* Earnings per share $0.60 vs Street view $0.57
* Wireless margin rises to 41.6 pct from 28.7 pct in Q4
* iPhone activations fall to 4.3 mln from 7.6 mln in Q4
* Lower phone sales to weigh on handset makers
* AT&T; shares rise more than 3 pct, Apple falls 2 pct
By Sinead Carew
NEW YORK, April 24 (Reuters) – AT&T; Inc reported a
higher-than-expected quarterly profit on Tuesday, sending its
stock up as much as 4 percent, as a decline in iPhone sales
reduced the amount of cash it had to pay Apple Inc and
boosted its margins.
Apple shares fell almost 2 percent after AT&T; also said its
numbers should improve further in coming quarters when it
expects recent upgrade policy changes to temper smartphone sales
further.
U.S. wireless operators have long paid hefty subsidies for
smartphones like the iPhone with an aim to attracting new
customers and keeping existing customers happy. But AT&T; and
rival Verizon Wireless have recently been tightening their
policies to temper upgrades after they were both hurt by hefty
iPhone subsidies in the fourth quarter, when the latest model
hit stores.
While fewer iPhone sales meant weaker subscriber growth in
the quarter, it did help the company’s wireless profit.
Piper Jaffray analyst Christopher Larsen said AT&T;’s mobile
service margin of 41.6 percent had beaten his expectation for
39.7 percent. The margin, based on earnings before interest,
tax, depreciation and amortization, was 28.7 percent in the
fourth quarter and 39 percent in the year-ago quarter.
“One of the big things is they didn’t have such a big iPhone
refresh,” Larsen said, adding that AT&T; results were “pretty
good” across the entire company.
AT&T; noted that its margin was also helped by the fact that
the percentage of its customers using smartphones increased from
the first quarter of the previous year.
The more often AT&T; customers upgrade to a new iPhone, the
more it hurts AT&T; margins, because an existing customer does
not necessarily increase his or her spending, while a new
customer will automatically boost revenue.
AT&T; said it had activated 4.3 million iPhones in the
quarter, down from 7.6 million in the fourth quarter. In
comparison, larger rival Verizon Wireless, a joint venture
between Verizon Communications Inc and Vodafone Group PLC
, sold 3.2 million iPhones in the latest quarter.
GOOD FOR AT&T;, BAD FOR APPLE
Chief Financial Officer John Stephens told analysts on a
conference call that he expects a recent increase in upgrade
fees to start boosting revenue and delaying upgrades starting
this quarter. And in the second half of the year he sees a
another decline in smartphone upgrades because of a policy
change announced last year that aims to make customer upgrades
less frequent. This will start to take effect this year.
Analysts said there was some risk the new policies will
start to send customers to other operators but Stephens noted
that AT&T; is not any stricter than its rivals.
The policy change will not have a big impact on customer
defections “because its the norm,” Stephens told Reuters.
The percentage of AT&T; subscribers upgrading their handsets
fell to 7 percent in the quarter from 12 percent the fourth
quarter and 8.9 percent in the first quarter the year before.
Pacific Crest analyst Steve Clement said that while the
carrier policy change was bad news for handset makers including
Apple, the risk of customers leaving AT&T; because of the new
policy appears to be mitigated by the fact Verizon Wireless and
Sprint Nextel also allow less frequent upgrades.
“It will be interesting to see how folks react around the
next iPhone refresh,” Clement said, but added: “When it’s a
quasi coordinated move it definitely helps. It decreases the
competitive risk.”
AT&T;’s net income rose to $3.58 billion, or 60 cents per
share, from $3.4 billion, or 57 cents per share, a year earlier.
Analysts on average had expected 57 cents per share, according
to Thomson Reuters I/B/E/S.
Consolidated revenue rose nearly 2 percent to $31.8 billion
from $31.25 billion.
The No. 2 U.S. mobile provider added 187,000 subscribers in
the quarter, which was roughly in line with expectations for
193,000 from six analysts surveyed by Reuters. This was much
fewer than Verizon Wireless, which reported 501,000 net
additions last week.
AT&T; shares were up $1.18 or 3.9 percent at $31.79 in
afternoon trading on the New York Stock Exchange. Apple shares
were down $11.28 or 2 percent at $560.42 on Nasdaq.
