Apple iPhone Activations Buoy ATandT Q2 Earnings

AT&T announces the results of its fiscal second quarter, in which it saw revenue of $30.8 billion, net income of $4 billion and activations of 3.2 million Apple iPhones-a mobility record for the carrier.

AT&T's second-quarter numbers once again highlight the importance of the Apple iPhone to AT&T's bottom line.

During the quarter, which closed June 30, AT&T saw consolidated revenue of $30.8 billion-up 0.6 percent, or $194 million, from a year earlier-and net income of $4 billion, the company announced July 22.

Getting in before the quarter closed, Apple launched its long-awaited new smartphone, the iPhone 4, on June 24, helping AT&T set a company record, with 3.2 million iPhone activations during the quarter.

AT&T officials said preorder sales for the iPhone 4 were 10 times higher than first-day preorder sales of the iPhone 3GS in 2009. Of those 3.2 million iPhone activations, according to AT&T, 27 percent were for new customers.

AT&T has come under fire for the performance of its network, which has strained to meet the needs of so many data-hungry iPhone users. AT&T Chief Financial Officer Rick Lindner said during a conference call with analysts that the carrier was "moving heaven and earth" to execute improvements to the network, especially in New York and San Francisco, which have been particularly challenging areas.

In New York, the carrier's efforts are approximately 90 days ahead of those in San Francisco, and during the quarter 3G dropped calls were down by 23 percent in Manhattan and 13 percent in the New York metro area. Additionally, blocked calls were down 39 percent in Manhattan, and in the New York metro area, 3G download speeds increased by 31 percent over the last six months.

There have been rumors for some time that competitor Verizon Wireless will also begin carrying an iPhone, but analysts have lately begun discussing it as a done deal. A Verizon iPhone is expected to arrive most likely at the start of 2011 to spearhead Verizon's planned 4G LTE (Long-Term Evolution) network. Losing the competitive iPhone advantage it has had over its fiercest rival won't be easy for AT&T, analysts agree, although AT&T in its revenue statement pointed out that its business isn't solely driven by the iPhone.

Organic net gains in total wireless subscribers during the quarter were 1.6 million, boosting AT&T's customer base to 90.1 million. This growth, according to the company, reflects an increase in prepaid subscribers, the "rapid adoption of smartphones" and the growth of a "host of connected devices such as e-readers, global positioning systems and alarm-monitoring systems." Postpaid 3G integrated devices-phones with QWERTY or virtual keyboards-were up 2.9 million, to 29.7 million, an increase of 98.2 percent year over year. By the end of the quarter, 53.2 percent of AT&T's 67 million postpaid subscribers were using integrated devices.

Additionally, AT&T's U-verse television services saw their first billion-dollar revenue quarter, following 32 percent growth in wire-line consumer IP data revenue.

Lindner also emphasized the success AT&T is enjoying with the Apple iPad-which, unlike the iPhone, has had no trouble quickly ingratiating itself with both consumer and enterprise customers.

"When we first introduced the iPhone, businesses, and in particular CIOs, were reluctant and kind of pushed back," Lindner said, adding that things have since evolved and companies are now developing their own applications for the iPhone. "Well, right from the beginning with the iPad, we've had a number of our business customers express interest-a number of them have trials going on, and they see a lot of opportunity to use the iPad within their business."

In closing, Lindner said he was "fundamentally positive" about AT&T's long-term position. As for the rest of 2010, he was still positive but cautiously realistic.

"We've had two very strong quarters to start the year with double-digit earnings growth. As you know, it's a volatile environment out there and we can't commit to ... double-digit earnings growth each quarter," he said. "But the first half of the year has given us confidence and visibility into what we can do both in terms of revenues and margins in the second half, and I think we'll continue to post strong earnings growth in the second half of the year."