AT&T posted the results of a rather shocking fiscal 2012 third quarter Oct. 24. While a financial success, the nation's second-largest carrier added only 151,000 new postpaid customers during the quarter—a low it hadn't seen since 2003. Market leader Verizon Wireless, by contrast, added 1.5 million postpaid subscribers during its third quarter, it announced Oct. 18.
AT&T executives put some blame on limited supplies of the iPhone 5.
"We had a record number of iPhone 5 preorders and tremendous customer demand in the 10 days of the quarter that the device was available," Ralph de la Vega, AT&T's CEO of Mobility, told analysts on the call, "but we faced significant supply constraints on the iPhone 5 in the third quarter, which clearly effects our net adds."
(Investment firm Jefferies, in an Oct. 24 note, wrote that AT&T "received more than their fair share" of iPhone 5 units.)
AT&T's Mobile Share plans, which came later in the quarter than similar plans from Verizon, also shouldered some blame. While tiered pricing has disappeared from the Verizon site, AT&T still offers it to new subscribers, undoubtedly slowing uptake of the shared plans—though more than two million subscribers signed on for the shared plans in the first five weeks they became available, and even chose higher data allotments than AT&T had anticipated. Approximately 15 percent of those converts had even made the switch from unlimited plans.
Regardless, Verizon trounced AT&T during the quarter.
"AT&T sold 700,000 fewer smartphones than Verizon during 3Q12, despite AT&T increasing sales both year-to-year and sequentially," Eric Costa, a research analyst with Technology Business Research (TBR), said in an Oct. 24 note.
And while AT&T continued to see iPhones, with their high subsidy, comprise a higher percentage of smartphone sales, "Verizon succeeded with its even split between iPhone and Android smartphone sales, which also helped to keep margins high," wrote Costa.
To AT&T CFO John Stevens, the focus on how AT&T had added just a tenth of the subscribers that Verizon had managed was rather beside point, which was that AT&T had made money and kept all other markers pointing uphill.
In response to an analyst question regarding the matter Stevens remarked:
I understand the customer account issues and so forth, but I really want to make a point from simply a financial perspective, a finance guy's perspective. Revenue growth is 6.6 percent. Service revenue growth is 4.5 percent. ARPU growth is at 2.4 percent. And when you take out the data-only devices, ARPU growth is at 3 percent. What's not to like about a business in this economy that's growing revenue like that? Especially when things like churn are down and network build plans are ahead of schedule and the quality of [our network] continues to improve at a rapid rate? There's a lot of things to like here, and there's a lot of different metrics to look at.
While during the quarter AT&T did work at buying up Wireless Communication Services (WPS) spectrum for further Long Term Evolution (LTE) rollouts, for the most part it focused on driving data revenue growth and adoption of it shared-data plans.
Meanwhile, TBR's Costa pointed out, the rest of the industry was instigating major changes. Verizon completed its controversial deals with several cable companies for additional spectrum, T-Mobile and MetroPCS announced a merger, and Japanese carrier Softbank purchased 70 percent of Sprint for $20.1 billion, offering the financially strapped carrier a powerful cash injection.
"The result of these moves will be increased competition for AT&T as Verizon will extend its lead and the third and fourth largest U.S. operators will become more competitive," wrote Costa. "TBR's belief is that AT&T will make a move of its own in 2013 such as an acquisition of Leap Wireless or a deal with Dish Networks that will help create more separation between itself and Sprint."
AT&T's de la Vega suggested that, for now, AT&T's focus on data is working.
"Not only do we feel good about where we are, but I feel really good about where we're going," said de la Vega, explaining that AT&T now has the largest group usage-based subscribers in the industry. "You have to have that usage base in order to be able to monetize the data growth that we foresee in the future."