AT&T Reports Record Smartphone Sales, Higher Profits in Q3

AT&T's revenue and profits were up as it reported record-setting third quarter smartphone sales. But postpaid subscriber additions were an issue.

AT&T announced the financial results of its 2013 second quarter Oct. 23 while focusing on the particular successes of its Project Velocity IP (VIP) and U-verse efforts.

"I don't think there's a better wireline growth story in the industry," said AT&T CFO John Stephens, announcing that the TV and high-speed Internet service passed the 10 million user mark and recording its first billion dollar revenue month.

"Project VIP has allowed us to take this platform to a whole new level," Stephens said. He added that AT&T's LTE rollout is ahead of schedule and on track to cover more than 300 million people by year's end.

For the quarter overall, AT&T announced operating income of $6.2 billion on consolidated revenues of $32.2 billion.

On the wireless side, AT&T announced the addition of nearly 1 million subscribers, while still acknowledging that it has a bit of work to do in holding on to value-focused customers, an area where rival T-Mobile, with its "un-carrier moves," may be nibbling at its heels.

"There are customers who are price sensitive who are looking to [other carriers]. ... I view this as a normal, competitive process," Stephens said. "With a great network and great customer service, we're going to be able to work through this quite quickly."

The carrier lost 285,000 subscribers, which it described as primarily low-revenue, 2G accounts.

"As everyone knows, we have to repurpose that [2G] spectrum anyway," Stephens said.

AT&T, like its rivals, is working to move as many customers as possible to its more efficient 4G LTE network. When everyone is transitioned off the 2G network, Stephens said earlier on the call, AT&T will be able to repurpose that spectrum for more lucrative purposes.

AT&T sold a record 6.7 million smartphones during the quarter. Stephens said there were "supply constraints," but he didn't dare breathe the words Apple or iPhone 5S. Furthermore, smartphones accounted for 89 percent of postpaid phone sales during the quarter, he said. The majority of those, however, were upgrades from current customers.

Postpaid subscriber additions during the quarter were 363,000, which was twice as many as a year ago, but down from 551,000 the quarter before.

New additions of tablets and connected devices—an increasingly broad category, as AT&T invests in its Digital Life offering—totaled 719,000 during the quarter, helping to boost AT&T's financials where new customer numbers were lagging.

AT&T introduced Mobile Share plans nearly a year ago, and AT&T said 16 million subscribers, or more than 22 percent of its postpaid subscribers, are now on Mobile Share. (Verizon, which added shared-data plans within weeks of AT&T, said in its Oct. 17 earnings announcement that 42 percent of its postpaid subscribers are now on a Share Everything plan.)

Twice as many AT&T subscribers—50 percent—remain on the tiered-data plans.

Stephens repeatedly claimed during the call that AT&T is the "nation's most-reliable network" and that several sources have said its speeds are the fastest. More than boasts, the comments seemed barbs aimed at T-Mobile, which has been casting doubts about such claims.

T-Mobile CMO Mike Sievert, during a call earlier the same day to announce T-Mobile's offer of 200MB of free data for tablet users each month, told the media that, "Our network is faster than Verizon's, faster than Sprint's and faster than AT&T's in 10 of the top 20 markets."

Stephens completed the call saying, "We delivered solid wireless gains; we continue to make significant progress in U-verse; ...our Project VIP expansion continues to bring us even more opportunity, and we are setting the bar on network performance."

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