agreements with media companies.

In a call with investors, Stephens said the decision should not impact the timeline for the deal to close.

“This has nothing to do with the merits of the deal or any information we provided,” he said. “Today’s decision doesn’t change our view that we will be able to get the deal approved and closed in the first half of 2015.”

Faced with growing competition, wireless carriers have dumped two-year contracts and replaced them with equipment financing plans, which reduce service fees but eliminate subsidies for devices.

But the increase in customers bringing their own devices also reduced the number of customers signing up for equipment financing, weighing on revenue further.

AT&T shares fell 1.5 percent to $34 in extended trade after closing at $34.50 on the New York Stock Exchange.

The company reported a record low number of contract customer defections, but average revenue per phone user fell 8 percent from a year earlier.

AT&T added 2 million new wireless customers and 785,000 contract subscribers in the quarter. Wireless service revenue was flat while equipment revenue increased 44 percent.

The No. 2 U.S. mobile provider said on Wednesday that excluding items it earned 63 cents per share, a penny below Wall Street expectations, according to Thomson Reuters I/B/E/S.

Revenue rose 2.5 percent to $33 billion from $32.2 billion in the year-ago quarter.

Reporting by Marina Lopes; Editing by Chris Reese, David Gregorio, Bernard Orr and Leslie Adler